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Wednesday, February 13, 2013

Should Traders be Concerned About the Nasdaq’s Bearish Key Reversal?

 While the Dow smashed to new highs, the junior index fell


Trade of the Day Chart Key
The Dow’s tight bull channel has resulted in its highest close in five and a half years. The impressive advance from the November lows took a short breather last week, trading sideways until Tuesday’s break from a small flag formation (not shown). Even though its MACD flashed a cautionary sell signal, the advance will most likely continue. 
What can I say about the Nasdaq’s behavior, except that it is annoying! Instead of smashing to a new high, the junior index fell Tuesday and registered a bearish key reversal. But the trading was light, and advancers exceeded decliners by a healthy margin. For now, let’s just consider this signal as a minor setback and expect the index to overcome the resistance at 3,197.
Conclusion: Trading slowed Tuesday in anticipation of the president’s State of the Union message. Wall Street has been wary of more of what it considers “anti-business” policies from the speech, thus positive surprises could lead to a broad breakout.
This is being written before the speech, so I can only guess what could occur. As noted, any programs that are viewed as stimulating for jobs and increasing productivity could pop the indices to new high ground. But if the advance is too strong, traders may want to cash in some of their gains. As I’ve been saying, all corrections should be viewed as buying opportunities.
I’ve run out of time in today’s Daily Market Outlook, and so, as promised, I will provide examples of topping formations in the near future. ...

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