Monday, April 20, 2009

Nasdaq Confirms Double Bottom - 200 Day MA Next

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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On Friday Nasdaq confirmed it made a double bottom in November and March. While this doesn't mean that we are out of the woods yet, it is another positive sign for continual bullish market action for the next several weeks. The other market indices have not created any recognizable bottoming pattern, although it looks like reverse head and shoulders patterns are in formation. Look for the market indices to go to their 200 day moving average, always a major area of resistance in a bear market rally. A move down when that point is reached is almost inevitable, although some minor piercing on the upside is possible.

Nasdaq's high after the November sell off was 1666. This is the neckline for a possible double bottom. Nasdaq then hit a slightly lower low in early March than it had in November (a double bottom with the second bottom lower is a more bullish pattern). Its high on Friday was 1682, above the neckline. No matter how visible the double bottom is on a chart, the pattern isn't completed until the neckline is broken. This is a buy signal. You would now like to see prices higher than 1682 being reached in the next several days for more confirmation.

The 200-day moving averages should now act as magnets for the market indices. For Nasdaq, the 200-day is currently 1780, less than 100 points higher. For the Dow, it is 9210 and for the S&P 500, 980. All of the 200-day moving averages are falling, so keep this in mind. My current guess is that they will all have to be hit. If this is the case, the Nasdaq is likely to go above its 200-day, while waiting for the more laggardly Dow and S&P 500 to catch up. The tech heavy Nasdaq has been leading the market on the upside for sometime now. If you look at charts for individual tech stocks, you will see many bottomed in November and didn't come close to making a new low in March.

At the moment, the stock charts are much more bullish than the picture being painted by the financial media. The charts tell you what people are actually doing in the markets, while the mainstream media usually tells you fanciful stories of what it thinks is happening, and even then it's mostly only half the story. Most people let the media guide their investing decisions, either consciously or unconsciously - and most people never make any money in the markets. The two are not unrelated.

NEXT: Look for the Gaps

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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