NDX Non-Confirmation

Here is some solace for the bears:

The NASDAQ-100 and Dow Jones Transportation Average failed to take out their rally highs. To follow the drama overnight, draw this line on a 60-minute chart of the NQ, the NASDAQ-100 futures (click to enlarge):

As you can see, the red line connects the last three peaks, and the NQ closed below the line at 4:15pm. So, the resistance in the 2025 area is something the bears can pin their hopes upon.

Also, look at the Fractal Dimension Index down at the bottom. The blue arrows are pointing to an end-of-trend signal. Now look at the green arrows; they are pointing to a similar signal that occurred at the peak on September 28th. So, maybe this surge is done. Of course, the Bank of Japan is flooding the world with yen and inflating everything in sight, so who knows?

A big part of the reason why the NDX couldn’t take out its rally peak of 2029.65, was, believe it or not, Apple. Here is a 15-minute chart of AAPL:

Apple came up short of its 290.00 resistance level, which as the red arrows show, has been a serious problem for AAPL since its mini flash-crash on September 28th.

So, there you have it: NQ drama overnight, and AAPL drama for tomorrow.

Stocks certainly celebrated the Bank of Japan’s move last night, but you have to admit, it’s a bit unnerving when the world’s central banks start acting all crazy, is it not? After all, it was Jean Claude Trichet’s “let it burn” attitude toward Greece that caused the Flash Crash on May 6th. And that was just words. Now, central banks are doing crazy things.

Of course, the CB’s are doing the opposite now – competing with each other to flood the world with money, rather than being miserly like Trichet back in May. Nevertheless, when the world’s most powerful economic institutions start punching each other in the face, I’m guessing that the odds for something to go very horribly wrong are elevated.

On May 6th, we had hysteria amongst investors. Today, we have hysteria amongst central bankers. And that just can’t be a good thing.

42 Responses to “NDX Non-Confirmation”

  1. The gooch says:

    It really makes you wonder WTF will happen to equities with CBs trying to inflate everything in sight. The worst part is that Joe 6-pack is likely out of equities and will only be more of a saver after seeing what he lost by getting out of mkt.

    QE should be a crime bc the CBs are basically stealing our money via robbing us of our purchasing power. This really infuriates me.0

  2. 2thfixr says:

    Amen gooch….we’ve been robbed and never even saw a knife or gun to make us hand over the dough. If we’re all Billionaires, but it costs a trillion to buy dinner, are we still rich?

  3. junglegirl says:

    In addition to watching waves and the up-channel for Sept/Oct, we may also have possible small broadening patterns (topping formations) on the SPX and INDU using the following:

    9/27 high as point #1
    9/28 low as point #2
    9/30 high as point #3
    10/4 low as point #4
    and 10/5 made a third high (could still go up more, of course).

    Wednesday POMO, so who knows. Broadening tops also sometimes make a 4th high. Just throw the pattern out there as something else to keep an eye on. GL.

    Matt, like the Fractal Dimension Index. Thanks for posting it.

  4. after says:

    spoos up a few.
    argh

  5. after says:

    spoos up 2.5
    obviously rooting for the non-confirmation here -g-

  6. 2thfixr says:

    Phil’s sentiment index is flashing a buy signal, although it seems a bit muted compared to past signals. What do you think Phil?

    Agree Matt….enjoy the FDI as it seems to be an under the radar indicator compared to RSI, MACD, stochs, etc…

  7. admin says:

    The red line on my chart above held the futures back overnight, so that worked out well. This morning, AAPL caught an upgrade and briefly traded above $290 in the pre-market so far.

    JG – Yes, I see those megaphones. They could be important, though they are not as well-formed as the ones that we had at the April peaks.

  8. George says:

    A day without a gap?

  9. George says:

    Several pieces of bad news this AM. That should propel the market higher. :)

  10. George says:

    Bad news is perceived as good news to the market because the Fed will step in and throw QE at the problem(?)

  11. George says:

    I mean, throw a TARP over the problem. :D

  12. admin says:

    The IWM has a megaphone pattern on its 5-minute chart starting from about 3:30pm yesterday.

  13. phil says:

    bought the small dip this am

    back long again schx

    in a “muted” kind of way

  14. George says:

    SPY finally pierced the upper resistance line of the daily gap it filled. On its way to the Martian gap?

    http://i52.tinypic.com/11c5mac.jpg

  15. after says:

    unloaded qqqq puts @ .50, the 49ers from yesterday…

  16. admin says:

    after,

    Beautiful trade. You couldn’t have timed it more perfectly.

    Matt

  17. George says:

    TNX gapped down today. Could be a good entry. Watching TBT for a breakout – one day.

  18. George says:

    WTG after. Hit them balls out of the park.

  19. phil says:

    g

    on the phone again selling 10 yr notes

    almost all gone now,,, maybe 275 K left

    this has to be near the bottom george……what do you think??

  20. George says:

    p

    If not a bottom, it sure is close. There may be a false breakout or two or some basing/consolidation action and if/when those happen, we’ll know.

  21. George says:

    TNX down -1.06. BTW, TBT gapped down intraday.

  22. phil says:

    g

    great bond prices today!!

    my ears are RED HOT

    going to sell a little more .

    .getting too euphoric

  23. George says:

    p

    Ha, that’s something to get excited about for sure.

  24. phil says:

    buying back SCHX on every dip

  25. phil says:

    now 20% long

  26. phil says:

    looking for a nice spike down to buy more

  27. phil says:

    40% long

  28. phil says:

    naz fut look sick

    took 1/2 profits

    20% long now

  29. George says:

    Everything looks sick when it’s consolidating like this. Inchworms move faster.

  30. George says:

    Can’t have a nice counter move with everyone buying the dips. They may give in about 5min before close.

  31. Robo says:

    admin says:
    October 6, 2010 at 9:22 am
    JG – Yes, I see those megaphones. They could be important, though they are not as well-formed as the ones that we had at the April peaks.

    What is KOL telling us? I thought some here might enjoy this chart. I’ll be watching this. I’m still short.

    Good trading to all!

    http://etfstocks.typepad.com/

  32. George says:

    Robo, nice link. Tks

  33. George says:

    There’s the litlle splurge down. Not much so far. Dig that ditch, tote that bail, buy them dips. :)

  34. Robo says:

    I am not afraid to sell short where it is warranted, but believe me, short selling is an art in itself and it requires even deeper research and, at times, nerves of steel.

    –X.Y. Zebra, “Silicon Investor”, August 21, 2001.

  35. George says:

    I reckon no sell-off this month in preparation for the elections. That’s okay. The first part of November should bring some good volatility.

  36. George says:

    A doji day and it showed it intraday. Waterboarding would be a less punishment. :D

  37. after says:

    thanks, Matt, for your 11:35 post.
    looking forward to the next update !

  38. Robo says:

    This rally reminds me of 2007…..

    “Buy high and sell low” happens when investors get stuck in a ruler analysis mode.

    People want to wait until others provide confirmation an investment is sound.

    By that time prices have gone up.

    They end up buying high–toward the end of Stock A’s price increase.

    John Bogle, the long-time chairman of the Vanguard Group, testified before Congress in 2004 about the phenomenon.

    He calls it a “timing and selection penalty”.
    Shareholders have paid a heavy timing penalty, investing too little of their savings in equity funds when stocks represented good values during the 1980s and early 1990s.

    Then, enticed by the great bull market and the wiles of mutual fund marketers as the bull market neared its peak, they invested too much of their savings.

    Second, because they have paid a selection penalty, pouring money into “new economy” stocks and withdrawing it from “old economy” stocks during the bubble, at what proved to be precisely the wrong moment.

    The result of these two penalties: While the stock market provided an annual return of 13% during the past 20 years, and the average equity fund earned an annual return of 10.3%, I estimate that the average fund investor earned just 3% per year.
    It may not surprise you to know that, compounded over two decades, the nearly 3% penalty of costs is huge.

    But the penalty of character is even larger–another 8 percentage points.
    1.00 compounded at 13% grows to 11.50; at 10%, to 7.10; and at 3%, to just 1.80.

    A profit of just eighty cents.

    –Catherine Shenoy and Kent McCarthy, Chapter 1, How University of Kansas Students Generate Alpha to Beat the Street, 2008.

  39. George says:

    Robo,

    Nice article.

    I’ve had problems early on with my trading but never getting in too late. I’m a contrarian by nature and I like to see the extreme swings, knowing they will be opportunities down the road.

    I’ve focused on good entries with my trading method: I’d rather be early and wrong rather than late and wrong, i.e., being wrong for the right reason.

    I’d like to read that book. I’ll see if it is available.

    Thanks

  40. Robo says:

    George,

    I’m early most of the time and this time it has cost me a bunch in a percentage basis. However, my Risk Management Criteria keeps all short positions very small these days, so I haven’t lost much money.

    For the record I haven’t read that book, but read the comments from a daily newsletter. The writer was also talking about the current market prices and how bubbles are currently forming. Some investors are just now piling in and buying gold, silver, and Emerging Markets at these prices. I think it will all end badly and soon. BUY -BUY-BUY….with not much fear! Don’t worry the Fed has our back.

    The comments below are from 2008 and I bought that dip….I’ll need to see a large pull-back before I buy the next dip. I’m hearing the same crap on CNBS… “Little downside from current levels in the US stock market”.

    June 25th, 2008. Little downside from current levels in the US stock market.

    Sent: Wednesday, June 25, 2008 12:31 PM

    Subject: Special Alert: DJIA Timing System 100% Long at 11,863
    Dear Subscribers,

    As implied in our weekend commentary, we have now shifted from a 50% long position to a 100% long position in our DJIA Timing System ….we believe that there is little downside from current levels in the stock market.

    Good trading!

  41. 2thfixr says:

    As I keep hearing on financial news and blogs:

    “This time is different.”

    Every time I hear that, I wait for the inevitable reversal. This one has been quite resilient up to this point…maybe it really “is different” this time? lol Nah, just Bubble 3.0.

  42. Robo says:

    Don’t worry – BUY,BUY,BUY!

    Assets in exchange-traded funds listed in the U.S. climbed to a record high in September of $906 billion as the investment category saw net inflows of $27 billion for the month, the largest since December 2008, Birinyi Associates Inc. said Wednesday.
    Year-to-date inflows to ETFs through September totaled over $75 billion, the National Stock Exchange said earlier this week.
    Notional trading volume during September in exchange-traded funds and notes was $1.3 trillion, representing 30% of all U.S. equity trading volume, it added in its monthly ETF update.

    –John Spence, “ETF Assets Top $900 Billion For First Time”, MarketWatch.com, October 6, 2010.