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The Morning Cup of Jo


He's not talkin' 'bout me, is he?


Yesterday morning I talked about the ST (Short Term) and IT (Intermediate Term) trends of the SPX. What I should have done was used my crystal ball and talked about the Nasdaq first. What a day it was for the technology-laden index - one that could, and should, bring many questions to the forefront of many investors' minds. As we Buzzed & Bantered all morning about Intel Corp. (INTC:NASD) and the Nasdaq support, the market started showing signs of investors going home. INTC most definitely started the parade, but it wasn't the most prevalent float - all the horsemen joined in.

By noon the Nasdaq had broken the 50-day MA and completed an attention-grabbing chart pattern when it broke 2012 - Inverted Cup & Handle. Not only did this pattern come to fruition in spades but it also broke an 11-month IT trend. At the close of market the volume read 1.9 billion shares and retraced all the gains for the year.

Let's take a look...

One issue that will be seriously debated by Techies (Market Technicians) for the rest of the week will be the volume, or lack thereof. There are two definitive sides to this conundrum. One camp believes the market has to show exuberant volume to break down through support, otherwise it'll just come right back above the trend line. The other camp says any break of support is a legitimate break. They look at it like this... fewer investors are committing money to the demand side therefore the volume is more likely to be lighter on downside breaks. Psychologically, the majorities are more willing to hold on the way down, than they are willing to sit on the side as the market goes up.

Whatever the case or whichever camp you subscribe to, ya gotta take yesterday's action and listen up because the market's talkin' and we need to hear what it has to say.

On another note, when something like this occurs, the big question always arises, "How far do you think it will go?" Here's a little tactic many traders use to help determine the answer. The depth of the pattern plus or minus the breaking point can be used as a generic rule of thumb.

For example, look at the Inverted Cup & Handle on the Nasdaq and you'll see the top of the cup is at 2153. The break at the neckline was at 2012 and gives a 141-point depth. Subtract this from the breaking point and you'll get 1871. Coincidently, as the days go on, this should almost correspond directly with the 200-day moving average. What a great place for possible support.

Boo's jumpin', Hoofy's snortin', and Sammy's bein' cool and collected as usual but has certainly lightened up his positions in tech.

P.S. I'll be out all day so I won't see ya on BB until tomorrow.

Until next time...


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No positions in stocks mentioned.

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