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For Now, Ride the Wave With Nasdaq

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Stay with current long positions and don't initiate new longs yet.

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Technical Relevance

Bonds gapped lower and traded near some very short-term price support, but then rallied to finish the day only slightly negative (modestly higher yields).

Stocks gapped lower Thursday but then rebounded sharply and traded higher throughout the day to finish just off the highs of the session. The S&P finished the day at the lower end of the resistance range I highlighted yesterday at 1141-1146.

Commodities
lost some ground but no technical damage was done Thursday as gold and oil saw some profit-taking and natural gas reacted bearishly to its inventory report.

The US Dollar Index
was modestly lower Thursday, but went nowhere near the 77.47 support (a bullish change after days of testing support).

This morning: Japan was up more than 1% leading most other Asian and European markets higher overnight and into this morning. US equities are mixed following the all-important monthly employment report. The indexes have rallied from the lows, with the NASDAQ actually higher as of this writing. The US dollar has been in a state of flux today as evidenced by the DXY, which opened lower by more than 0.5%, then rallied by more than 0.5%, and has since moved lower again. The dollar index has ranged from 77.40 to 78.19 this morning in a very volatile session. Gold and oil experienced some more profit-taking this morning, perhaps due in part to uncertainty over the direction of the dollar; since noon the commodities have rallied on further DXY weakness.

Economics:
The monthly employment report came out at 8:30 a.m. and showed lower-than-expected numbers for last month; click here for complete rundown of economic releases including actual versus estimated data.

Market Internals: NASDAQ

(Figures are rounded)


Key Charts

NASDAQ Composite Index on a Monthly and Daily Basis:

Monthly NASDAQ Chart


Click to enlarge

  • Based on my work, the NASDAQ is in the latter stages of wave iv of v of wave C of an ABC expanding flat correction.

  • I'm staying with that wave count unless and until we see a monthly close above the 2,271.48 level -- this just may be the month. Obviously, the upside run in the first couple of trading sessions this month has vaulted the NASDAQ over both the 2,271.48 and the 2,292.68 -- the 61.80% Fibonacci retracement level (based on the closing levels on a monthly chart). Time will tell whether the breakout holds.


Daily NASDAQ Chart


Click to enlarge

  • The daily chart of the NASDAQ gives us some more detail. It shows that the 100% Fibonacci projection line for the ABC correction comes in at 2,339.90 -- a little more than 1% above Thursday's close.

  • Is it possible that we see a test of that level in the near term with a sell-off back below the critical monthly breakout levels by month's end? Again, only time will tell, but it would seem like the perfect head-fake for a market that loves to suck people in and then pull the rug out from under them.

  • If the bears don't dig in and hold their ground -- especially between here and the 2,339.90 level, the market could get away from them pretty quickly. So, the next few days could be telling as to the intermediate-term direction of the market.


Strategy: Stay with current long positions in the NASDAQ and related holdings. New longs shouldn't be initiated until we get verification by either a confirmed breakout above the 2,339.90 level on a daily basis or a monthly close above the 2,271.48 level. If either of those levels is broken, then I'd advocate getting long the QQQQ's or the technically-strongest stocks in the NASDAQ.

No positions in stocks mentioned.

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