Monday 6 November 2006

NASDAQ vs Dow Jones Shows The Way

Emini-Watch.com its back after a short break. Strong bounce today confirming NASDAQ strength last week. The Emini closed up 15.25 points at 1,383.75 on Monday. Although the market fell all last week, we got signs of strength from the leading index on four of the five days. The question is now will the advance continue?

Emini Nasdaq Dow Divergence Image

The Emini action today was all about large numbers. The open at 1,373.00 was 4.5 points above Friday's close. The range was well above average at 14 points. After the open the Emini shot ahead in the first 45 minutes then continued to grind higher all day to reach a high of 1,386.50 and eventually close a couple of points off the high at 1,383.75  - up 15.25 points.

The only average number was the total number of contracts traded at about 1 million. This more normal volume number is not a real worry.  If it were excessively high it would show professionals exiting as the market rose. However, at this level it represents consistent participation.

NASDAQ strength against Dow

The Emini chart above shows Dow versus NASDAQ divergence patterns superimposed. On Monday and Tuesday of last week, the NASDAQ rose while the Dow fell. This pattern is shown with red dots on the Emini daily bars. Later in the week, on Thursday and Friday, the Dow and NASDAQ both fell, but the Dow fell more. This pattern is indicated on the histogram chart below the daily bars with red, negative bars.

Over the last few weeks the NASDAQ has lagged the Dow. This led to profit taking and some rebalancing. Followed by a down week with the NASDAQ showing greater strength than the Dow for a change.

Emini trend up but choppy

All Emini trend oscillators have now turned up:

  • Trading Index (TRIN) oscillator
  • My Secret #2 oscillator, based on the open and close prices
  • My Secret #3 oscillator, based on Smart Money

A number of stock market and macro economic commentaries I read are turning very bearish on the US economy. We appear to be entering a period of diverging views - with the market continuing to make gains, while forecasters see trouble ahead. Although the trend appears to be intact and the Emini is within 10 points of the last high, anticipate some consolidation after today’s large range and choppy market conditions ahead.

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Filed Under Nasdaq & Dow Jones

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