Thursday, May 22, 2008

Important test for the Nasdaq

Four days ago I was talking about the break of the 200-day MA on strong money flow. Today it's about a test of March-April support with money flow shrinking fast.

When the index created the second reaction low in April it coincided (somewhat) with a test of the 50-day MA. Another test of this average would see a new trendline develop, but it is by no means certain.

The other point of interest has been the continued weakness in the Dow Bullish Percents. May 8th saw an intermediate 'Sell' trigger which wasn't reversed when the index made its second challenge on the 200-day MA. Keep an eye on Fib retracement levels for the breadth indicator (and how it reflects on the parent index):

More downside looks the more likely option in the near term.

Declan Fallon is developing trading strategies, market indicators and sentiment tools for Zignals