Wednesday, June 04, 2008

Still room for upside in the Nasdaq

I was back messing about with the ratio of Nasdaq stocks above their 200-day MA relative to those over their 50-day MA. This picture tells a different story from the precarious nature the daily charts give. Unlike many indicators, market reversals don't occur at peaks and troughs in this ratio, but instead occur in a middle band where the direction of entry of the ratio (from above or below) dictates whether the Nasdaq will make a bottom or top.

The three bands marked represent reversal zones for tops (red) and bottoms (green) with the mid-band (blue) showing where these two levels overlap. It is clear this ratio is well inside bottom territory and isn't close to challenging the blue mid-band which frequently marks the level at which the Nasdaq peaks. Sizable divergences occur at ratio highs and lows, but these offer little practical use.



Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website
 
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