Nasdaq Composite – 8/27/2013
Due to some of the recent market turmoil, I wanted this next update to focus on an index chart. Let's start with a 1 year daily candlestick chart for the Nasdaq Composite to take a look at the recent downtrend it has been going through.
The Nasdaq seems to be following a very similar pattern when compared to the previous gap-up and correction. I try to find patterns that replicate themselves as replicating patterns tend to occur quite frequently with all of the computerized trading that takes place in todays market. Usually the patterns come close to replicating, but there is usually some sort of interesting twist to make it slightly different. Regardless, look for the gap-up area to provide support for this current downtrend, similar to the prior example highlighted on the above chart. If the gap-up area is broken through to the downside on heavy volume, that could signify a larger downtrend could be in play.
Now, since Think or Swim has trouble with the volume on some of the indices' charts, I had to print a 1 year Nasdaq Composite chart from Investors Business Daily (the same time period as the above chart) in order to analyze the volume in this current downtrend. Talk about an inconvenience!
For reference purposes, I identified the purple gaps from the prior chart with arrows.
Notice on each of the prior downtrends of a significant nature that each one has at least one or more red volume spikes? This is indicative of selling or distribution taking place. Now take a look at this current downtrend - this current downtrend in the Nasdaq is lacking any selling pressure. The volume on the charts for the Dow Jones Industrial Average and the S&P 500 Index appears very similar to the Nasdaq's chart (meaning no "selling" pressure). However, the Nasdaq is currently the only index that is above it's 50 day moving average - both the DJIA and the S&P 500 are currently below their 50 day moving average lines (yellow line) and approaching their 200 day moving average lines (orange lines) as seen in the next set of 1 year, daily candlestick charts.
Being above the 50 day moving average line, the Nasdaq appears to be in the best shape of the 3 indices that I've looked at. From an Elliott Wave perspective, the downtrends on all 3 charts appear to be a couple days short of completing a 5 wave impulse wave to the downside. I will be monitoring the upcoming bounce/rebound to try and determine if a new 5 wave impulse wave is forming to the upside, or if the index appears to be forming a corrective b wave. Review the basic Elliott Wave formation here.
Based on the very first chart of this update, it appears that the downtrend should be coming to an end soon. I will be monitoring the daily candlesticks at the end of each day to look for reversing candlesticks, such as hammers, piercing patterns, engulfing patterns and morning stars.
Making money in the market is not easy. If it was, then everyone would be doing it. It is during these times when purchases near support areas tend to pay the biggest dividends. Each of my last updates for AAPL, SIRI, FB and DDD have support areas identified in case of continued market weakness, just like we are experiencing. It may be a good time to revisit the last update or two for whatever stock you are interested in.