Last week I broke a couple of ribs at a mountain bike race that I attend on a weekly basis. I was having one of my fastest times ever on the course, feeding off of the momentum of a very quick starting pace. That momentum was exciting while it lasted, but just like a high flying stock, such excitement can end when one bad move is made. The photo here is one of me in BC last year on my annual epic riding pilgrimage with my brother.
Just like a momentum stock, sometimes when you move too quickly in a bike race you can get ahead of yourself and fly off the track/ trend line. The Nasdaq illustrated such Momentum through 2013. By March of this year it flew off the track in a similar way to my mountain bike.
By looking at the daily chart above, we can see that the NAZ held its February trough/technical support at around 4000 after its March-April correction. Interestingly, it has held support quite well, testing 4000-4050 throughout April near the 200 day MA. A nice breakout in mid-May completed what looks to be a triangle consolidation. Such a breakout is normally pretty bullish, but the volume is a bit low for a two thumbs up market outlook right now.
In order for my ribs to get better, I have to take it easy for a while. But the base is there for me to return to competitive cycling – let alone any type of activity – in a couple of months. Similarly, the Nasdaq may stall out and consolidate at old resistance highs in the 4300-4350 area if current volume patterns don’t pick up. Low volume is typical for the summer months, so it will be interesting to see how the Nasdaq shapes up in the months to come. Nonetheless, the bigger picture is bullish for the Nasdaq in the coming years – note on the chart below that the trendline since 2011 is still intact. Like my ribs, a bit of rest might do the Nasdaq a world of good.
ValueTrend Performance: Visit www.valuetrend.ca and click on the performance tab to view the May 30, 2014 numbers for Keith’s managed equity and fixed income platforms.