Nasdaq downside target

AD LINE

Despite recent market weakness, the S&P 500 and broad NYSE stocks continue to show healthy depth of breadth. Note the recent new highs on both the A/D line (black) and the S&P 500 (red) on the chart above. The A/D line is also well above its 40 week (200 day) MA, illustrated by the blue line on the chart.

Meanwhile,  the Nasdaq and small cap indices are showing weak market breadth. The Nasdaq New high/ New low chart below shows us that the number of new highs vs. lows are trending lower, and in fact have both moved below the “0” line, and breached their 200 day MA. According to Bloomberg, about 47% of Nasdaq stocks are down at least 20% since their peaks in the past 12 months. Further, about 40% of the Russell 2000 small capped index stocks are down 20% from their highs.

NAZ new high low

 

I’ve posted a chart of the Nasdaq with my favorite indicators below. Note that the trend remains bullish, and moneyflow remains positive (an important factor for longer termed investors). However, the Nasdaq (like the S&P 500) is overbought – note the momentum indicators rolling over. Add in the weak breadth over much of this year, and you can make a case for the NAZ to experience a reasonable correction in the nearterm. I’m targeting a maximum downside of 4200-4300, between the 50 day MA or trendline.

nasdaq

6 Comments

  • Keith,
    Very informative. I actually took a position in an inverse Nasdaq ETF last Friday. So thanks for the info. On another note, could you comment on Cameco (CCO) if you have the time.
    Thanks, Ron

    Reply
    • CCO looks to be in a sideways trading range–great to play, not to hold long term. Why don’t you shoot an email off to BNN for my September 30th MarketCall appearance- asking me to cover the stock on-air. Their email: [email protected]
      Specify the question is for me.

      Reply
  • AGAIN, JOHN MURPHY (STOCKCHARTS) MENTIONNED THAT THE DOW TRANSPORTS ARE HITTING RECORD HIGH AND THE DOW INDUSTRIALS DID AS WELL (DOW THEORY CONFIRMATION?). THE SPX HAS GONE UP 667 DAYS WITHOUT TESTING ITS 200-DAY M.A. THE LONGEST SPAN OF TIME RAN 758 DAYS AND CONCLUDED ON AUGUST 27, 1998 WHEN THE SPX PLUNGED AROUND 20% (A TEST OF THE 200 DAY M.A. STANDS AT 1891). MEANWHILE, THE $USD SURGED TO THE HIGHEST LEVEL IN 14 MONTHS THREATENING RESISTANCE AT THE JULY 2013 HIGHS. WOULD A BREAKOUT ABOVE 85 ($USD) LEAD TO A TEST OF THE 2009 AND 2010 HIGHS AROUND 89, THUS PRESSURING COMMODITY PRICES AS MENTIONNED IN LAST BLOG?

    GOOD DAY

    Reply
    • Good question JP
      The USD has hit and failed at 84-85 twice over the past 2 years, suggesting that is a significant resistance level. A break would be bullish for the USD. Commodities can move negatively correlated to the dollar – as they drive inflation, and inflation drives the dollar. No/low inflation has driven commodities lower, and the dollar higher. They both move as a result of inflation, not as a result of each other (hope you get what I am trying to say here…).
      On that note, be sure to read Monday’s blog, which I have already written – but wont post until Monday–its on this very subject!

      Reply
  • Can you pls. comment on TD NASDAQ Index Fund – Investor Series (TDB981) if you have time. I have invested half of my children RESP fund for TDB981 and the other half is not invested and waiting for after market correction. Thank you.

    Reply
    • I don’t know much about mutual funds and don’t follow them – but if its a representation of the NAZ, my comments regarding that index would apply

      Reply

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