Monday, March 02, 2009

Another moment of truth: NASDAQ closes in on its November low

Although the Dow Industrials and S&P 500 continue to set new bear market lows, NASDAQ is still within a trading range, albeit barely. But, we are now at another moment of truth. NASDAQ closed at 1,322.85 today, slightly above its intraday low of 1,322.13. That is a mere 6.73 points above its November closing low of 1,316.12 on November 20, 2008 and 22.65 points above the November intraday low of 1,295.48 on November 21, 2008. All we need to see is a 23-point intraday drop and a 7-point closing drop and NASDAQ will be officially out of its trading range with a new bear-market low. But, if the market were to turn around in the rough vicinity of these levels it could be a so-called "double bottom" which is actually a bullish sign. To be a true bear market, we would need to see a sequence of new lows over the coming days and weeks. In any case, technically, NASDAQ is still merely on a downswing in a trading range.

I suspect that although the more doomish and gloomish of traders and short-term speculators would like to use the new Dow and S&P 500 lows as an excuse to take the market down further, there is a moderate chance that the "down" crowd will soon run out of cash for more bearish bets and soon begin to reverse and push upwards for a new trading range. They may decide to wait until the NASDAQ doom and gloom crowd hits "selling exhaustion", but that might actually have occurred at the end of today as NASDAQ closed near its low right at the end of the day.

If too many people set up for a new NASDAQ low in the coming days, shrewd traders will "smell" the fact that too many people are leaning in the same direction and will set up for the reversal and kick off a massive short-covering rally. It should be really interesting.

In any case, best to give the market another week or so to sort it out and get past the euphoria of new Dow and S&P 500 bear market lows before concluding anything about the NASDAQ medium-term trend.

-- Jack Krupansky

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