Market Direction – NASDAQ POINTS LOWER

Market direction is at the best of times a best guess scenario. But after 4 decades of investing I know a market in trouble when I see it.

The NASDAQ market is pointing to lower lows and signalling that the market is in serious trouble. The news from Germany was reasonably good news as was the revised USA GDP at 1.3%. Unemployment news wasn’t as bad as expected, although at this point I would take any numbers mentioned as verging on sheer gossip. Housing despite what the numbers may show is I believe in worse shape than earlier this year.

But it is the NASDAQ that I have focused on for the past month and it is not performing as well as the DOW or S&P. In fact there are bear flags everywhere warning that the market direction is DOWN.

MARKET DIRECTION – The NASDAQ Points Lower

Yesterday (Sep 29 2011) was among the worst. At one point the opening gain of 2% ended up as a loss of 2.3% before the NASDAQ recovered to close down 1.6%. In other words, the NASDAQ swung 4.3% in the day. Only 5 NASDAQ stocks set new highs while 211 hit new lows. Think about – 211 hit NEW LOWS. You can view the NASDAQ highs and lows here. (Note this link goes through an ad first)

You can also view the market direction of the last 6 months of the NASDAQ through this link. (Note this link goes through an ad first)

The NASDAQ led this recovery from the March 2009 lows. In the chart below you can see the great recovery in the NASDAQ which moved ahead of the Dow Jones and S&P 500, leading both those indexes higher.

That move has stopped. Relative Strength Index remains negative, volumes are declining and have been for some time, and MACD (Moving Average Convergence / Divergence), is decidedly negative with a reading of negative 6.56.

All of this is telling investors a lower low is coming.

Market Direction NASDAQ chart March 2009 to Sep 30 2011

Here is the S&P 500 chart for just the past 5 days. Every day has seen a gap open. These are all bear signs. The positive trend is LOWER.

Market Direction - S&P500 Sep 26 to Sep 30

Here is the Dow Jones Chart for the last 5 days. The Dow Jones is in better shape than either the S&P or the NASDAQ charts, but again the market direction trend is positively LOWER.

Market Direction - Dow Jones Sep 26 to Sep 30 2011

Market Direction Summary – Mid-Day On Sep 30 2011 – Lower Lows Coming

I reported in my market direction call last night that the August 9th low will be broken by the constant nervousness of investors. Every pullback investors who bought at the August 9th low are becoming increasingly alarmed.

This means that each pullback has seen less and less support. The NASDAQ is telling investors that the market direction is lower and it will break the August 9th lows.

I bought SPY Puts this morning on the market rise. This market will move lower before it establishes a new support zone. I still believe the S&P 500 will try to find support around the 1000 level. That is still about a 140 points lower or 10 to 12 percent lower. I have purchased SPY Puts this morning which I may hold over the weekend.

The market direction I believe has become clearer with this last half-hearted rally and it is definitely lower.

  • hal34

    Why is a gap open in either direction a bearish sign?

  • Gaps are signs of high volatility as well as investor uncertainty and concern. It’s as I indicated in a number of posts before, a sign of fear. Many analysts refer to the market as being fueled by fear and greed, but it is untrue. It is all fear. Fear of being caught in a collapse and fear of missing a rally. In bull markets volatility declines usually below 20 and often below 15 on the VIX index. The market rarely will have a gap open up or down in a bull market because concern among investors is low and volatility shows that lack of concern. In a bear it is exactly the opposite. Many investors on what they think is good news, look at the market futures and fearing that the market is going to run away from them, jump in place offers to buy the stock before the open, which keeps pushing the prics higher before the open. The market gaps open and in most cases will sell lower during the day. Now the investor fears he was wrong and sells for a loss to get out. In a bull market the investor buys and if there is a slight pullback they are unconcerned as they wait for the stock to rise over a period of a time. In a bear market that stock better perform within the day or at the most 2 days. Otherwise the investor rushes for the exit as he is aware the market could collapse around him. That’s why gap opens are signs of bear markets. We have had so many gap opens since August 9, it reminds me of the days AFTER Lehman’s collapse.
    Teddi Knight

  • Anonymous

    Thanks. I’d never thought of it that way, but it makes sense.