The "big picture" as depicted by the point and figure chart of the NASDAQ-Composite (COMPX) shows this index is battling with its bearish resistance trend for the second time in just about a year. Last January and early February we saw this index run right into its bearish resistance trend and then fall sharply in the following couple of months.
NASDAQ-Composite Index - $50 box
The point and figure charts shows just how impressive the recent rally in the NASDAQ Composite has been, but it also shows just how much work is still to be done for any change in trend. The current trend here is still BEARISH as indicated by the bearish resistance. The nice "low pole" warning from $1,450 to $2,050 gives hint that this group of stocks has put in a bottom, but current downside risk is very difficult to measure. A simple 3- box reversal would have this index trading $1,900 and traders can start from there. A prudent strategy would be for any bullish trader to wait for a break above the $2,150 level before adding further to positions. Conversely, a bearish trader should be nipping away at some stocks that look to be breaking down from their recent three-month rally.
The NASDAQ-100 bullish percent ($BPNDX) from www.stockcharts.com tells us that the NASDAQ-100 is currently in "bear confirmed" status, with 59% of the 100 stocks showing a buy signal on their point and figure charts, while 41% currently show a sell signal. The NASDAQ-100 bullish percent usually reverses course (up or down) earlier than the other market bullish percents and gives early alert to potentially bearish market conditions like we're seeing now.
The broader NASDAQ-Composite bullish percent ($BPCOMPQ) from www.stockcharts.com is currently in "bull alert" status at 52%. Subscribers will note that in February of last year (2001) this indicator reached the 54% level before turning lower to 30%. In essence, current conditions here are similar to that found in February of last year and caution is advised.
Tax-loss sell strategies
Eric Utley was kind enough to put together a list of "tax-loss" bounce candidates for subscribers on Monday as I was out of town. Remember! This is a near-term supply/demand play where the bullish trader is trying to benefit from a near-term supply/demand shift. When you get your pop and a stock hits your target, begin getting aggressive with your stop and raising it to a profitable level.