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NASDAQ-100 reverses to "Bull Alert"

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Yesterday's action had the internals for the NASDAQ-100 turning back into a column of X (demand) with 36% (36 of the 100) now showing a point and figure "buy signal" on their charts. For believers of supply and demand and its impact on price, this is a near-term bullish sign for stocks in this part of the market. This reversal from the 28% level now has this index carrying the reading of "bull alert." In essence, the traffic light has turned green, and bulls can begin proceeding with some bullish trades, but caution is advised.

NASDAQ-100 Bullish % chart

In December (red C) the traffic light turned "yellow" for bullish traders as the NASDAQ-100 bullish percent reached a level above the 70% level (higher risk level for bulls) and eventually the traffic light turned "red" when the bullish percent fell to 68% and turned this part of the market into a "bear confirmed" status. The decline to the 28% level removed quite a bit of risk from this part of the market, and the recent reversal higher now hints that demand is starting to firm and an equilibrium between supply and demand is starting to take place. The ability for some stocks to actually begin generating some "buy signals" (where a level of demand has exceeded previous demand) shows some internal strength.

NASDAQ-100 Trust (QQQ) Chart - $1 box

The NASDAQ-100 Trust (AMEX:QQQ) recently tested its bullish support trend at $35 and this bullish support could become the longer-term bullish trend. In June of last year (after the red 6) we did see a $1 box violation of the bullish support trend when the NASDAQ-100 Bullish % ($BPNDX) was in "bear correction" status. The current market environment is actually in a "bull alert" status and this is deemed a more bullish market reading. With that mindset, I then "imagine" the potential for a near-term rally to the $39-$40 level that would be back up into the recent consolidation top.

An "economic bull" may argue that the recent economic data presented is perhaps more bullish than that found last summer and make a case for "fundamental" bullishness.

Those subscribers that have developed a stated trading discipline that outlines their trades in dollar amounts can take 1/4 to 1/2 positions. This helps limit potential downside risk in their trading account, while still providing some exposure to a market that is beginning to show signs of strength from the bullish % internals.

Traders that are monitoring any of the 100 stocks that make up the NASDAQ-100 that are looking to trade some of those stocks on an individual basis are best advised to only trade those stocks where RELATIVE STRENGTH is strong vs. the NASDAQ-100 and preferably a broader market average like the S&P 500 Index (SPX.X). You can get free point and figure and relative strength charts at www.stockcharts.com.

Jeff Bailey
Senior Market Technician
Option Investor

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