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The More Things Change The More They Stay The Same

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The Naz Composite first cleared its March 2000 top in June 2015.
It finally closed above the March 2000 peak a year later in July 2016.

A monthly NAZ shows 3 drives attacking the March 2000 top.

index_compq_m-nasdaq-composite-102416

Long time readers know I often say markets play out in threes. Sometimes there is a 4th ‘campaign’.

Note the 3 drives down into the 2002 low and the 3 large range monthly decliners into the November 2008 low.

Going into February 2012, the NAZ carved out 3 drives higher into resistance which suggested a high.

However, rather than perpetuating a change in trend, after months of sideways action, the NAZ broke out ‘big league’ as Donald says, defining a persistent push higher for the next THREE years.

The sideways move was around a year. Is the market going to explode higher again after sporting a long sideways stint or is the Rule of Alternation on the table?

Yesterday’s market surge was on the heels of M & A news–the AT&T/Time Warner deal in particular.

16 years (4 squared years) earlier we had the Time Warner/AOL disaster that marked the top.

This does not preclude the idea of a further spike but retail (dumb money) sentiment indicates this is not a buying opportunity.Equity Only Call Buying retail account buying has been exuberant throughout October reflecting a dangerous one-side sentiment similar to just before the August 2015 plunge.

That plunge was predicated on a Chinese currency devaluation.

Currently the yuan has been nose-diving along with a soaring dollar.

So far the market has shrugged off the situation.

Sentiment combined with a free-falling yuan suggest toxic brew, but so far the market remains immune.

Perhaps The Hand is wearing a rubber glove.

Note that the above monthly shows the NAZ survived a monthly Soup Nazi sell after the knife down in August 2015 and has come back to score new highs.

The upper rail of a parallel channel suggest follow through could see around 6000.

This ties to a the 100% Rule from the breakout in 2012 over 3000.

Is it possible the NAZ will overthrow the parallel channel mirroring the deep undercut in late 2008/’09?

The contrary picture is that the NAZ is carving out a big picture M A Top.

Yesterday we showed what looked like a possible Head & Shoulders on the NAZ.

index_compq_d-nasdaq-composite-102416

Monday, the index gapped open above its 50 day moving average offsetting the potential right shoulder in the process.

Failed patterns often times lead to fast moves so we cannot discount the idea of new highs and possibly a new leg up.

That said, the current tug of war between internals and too bullish sentiment (contrarily bearish) and external price action is front and center going into the end of October which is fiscal year end for some of the largest funds.

Are they just trying to keep the market buoyant using a few names like AMZN, GOOG and GS?

Conclusion. As long as the NAZ can hold above yesterday’s gap, the line of least resistance remains higher.

Trade that offsets yesterday’s gap on the downside is bearish.

September 2016 saw an outside up bar on the NAZ monthlies marking an all time high.
The takeaway is that should perpetuate upside momentum.

So far that hasn’t played out, but the market may be marking time until the election.

Money managers don’t want to lose their jobs or money under management so they may be avoiding risk here.

However after the election they may be no excuses–one way or the other. There may be forced selling or there may be forced buying as performance considerations leave precious little time for catch-up into year-end.