If the advance from January 2013 to the top in early 2014 isn't a blow-off top, it's certainly a pretty good imitation of one.
Technical analysis seeks to identify trends and recognize signals. The predictive value of trends (up, flat or down) and signals (buy, hold or sell) is self-evident, hence the widespread interest in charts of price and various indicators.
It's easy to overwhelm the senses with complex analysis, so let's try to strip down our look at the NASDAQ stock index to bare essentials. The opportunities to load up any chart or analysis with complexity are endless in an age of data and cheap computational power, and the risk is we miss the forest for the trees.
Let's start with a short-term chart of the NAZ. The classic topping pattern is called head and shoulders because as doubts about the Bull Market start to creep in, sellers take the market down. This forms the left shoulder.
Despite narrowing breadth and weakening volume, true-believer Bulls ("this time it's different") push the index to new highs. This forms the head.
The weakening participation (i.e. the market has run out of new buyers) eventually causes the market to sell off again. But Bulls, well-trained to "buy the dip," come back in and the index rallies, but not to the previous high. This forms the right shoulder.
Once the Bulls realize the rally is over, selling begins in earnest as participants sell to lock in gains/limit losses. Selling begets selling and a Bear market ensues.
MACD and Chaiken Money Flow reveal the decline in technical underpinnings.
The long-term chart helps us answer the question, is this a blow-off top? Another classic pattern is an A-B-C-D series, in which the first leg up is followed by a decline that is then followed by a third leg that is roughly twice the size of the first advance.
Interestingly, the NASDAQ index has traced out a textbook example of this pattern: the A leg from the 2002 low of 1,114 to the 2007 high of 2,841 is an advance of 1,747. The B decline from 2,861 to the low in March 2009 of 1,265 is 1,596 points, and the subsequent C leg reached 4,371 in 2014, a rise of 3,106 points--pretty close to double the A and B legs.
If the advance from January 2013 to the top in early 2014 isn't a blow-off top, it's certainly a pretty good imitation of one. If a 45% leap in a little over a year doesn't qualify as a blow-off top, then what does?
If this A-B-C pattern plays out, the NASDAQ should experience a major D leg decline. A hefty 30% decline would simply return the NAZ to its pre-blow-off level around 3,000. Some projections call for a much more severe decline, but we'll take each development as it comes.
If the NASDAQ surpasses the high of 4,371 and moves higher, the head and shoulders pattern is negated. If the NAZ fails to rally to new highs, that could be a signal that the rally from 2009 is reversing or has entered a new phase.
Want to give an enduringly practical graduation gift? Then give my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, a mere $9.95 for the Kindle ebook edition and $17.76 for the print edition.
Planning your summer garden? Longtime oftwominds.com supporter Everlasting Seeds has a deal for you.
25% off every seed collection including Garden in a Can (79 different Heirloom Seed varieties).
Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)
Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.
And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.
You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.
Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.
So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.
It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.
I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.
Test drive the first section and see for yourself. Kindle, $9.95 print, $20
"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
|Thank you, Christine C. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your steadfast support and readership.||Thank you, Mark M. ($5/mo), for your exceptionally generous subscription to this site -- I am greatly honored by your support and readership.|