LunaticTrader

Investing with the Moon

Outlook January 3

Posted by Danny on January 3, 2011

Happy New Year.

We got a flat week in most markets, as we have indicated in our last Outlook.

We are now getting another week of Green Period, so look for markets to start the year on a positive note.
But this chart is telling us that we better use any new highs to take some profits or add protection to our portfolio.
Nasdaq Composite Index (click for full size image):

nasdaq

This market has been in a rising wedge since last May’s ‘flash crash’.

As we can see, this pattern will get resolved one way or the other before the end of January.
Still being in Green Period, a move to touch the 2700 level is within easy reach this week, but will we get above it?
If not, then the ensuing Red Period is likely to take the market down.
A move below 2630 will confirm that scenario.
Also note that momentum is weakening and not confirming the markets’ new highs, thus pointing to an impending correction as well.
Time to be cautious, any new year euphoria could wither away very quickly..

Danny

4 Responses to “Outlook January 3”

  1. zzdavis835 said

    I disagree with starting the trend line on June 21. The reason being, there was a low on July 1 that, in my opinion, would start the next upleg and I would start the trendline from the high on Aug 9. I agree starting the low trendline on Aug 27. Zane

    • Danny said

      Hi Zane,

      People obviously have the good right to disagree with my analysis.

      But the line I show there is a typical example of support line turning into resistance line, and goes back much further.
      You can see it more clearly in this post https://lunatictrader.wordpress.com/2010/12/06/outlook-december-6/
      There are always several lines in play, but their importance depends on how many times the market has turned back from them.

      The nasdaq is at 2700 testing that line again right now, so I watch carefully what happens from here.
      If we can make more than one close above this line , then it is likely to turn into a support line again.

      Danny

      • zzdavis835 said

        Danny, thanks for the larger chart. I agree with your analysis after I’ve seen the expanded version and read you commentary. Zane

      • Danny said

        Yes, watching the big picture is important.
        I always consider first the major trendlines that are closest to where the market is right now.

        The trendline you mention (going from July high through the November high) could come into play, but only after we break above this longer term line.

        Yesterday we turned back from 2700.
        We could see another breakout attempt this week, but with every failure it becomes more likely that the market’s next real move will be in the other direction.

        Danny

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