Monday’s Market Musings

Mar 24, 2008: 6:36 PM CST

Wow, what a day in the financial markets! The NASDAQ (QQQQ ETF) rose 3% today while the other major markets rose 1.5%. Let’s look at a few key charts and see if we can determine what may happen next.

First, the Dow Jones daily:

The market action today was very impressive, and rounds out a recent ‘buy’ swing which was a counter-trend move against the prevailing daily downtrend.

We can’t get too excited until price solidly breaks the 12,800 key resistance level, which is about 250 points away. I suspect that area could be a virtual magnet that will draw price up to test trader/investor conviction at that level. Can demand overcome supply at this level? If so, it would be an important short-term turning point in the market worth further attention.

The market has been helped by rampant negative sentiment (through polls, etc) and also a positive momentum divergence which has resolved itself to the upside with great force. The Fed rate cut definitely helped the market, as did the recent sharp correction in commodity prices.

Also, note that price has breached (crossed above) both its 20 and 50 period daily moving averages. Bulls can’t help but like that fact.

I also can’t help but show the powerful NASDAQ chart and its 3% advance today:

The price action was impressive, but sellers stepped in and supply overtook demand right at the declining 50 period moving average. This still isn’t a ‘higher high’ price swing as of yet. Bulls need to clear this resistance level.

Also, note that the price objective of the symmetrical triangle was been achieved, and so a market reversal was unsurprising. This is a classic example of a symmetrical triangle with a near perfect downside target resolution.

Notice also the major positive momentum divergence which keeps forming on the chart. The resolution is unfolding as the divergence forecast.

Prices may find further resistance from the ‘balance area’ that made up the middle zone of the triangle market consolidation (this was were buyers and sellers came into relative agreement on prices, and they could do it again unless something majorly has changed).

The major hurdles achieved from last week are out of the way, and now it’s time for traders to digest what happened and act accordingly.

Recall that the market already has traveled on a considerable ‘buy swing’ and so a correction or consolidation (preferable to the bulls) at current resistance cannot be unexpected.

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