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CHART ANALYSIS


Main Indexes In Turmoil

11/20/03 10:07:40 AM
by Gary Grosschadl

The Nasdaq, Dow and the S&P 500 all look dangerous.
Here is a look at the Nasdaq.


Security:   $COMPQ
Position:   Sell

For weeks now many chartists have pointed out negative divergences on the daily and weekly charts of the main indexes. Now it looks as if consequences are coming in recognizable forms. In the case of the Nasdaq, this daily chart shows the steep channel formation that has guided this index up the past several months. Now it is breaking to the downside.

Nasdaq daily chart showing a possible channel failure.
Graphic provided by: Stockcharts.com.
 
Several indicators are also warning of negative change. The directional movement indicator at the top of the chart shows a bearish crossover of the DI lines. Should the ADX line now flatten and then reverse, then this adds fuel to bearish trend strength.

The MACD (moving average convergence/divergence) and the RSI (relative strength index)have been flashing their negative divergence warnings for some time. Now they are showing their own triangle breakdowns, another bearish development. Stochastics are low but still have room to fall.

How far can this index fall before a bounce is attempted? Impossible to say at this point, however two possibilities are marked. The 1800 area is a point of previous congestion that could offer some support and if this also fails then the next strong area of possible support lies close to the 200-day EMA being the 1700 area. Traders should be alert for a bounce attempt but beware a weak bounce as upside resistance could be significant.




Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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Date: 11/25/03Rank: 3Comment: 
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