How the E-mini Nasdaq 100 Stole Thanksgiving

12/02/03 10:03:58 AM

by David Penn

An intraday double bottom in mid-November set up a great opportunity to the long side in the run-up to the Thanksgiving holiday.

Security: NQZ3
Position: N/A

To know that a period of time is seasonally bullish is one thing. To have the courage to act on that truism is another thing. And to hear and understand this truism, and yet to refuse to act until it is confirmed in some way by price action itself is still yet another thing altogether.

How were the markets setting up in the days before the Thanksgiving holiday -- a period of time widely regarded to be among the most benign buying periods in the calendar year? Looking at the Nasdaq 100 through the lens of the December CBOE Nasdaq 100 futures contract, the market peaked out on November 7th at about 1458.50. By November 17th, the market had fallen to 1395 (a loss of 63.50 points or about 4%). One day later, the futures (NQZ3) had fallen again by half as much, dropping to 1360.50 for a 100+ loss since the beginning of the month. As the market continued to languish in this correction, consider some of these headlines from the Wall Street Journal and elsewhere that -- in my view -- characterized the overly bearish mood that was developing:

"Blasts in Turkey Open New Fronts in Terror War"

"Medicare Vote in Jeopardy"

"White House Evacuated Briefly"

"Michael Jackson Surrenders to Police"

"Greenspan Warns of 'Creeping Protectionism'"

"China Threatens Retaliation"

Bearish enough for you? All of these headlines appeared on November 21st, the day the Nasdaq 100 bottomed (low of the day was 1356.50).

This intraday double bottom in NQZ3 provided the "set-up" for the seasonal bullishness of the pre-Thanksgiving period.

Graphic provided by: eSignal.

The key signal for an end to the correction, in my mind, was most observable in hourly charts of the NQZ3. What I noticed as this correction unfolded was a developing double bottom in the hourly chart that, if successful, would mean a significant breakout and rally going into the Thanksgiving holiday. Specifically, the double bottom began with the last leg (from just under 1400 to 1356 or so) of the market's decline from the early November highs, and ended with the bottoming/rally action on Friday, the 21st and Monday the 24th. This double bottom had a formation size of approximately 39 points -- from the low on November 21st at 1356.50 to the intra-peak high on November 20th at 1395.50 -- and projected an upside minimum to about 1434.50.

The breakout from the intraday double bottom came on the 24th, as the market moved up strongly all day. The NQZ3 moved mostly sideways through the holiday, with a spike in volatility on the day before Thanksgiving that was mostly evened out by the end of the day. The final push toward the price objective of 1434.50 came on Monday, December 1st as the NQZ3 powered to a high of 1448 before pulling back near the close.

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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How the E-mini Nasdaq 100 Stole Thanksgiving

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