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CHART ANALYSIS


Nasdaq's Limited Upside Potential

06/07/04 01:15:48 PM
by Gary Grosschadl

The Nasdaq may rise above 2000 this week but a confluence of resistance lurks nearby.

Security:   $COMP
Position:   Hold

It may be tempting to assume that all is well if the Nasdaq rises above 2000. Looking at this chart hints that the bigger test lies 20 to 40 points above that psychological level.

This daily chart offers two pattern considerations, the first being a downsloping red channel, and the other a pitchfork pattern. The top of the channel is the 2030 area and this region should be carefully watched as stiff resistance could be encountered. Failure here could start a downleg to test the bottom trendline around 180 points lower. Optimists could be right in viewing this channel as a large bull flag but this has yet to be proven.

Daily chart of the Nasdaq index showing an overhead confluence of likely resistance.
Graphic provided by: Stockcharts.com.
 
The second pattern shown is a green pitchfork. Choosing significant turning points to anchor the Andrews Pitchfork is as much art as science. The three pivot points chosen result in very plausible trendlines and that is an important element in drawing pitchforks - they have to look "right." This pitchfork shows a failure occuring early in May when the lower median line was violated. Now a retest of that mark is nearby. This area is so close to the above-mentioned pitchfork mark that it becomes a possible strong confluence of resistance.

The indicators worth considering include the weak ADX (on the topmost graph), which shows a weakening trend in this latest upleg. The MACD (moving average convergence/divergence) and the RSI (relative strength index) hint at possible stall areas. The stochastics indicator shows a turning down from overbought levels and this is more compelling as a weak trend is indicated by the above points. This could lead to a larger stochastic downleg as in the past.

In summary, limited upside could be in store unless a convincing and sustainable move occurs that puts the Nasdaq back inside the pitchfork and to the upside of the downsloping red channel. The market should tell us soon enough. A big move may be developing, but which way?



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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