Nasdaq Composite Is Holding at Support

 | May 15, 2012 | 4:31 PM EDT  | Comments
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Not much to cheer about if you're bullish. But there are some things. Notably, the Nasdaq Composite has now pulled back to the 2900 level three times over the past week, and has bounced off that level each time. Yesterday's selloff to a slightly lower low of 2898.90 marked a quadruple bottom. If it gives way at this stage -- that is,  a break of that level by more than a couple of points -- that could open the flood gates.  

For the moment, I am betting on that level holding for more of a bounce, although this morning's rebound has already carried the index over 30 points back up toward the top of yesterday's gap. Maybe that's enough for now.

 

Nasdaq Composite -- Now a quadruple bottom at 2900
Source: optionsXpress

 

If that quadruple bottom gives way, then the Nasdaq and everything else will likely be headed lower. If so, there are some downside targets that will be on the market's radar. Foremost will be the Feb. 3 gap in the S&P 500 (SPX) and the S&P futures. In the SPX that gap will get filled at 1325.54. That's almost exactly 10 points below this morning's low of 1335.56. If that level is tagged, do I really need to say what I'll be doing? I'll be adding to bullish positions betting on the bounce. And for the technically challenged among us who struggle to understand the methodology involved, if the market then pops back up to fill the gap in the Nasdaq Composite at 2934, then I will no doubt be selling into that pop.

 

SPX -- The Feb. 3 gap beckons below
Source: optionsXpress

 

The Feb. 3 gap in the emini futures has a big 9-point gap from 1322.75 to 1331.75. Today's low of 1332.75 (since the beginning of the cash markets) was just 1 point above the top of that big gap.  

At Monday's close, I increased exposure to a maximum of 60% invested, adding to my SPX position. So far, I still have plenty of powder dry, and, as noted, will be adding further upon the filling of that Feb. 3 gap.

I always add to my positions incrementally, which is something else some folks just can't seem to fathom. They ask: "But you were already bullish, so what do you mean you are buying again?" That's how I build positions, but I also have to give my signals on an all-or-none basis to compete in the Timer Digest rankings. On that basis, I am not doing too badly as Timer Digest has just reported that the Short-Term Consensus Hotline is ranked No. 2 (out of 100 advisors) for the past six months.

The chart of the Russell 2000 is also potentially bullish as this morning's low was a higher low than Monday's low. So here we see a minor bullish non-confirmation.

 

Russell 2000 (RUT) -- Minor bullish non-confirmation
Source: optionsXpress

 

I am also encouraged, that we again are seeing a fully oversold condition. The McClellan Oscillator settled yesterday at a quite oversold -193.6.

And on the sentiment front, there are some positive signs as the Market Volatility Index (VIX) has now heated up to a new multi-month high (and high close) of 21.87. That's music to my ears.

 

Market Volatility Index (VIX) -- Popping to new multi-month highs
Source: optionsXpress

 

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