RealMoney Silver - Shifting My Focus on the NDX

Shifting My Focus on the NDX
By Chris Schumacher
RealMoney.com Contributor
5/16/2008 10:44 AM EDT

Better-than-expected CPI data and a few positive remarks from Fed Governors were all that was needed to push the Nasdaq 100 (NDX) to the open-gap range of 2025-2040. Granted, it was an expiration week, which may or may not have lead some of the behavior, but this doesn't detract from price behavior that has been seeking out the liquidity pool between those levels.

My expectation that this would have happened in the third quarter rather than the second quarter of this year have been proven incorrect, and those with core long exposure and more patience than I have enjoyed better profits. However, I am looking for the turn now.

There is a lot of price congestion in the NDX between 2040 and 2140. I know this is a wide range to work with, but we've seen this index move this much in a week's time before, so I don't feel it's as wide as the technical range levels would suggest. Moving from long-exposure setups in the shorter time frames to the short-exposure setups in the current time frame is where I am shifting my focus for the foreseeable future.

The most obvious target for this exposure would be to see the retracement back to the open gap between NDX 1850 and 1865. This is certainly a long way down from current levels, and we would need a renewed pessimism in various economic data and investor-confidence issues to make this work through the third quarter.

Right now there is a heavy discounting in the markets for a better second half of the year, and this is helping to drive prices higher even as the economic and earnings data is mixed at best. This would need to change in dramatic fashion over the next few weeks for the shift in sentiment to occur and allow distribution pressure to control price behavior once again.

There is overseas strength and a slightly positive tone to the U.S. futures as I write this, which should help to close the gap in the NDX at 2040 completely. This should allow for a beginning of the short-exposure positions to be built up.

Again, there is not a lot overhead resistance past this gap until about 2140, so this is going to be a strong-stomach position build over the coming weeks for those that are in agreement with the bias.

Ideally, for the short-term traders, the 2040 level can act as a catalyst for distribution pressure to at least offer a move back under 2000 in the near term. This would offer faster profits and set the tone for further weakness after a few weeks of battling between the bulls and bears.

For today, I'll be using the NDX 2040 level as a guide for beginning to build short-exposure over the coming weeks, but for intraday expectations, I'll be looking for this to offer short-exposure for a move back to 1990-1995 over the next several days, due simply to profit-taking and nothing more.

If the index should clear the 2055 level in the next few days on a closing basis, this intraday perspective will be invalidated and outside of intraday risk parameters.