The reversal from last week continued on Monday, with the Nasdaq 100 (NDX) testing the Feb. 14 resistance at 1823. The positive shift in sentiment since last week's Bear Stearns
(BSC)
bid by JPMorgan
(JPM)
and move by the Fed is getting a lot of people to write happy stories and talk on the TV about more upside. Barron's over the weekend had the headline that the worst was over, and there has been a lot of chatter about the theme that the bottom has been placed. This broke the congestion range in the NDX to the upside and created the Feb. 14 resistance test. The next test for the bulls will be at the 1864 level.
Futures are edging higher this morning, but there are consumer confidence figures coming out, with expectations for at least a 75 reading. Anything over that number should goose the futures a bit further. While I am happy to see the break of the congestive range to the upside, I am much more a fan of slow uptrending price behavior. Slow uptrends tend to sustain longer, while fast vertical price behavior often brings in stronger distribution pressure at key levels and creates more volatility that leads to investor frustration. I would much rather have a series of 20-point uptrend days than one or two 60-point days. Steady days allow for sidelined cash to feel comfortable about supporting the market. Quick moves often leave people behind, and those traders are less willing to commit capital until a retracement happens.
You'll remember from the last two weeks that I want to see the shift in activity away from buying supports and selling resistances to buying resistances and selling higher resistances. This is the better sign that investors are willing to jump into the market. I also don't like to see short-covering price behavior because that isn't representative of buyers who support markets. That is simply behavior of traders who no longer want exposure on the trend reversal. These people are simply looking for a better level to reinitiate that short exposure. I want exposure that is in and stays in over a period of at least a couple months.
For today, I'll be using the 1825 level as a resistance point, looking for a half-hour pullback given the vertical price movement to that level. With futures a bit higher this morning, the index could easily test this resistance at the open and pull back to the intraday support at 1805. If the half-hour support can hold the 1805 level, I would like to see a retest of 1825 that eventually can break to create the run to the 1864 resistance.
If the 1805 level does not hold the half-hour support, I would expect movement back to 1780 to be the higher probability in today's session. Remember that a move back 1780 after moving up 70 points in a day is not necessarily going to break the uptrend move. This would simply be working off of the steam from a strong one-day move yesterday.
At the time of publication, Schumacher had no positions in the stocks mentioned, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.
