Nazz Rises on Pyramid Power

A notable formation Wednesday on the Nasdaq points to the bulls staying in charge on that index into year-end, and is a powerful reminder to stick to the charts, not the noise.

Noise, noise and more noise. Everyone has an opinion about where the market is going and why.

There is too much complacency, they tell you. The markets are too undervalued, they say. The sheer number of opinions out there could confuse even the most knowledgeable trader.

Cut through the noise by focusing on near-term charts. You might just see an ascending triangle, as I did yesterday on the Nazz's 60-minute chart.

The chart shows the clear long-term cup-and-handle formation that took eight long months to form, including the breakout above that handle high at 2378 from early November. That was a very powerful breakout indeed.

Notice what has occurred since the Nasdaq broke out. It tested that breakout -- normal behavior -- and since then, it has made equal highs at the 2470 area but higher lows. That equates to a very bullish ascending triangle. Because the lows are ascending, the triangle will get tighter and tighter when you draw in the trend lines. Ultimately, the Nazz will make a clean break out of that triangle.

But whichever way it breaks is the way you must play. This brings us back to the patient focus on the near-term charts, which is very difficult for most to maintain objectively without projecting onto the chart what they want to see. The move is coming. Wait to see it.

There's another notable formation worth a look on this 60-minute chart from Wednesday's Nazz. The day's candle is red, meaning it was a down day, but it's also hollow. A hollow red candle indicates the index gapped down at the open but was able to close above that open. So after the initial selling at the open, the on-balance volume for the rest of the day was positive. There were more buyers than sellers after that open, so once the index had sold off, the buyers jumped right in while the bears had used up all their fuel.

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Jack Steiman is president of TheInformedTrader.com, for which he also conducts live seminars, and Steiman New Research Group, LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Steiman appreciates your feedback; click here to send him an email.