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TheStreet Open House

Nasdaq Strength Has Delayed the Risk of a 'Black Hole' Bear Market

NEW YORK (TheStreet) – Although a week ago the five major equity averages were on the cusp of confirming negative weekly chart profiles, the Nasdaq Composite index will likely close Friday week above its five-week modified moving average at 4368 with overbought 12x3x3 weekly slow stochastics, and so  the “black hole” bear market can't yet be confirmed.

That doesn't mean that new highs will soon be set, but rather that the markets must wait until at least one of the “black swans” in our flock turns against the continued bullish sentiment among traders and investors. The potential black swans include negative events in Iraq, Israel, Ukraine or somewhere else.

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Economic data remain mixed as growth in the U.S. has been weak at best. Some analysts opined this week that the Federal Reserve under Janet Yellen may keep the 0% federal-funds rate well into 2015. My opinion remains that quantitative easing will end in October, followed by a first rate rise hike in the first half of 2015.

Negative divergences remain with the Dow Jones Industrial Average and Russell 2000 still showing negative weekly chart profiles.

The S&P 500 and Dow Transports are still showing declining 12x3x3 weekly slow stochastic readings despite likely Friday closes above their five-week modified moving averages.

That continues to make the Nasdaq the key index to track as shown in the weekly chart below.

Courtesy of MetaStock Xenith

The weekly chart for the Nasdaq remains positive but overbought with its five-week modified moving average projected to rise from 4368 to 4386 with its 12x3x3 weekly slow stochastic declining to 82.03 from 84.60 still above the overbought watermark of 80.

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