Courtesy of McClellan Financial Publications |
By Tom McClellan
The stock market rebound which started from the Sep. 29, 2015 low has
been a lot more robust than a lot of people expected (including me).
The big-cap Nasdaq-listed tech stocks have led the way, interestingly
leaving behind the smaller cap stocks that comprise most of the Nasdaq
list.
Because the Nasdaq Composite Index ($COMPQ) is capitalization-weighted,
those bigger companies have much more of an influence on driving the
value of the index. Their gains have pushed it up close to a new
all-time high; the Nasdaq 100 Index which is made up only of the biggest
100 non-financial stocks on the Nasdaq has already made it to a higher
high.
The point in this week’s chart is that the Nasdaq’s gains may well be a
case of going too far too fast. The indicator in the chart is a very
simple one, measuring the percentage change from the index value 21
trading days before. This same indicator is sometimes referred to as
“rate of change” (ROC), or “momentum”. You can see your own copy of
this chart at this link.
When this indicator goes up above around +8%, it signals a short term
blowoff up move which merits a giveback of some sort. That giveback
process does not have to commence right away just because of this
indicator getting to an overbought level, but pullbacks do pretty
reliably arrive after such readings.
The current instance is all the more interesting because it appears
just as the Nasdaq Comp is returning to the underside of its broken
uptrend line. Testing a broken trendline is a normal event following a
breaking of the line, and so the overbought 21-day percent change
reading makes the argument that it will be very difficult right at the
moment for the Nasdaq Comp to climb back up on top of that line.
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This has been posted for Educational Purposes Only. Do your own work and consult with Professionals before making any investment decisions.
Past performance is not indicative of future results
This has been posted for Educational Purposes Only. Do your own work and consult with Professionals before making any investment decisions.
Past performance is not indicative of future results
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