Why This Rally Should Continue

Includes: DIA, QQQ, SPY
by: Jeff Pierce

Since the Nasdaq has been the index that has lead this rally I think it’s important to focus on it for clues as to whether this rally will continue. A few things I’m noticing that makes the case this parade will continue is when you view the Nasdaq on a 30 min intraday one can see a reverse head and shoulder pattern that just broke to the upside with Friday’s late day burst. While it’s by no means a perfect pattern, it does speak of consolidation and a continuation move higher.

nasdClick to enlarge

This next chart shows something very important going on behind the scenes. The percent of stocks moving above their 200 day moving average is approaching pre-market meltdown levels. This internal momentum of individual stocks could push this index much higher than I ever thought possible, maybe even to its falling upper trendline, around the 2100 level. This is not a prediction as I’ve been a stubborn bear for far longer than I needed to be, but it’s one possibility that should be considered.

What’s interesting is should this target be met, it would be an 18% incline. Assuming the Dow would move at least that same amount, that would have the Dow stalling right around the 10,000 mark, which is exactly the psychological barrier one would expect a key reversal to occur. I’m sure at that point not a short would be left anywhere. Food for thought….

maClick to enlarge