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Nasdaq Composite 4/2/2014 - Gut Check Time

Think or Swim sucks for analytically reviewing the charts for indices because they lack volume, I'm sure most of you have heard me say that several times already, but I am just re-iterating if for the new members.

Get this - when I called TD Ameritrade today to complain about the missing volume when looking at the Nasdaq's chart in their Think or Swim platform, the representative told me that the exchange does not trade on the market and therefore there shouldn't be any volume.After a moment of sitting there in disbelief of what I heard, I stated most trading platforms show the total volume for the underlying securities in that particular index. After explaining to her why I needed that information and her repeated answer of why I was wrong, I hung up the phone. She just doesn't get price and volume analysis I guess.

So back to the Nasdaq. I made a few notes and outlined some potential wave structures on a 1 year chart for the Nasdaq Composite below. On its most recent uptrend, you will notice I list that Wave 1 or a Wave 3 is in progress - the amount of buying volume during this current uptrend should offer clues as to which wave it is. If buying volume continues to increase, as I think it will, then that would suggest a Wave 3 rather than a Wave 1. If it is a Wave 3, I would anticipate that the Nasdaq approaches its previous 52 week high and then gaps up to make a new high and continues upwards towards If buying and selling volumes start to mix, then maybe the wave is a Wave 1 of some degree. Either way, you will notice that I have 2 sets of wave labeling.

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The important thing to watch on the above chart, regardless of wave labeling, is that the Nasdaq proceeds to make a new 52 week high during this next uptrend. If not, it will be time to consider a third set of wave labeling, a more bearish alternative. The most recent downtrend on the above chart from the highs of 4350+ to the current pullback of approximately 4125 can be viewed as a Zig-Zag Wave Pattern.

The risk associated with not making a new high during this current uptrend would then be the formation of a Double Zig-Zag Wave Pattern - if new highs are made, that risk is removed. However with the steadily increasing buying volume the last 3 trading sessions, my bets are on a new Motive Wave Pattern of some degree that is forming. So that would indicate a Wave 1 or a Wave 3 in progress as I've marked on the chart.

Taking a look below at my 20 year chart for the Nasdaq, I overlaid 2 sets of Fibonacci Extension Tools on the chart. For the new Trendy Stock Chart members, welcome and let me explain what I am using the Fibonacci Extension Tool for - one of the uses of a Fibonacci Extension Tool is that it measures the length of an uptrend and the depth of its correction to then come up with various levels of price projections for the next uptrend. Fibonacci Extension Tools can be used to measure upside potential as well as downside risk.

While Fibonacci Extension Tools can set price targets, monitoring the plausibility of reaching the price targets is performed using combinations of price and volume analysis, trendlines, etc.

Currently, the index is sitting right on the blue 161.8% Target Line. The blue Fibonacci Extension Tool was being used to calculate and estimate a smaller move within the Nasdaq, which has recently been reached. The black Fibonacci Extension Tool is calculating a potential larger move in the Nasdaq, one that involves the Nasdaq reaching new ALL-TIME highs. If the black 100% Target Line from the Fibonacci Extension Tool is reached (which most times they are), that would suggest Nasdaq 5550. That would be almost 10% higher than the previous Nasdaq top.After some further consolidation around this area, the Nasdaq may be poised to take a shot at its prior highs.

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Notice the missing volume bars the last year and a half on the above chart? I can't believe TDA isn't worried about fixing that. Back to the analysis, enough complaining.

The MACD Histogram has recently started to show a little selling pressure, and that would make sense due to the correction the Nasdaq was in for the last month. However, notice the overall increase in the buying pressure as the Nasdaq is reaching towards its previous all-time high. Monitoring the buying pressure as the Nasdaq continues its ascent is something I will be watching closely the next few weeks.

While the 20 year charts are nice for overall direction, let's get back to the here and now. The next chart is a 3 month daily candlestick chart. One key take-away is the diminishing selling volume as the Nasdaq bounced from the sell-off. Also, the Nasdaq did just complete a 50% retracement, which also was a break below the lower quadrant of the Fibonacci Fan - both are buy areas where the Nasdaq did see some buying support. Good news for the short-term.

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Using the Fibonacci Extension Tools on a smaller scale, I would expect a Wave 3 to power through the 50% Target Line on heavy volume. If so, making a new 52 week high will not be very difficult for the index. However, if the current uptrend represents a Wave 1, it may pullback before making a new 52 week high, which still leaves open the bearish scenario as well.

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So as you would expect, it would be nice to see the Composite break through the 50% Target Line on heavy volume and break through its previous 52 week high, confirming the continuance of the current uptrend.

So if the Nasdaq is getting ready to possibly reach new heights, it is best to own the sectors and stocks that will push the index to those heights. Facebook, Apple, iRobot as well as some others. The direction of the Nasdaq can directly impact these stocks, or vice versa....either way, I am still positioned bullish in my portfolio for the time being.

If you like technical analysis, then consider joining Trendy Stock Charts today where I montor the indicies and numerous individual stocks, including all the stocks in my own portfolio and how I am trading them.

Disclosure: I am long FB, AAPL, IRBT.