A Quick Look at the Nasdaq and the S&P 500

Includes: DIA, QQQ, SPY
by: TraderMark

Since the NASDAQ has been decreed to never go down again (let me throw my hands up and say I was wrong to say technology is like commodities and a crowded trade destined to falter - 11 days in a row up would qualify as "incorrect"!) we should begin looking at that index too.

But first the S&P 500; we've been showing both the simple and exponential moving averages, but for now there is no need - the simple moving average chart is bullish as can be. I use exponential, so let's see what it is saying. First, that head and shoulders formation never completed - the neckline was never truly broken... very close at S&P 870, but we needed 1 more down day with conviction to "break".

Instead we got Meredith Whitney and Goldman Sachs and we have not looked back (for even a day) since. The last stand for bears appeared to be the intraday highs from early June - this is in the process of being steamrolled as I type. Hence you cannot be bearish here until we reverse - closing below that 200 day moving average would be key to a reversal. Remember we have a gap to fill at S&P 906. It will be filled - just a matter of when.

We spoke briefly of the "golden cross" - that is when the 50 day moving average crosses over the 200 day moving average (from below of course). That happened on the simple moving average many weeks ago, but I want to see it happen on the exponential moving averages. But we have 1 of 2 conditions filled for getting much more bullish from a technical aspect; if we've finally cleared the 200 day exponential moving average with conviction. If we can combine that with a golden cross, it would bode well technically.

Does that mean the market would not go down lower? Or have a 20% correction? No... technical analysis is a guidepost... art, not science. It's a probability art at that... it would argue for a bullish condition, not guarantee a darn thing. But with so many people in institutional areas using it, it would again - bode well.

With all that said, volume is anemic (see bottom of the chart, not expanding at all as the market surges onward) but has been for many months... I think this is what happens when Goldman Sachs computers are effectively trading with Citadel's computers and 2-3 others joining the fun, driving 50%+ of all volume each day. The rest of us are just bystanders to their high frequency trading dance. I am just thrilled that the hedge fund known as Goldman Sachs now has the implicit backing of my taxpayer dollars to keep this game going into perpetuity. I'm sorry, did I say hedge fund? I meant the BANK HOLDING company called Goldman Sachs.

But I digress (I so often do). NASDAQ? Forgettaboutit! You had your golden cross in late June - ironically the NASDAQ dumped immediately after that (this was when the market actually went down from time to time). But since that headfake we are up (as of Wednesday) 11 sessions in a row. It looks like, despite the cyclical nature of almost all technology companies except a few like Apple (AAPL), we are going to bless technology as the leader for the new bull market. Perhaps we can return to giving Cisco a 80x PE ratio - its been a decade now since we've had a good old stock market bubble... we're overdue.

Anyhow, from a technical standpoint, aside from volume (even in NASDAQ no volume expansion) - there is little to argue with here. The main counterargument is ... just like the head and shoulders formation... everyone sees this and knows this. Will that stop the program traders from fulfilling it in perfect symphony? I stress phony.

Long-time readers remember some posts I put up in early 2008 about how if "inflation" takes off, we will inflate everything of relatively fixed supply. That would include stocks. Exponential money supply chasing fixed number of stock certificates = higher prices. Just keep your eye on the dollar - its was at a 6 week low versus the euro. So on a real basis, if the dollar drops 1% and the stock market goes up 1%, you made nothing. But most Americans don't realize what real versus nominal means. So it's all good - consumer confidence should be shooting up by the day now.

Granted many Americans have now raided their 401ks to compensate for their underemployment or joblessness, so we have far fewer 'stock market participants' (dogma: Wall Street = Main Street) but surely the ever upward stock market still will have a halo effect: "Gosh, I'm jobless but look at Intel go! I need to go buy a new fridge!!"

p.s. we talked about "trend days" - Wednesday was a trend day... you have to be be long intraday until / unless that blue line is broken. I've added index long exposure intraday (calls, levered ETFs) and will stay put until / unless we reverse. Which has almost never happened the past 6+ months. That will change sooner or later - but until it does, we'll keep playing it. Frankly a day like today would be a great "trap" day to have a reversal since all technical indicators or so darn bullish, so I have my parachute on ready to bail.

(click to enlarge)