11.24.14 – The Nasdaq Roars

The market indexes set new highs – again – amid growing confidence in the global economy.  The Dow Industrials inched up just 7 points to close at 17,817.90 while the S&P 500 Index was a little stronger, gaining .29%.  The Nasdaq Composite was the big kahuna today, gaining .89%; small-caps in particular caught fire and jumped 1.24%.  Market players like what they see with how Europe is dealing with inflation and with China lowering interest rates to jump-start their economy.  Retailers did well today.

XBI, the biotech ETF, gained 2.40% and broke out to a new high albeit on below-average volume.  URTY, the 3X leveraged Russell 2000 ETF, rose 3.55%.  As the market rises volatility declines, so XIV, the inverse VIX short-term ETN, was up 2.11%.  Please click on the symbols for details.

Last week DIA, the Dow 30 ETF, broke through an intermediate-term rising resistance line on its daily chart, seen below:


You can see in the yellow rectangle where for about a week DIA kept bumping up against the trend line but wasn’t able to get through and stay above it.  It succeeded last Friday although it closed well below its open.  Today it also closed below its open.  You can tell that by the filled (black) Japanese Candlestick bars.  When the close is below the open, the bar gets filled in and is colored black.  When the close is above the open the bar is drawn in white, e.g., last Thursday.  Keeping in mind the TA axiom that a former resistance line once broken frequently acts as support when tested, we need to watch carefully what happens should DIA pull back to the former resistance-now support line: If DIA closes below it then the breakout failed.  As the late great technical analyst Mike Epstein said on more than one occasion, a failed breakout is a powerful signal.

IWM, the Russell 2000 Index ETF,  could be on the verge of an upside move.  The daily chart pattern has formed what could be either an Inverse Head-and-Shoulder pattern or a Continuation Head-and-Shoulder pattern.  The difference is that the former is a reversal while the latter is not.  Differentiating between the two involves volume analysis and to be honest, the volume pattern the past few months isn’t what is classically seen in either pattern.  But calculating a target price objective is the same in either case.  Here’s the daily chart:


To calculate a price objective, take the distance between the head and neckline (the line connecting the shoulders) and add it to the breakout price.  Here the distance is 118.04 – 103.54, or 4.50 points.  The breakout will be through the right shoulder high of 118.25 (some technicians use breaking through the neckline, which is 118.35.)  Add that to 4.50 and you get a target objective of 122.75.  IWM’s all-time high is 120.97 so this would be a new all-time high.

No guarantee any of this will happen, of course.  We have a seasonal bias to the upside the remainder of this week so whether or not this breakout and target objective are reached is something we will know, in the fullness of time.

About Dave

David Steckler enjoyed 24+ years of experience as an investment counselor and portfolio manager before retiring. A former professor at Lindenwood University in Missouri, he also was a member and past president of the American Association of Professional Technical Analysts (AAPTA), and a member of the Market Technicians Association (MTA).
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