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January 26, 2006
NDX Medium Term Trend and Short Term Trend
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The short-term trend should be considered with the medium-term trend in mind. When the medium-term trend is up, a short-term decline would be a medium-term correction. The medium-term trend is the bigger trend and carries greater weight. Playing a short-term decline is certainly possible, but it is also a dangerous game when the medium-term uptrend holds the bullish trump cards. As this chart shows, the medium-term trend for the Nasdaq 100 is clearly up. The index broke resistance in November, broken resistance turned into support in January and the index continued higher in early January.
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Now lets turn to the short-term trend. The decline over the last two weeks has been sharp and last Friday’s long black candlestick certainly did technical damage to the short-term trend. In fact, it was enough to turn the short-term trend down. However, this short-term downtrend is still just a correction within a larger medium-term uptrend. On the daily chart, the index is trading at support from the October trendline. On the 60 minute chart, the index firmed over the last three days. Firmness should not be confused with strength. Short-term RSI is still trending lower and the index failed to follow through on two prior attempts to break above 1700. Even though the index is trending lower, the battle lines are clear. First, 30-period RSI on the 60 minute chart needs to break the red trendline and move above 50 to turn momentum bullish. Second, the index needs to break above the consolidation highs (1696). Even though there is resistance around 1740-1750 from the prior high, a breakout here would be enough to turn the short-term evidence bullish and expect a resistance challenge.
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Posted by Arthur B. Hill at January 26, 2006 12:15 PM