Steve Zito, MS Fin/BS Econ Wharton School, HTML Writers Guild
uses economic and technical analysis to forecast the direction of the stock market. The views in this newsletter are opinions only, and should not be solely relied upon for investment decisions.
Nasdaq May 6 Trade to Win Sitemap Nasdaq Big-Cap Research

NASDAQ COMPOSITE
INDEX closed 1652.54

Nasdaq Rally ends 1766 - May 14, 2002

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May 14. Go To Page 2 Nasdaq Composite closed at 1652.54 May 13. Nasdaq has gained just 39.51 (2.4%) since May 6. On a 10-day chart Nasdaq is 0.7% above moving average support at 1641. RSI, MACD barely became positive but stochastics rose to over-bought Monday. Stochastics finished higher 100%/88% for short-term bearish forecast. Short-term Nasdaq very over-bought and vulnerable with no sense of direction. Traders note chart gap target remains from 1582 to 1636 (the gap was left on May 8). Nasdaq did not successfully fill this gap in Thursday and Friday selloff. May 13 bounce is so premature, most likely short-covering ahead of Dell's earnings. The media now playing this as "the real thing" but more downside is coming. On intermediate chart Nasdaq is 0.9% above its 90-day moving average support 1638. Nasdaq 90-day moving average has turned up, sideways and neutral. Non-stop stream of bankruptcies, accounting frauds severely limits enthusiasm. Intermediate RSI, MACD have been very negative for six straight weeks. Nasdaq 90-day stochastics climbing but stay neutral at 65%/50%. The tremendous 8% surge in Nasdaq on May 8 was only short-covering by the hedge funds and arbitragers who relentlessly punished Nasdaq with all of the easy money Federal Reserve created. Once rally started May 8 with gap opening on Cisco's mediocre $0.10 Q1 earnings traders bought trying to fill a chart gap from 1766 to 1798 (left on April 22). The rally lasted only a day May 8, because it was a 54-point gap opening. When Nasdaq rallies for real, will go straight to 1766 but that will be it. It is then likely Nasdaq will decline again to test the latest low near 1565. My readers were recommended this year to start buying 100% at Nasdaq 1620. The 1620 level is close to where Nasdaq will soon be trying to make a solid bottom. Long-term Nasdaq moving average resistance is 1685. Nasdaq currently testing the 1620 level, and last week's failure to hold 1620 in the break to 1565 signals no end yet for a Nasdaq 2-year Tech Stock Bear Market. Short and intermediate charts never showed Nasdaq declining as low as 1620 but the long-term charts always did. The lack of follow through after May 8 rally is evidence of another test coming. RSI, MACD negative, oversold stochastics rising to 31%/21%. Long-term chart forecasts potential bottom in June. Long-term, Nasdaq needed to hold 1620 for reverse head and shoulders. In other words, the first low at 1620 was made in April 2001, then a cyclical Nasdaq low was made in Sep. 2001 at 1386, and now the other shoulder could have completed with last week's successful test of a Nasdaq 1620 level, except Nasdaq plunged through on May 7 to below 1570, forecasting more down days before Bear Market ends. The current cycle is identical to the 1980-82 period. Republicans pushed unemployment to 12%, Dow went to 772 in 1982.
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