Steve Zito, Wharton School BS Econ, MS Fin, 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 on for your investment decisions.
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NASDAQ COMPOSITE
INDEX closed 1361.01

Aug. 19, 2002. Is this Nasdaq Rally for REAL?

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Go To Page 2 August 16, Nasdaq Composite closed at 1361.01 +16.00 Nasdaq surged 101.46 (+8.1%) since Aug. 6 page. On a 10-day chart, Nasdaq 0.4% above moving average support 1356. RSI, MACD stay positive, reflect continuation of major trend change to upside in past 9 days which began August 6 at Nasdaq 1206. I forecasted volatility would drop into August, it is but not so quickly. VIX (volatility Index) hit a peak 57 in July, by last Friday was 32. Investors like certainty not wild trading swings. The money fueling Nasdaq rally is not long-term investment money, but so-called "hot money." The best time for low risk stocks and stock options is when markets sleep, and not volatile. The Aug. 14 closing at 1334 was significant in that momentum trend players keyed on it. Nasdaq gap opened Thursday 1350 but sold off to 1320. Traders became confident as evidenced by drop in Put/Call ratio Friday. My subscribers long Intel, AMD, Sun, and outperformed the Nasdaq's 4.2% advance last week. Nasdaq short-term stochastics neutral 50%/70%. Expect move to Nasdaq 1400, before a short-term is over-bought. There are many waiting for pullback to get on board. On intermediate 90-day chart, Nasdaq 2.7% above moving average 1325. 90-day RSI, MACD very positive as downtrend since May 28 appears finished. Stocks gaining off historic low yields under 3.95% in 10-year Treasury notes. Stocks will be able to return higher than 4% average annualized returns for 10 years. Money from Asset allocation out of Bonds could push Nasdaq 20% higher. If insurers, banks, pension funds perceive Bond rally is over, there will be stampede into stocks. 90-day stochastics are cautionary, extremely over-bought 92%/95%. The intermediate stochastics had forecasted an immediate pullback to MA 1300 Thursday, but after gap open 1350, pullback was only 1320. This proves buyers want to get in at lower prices, "buying the dips." Traders waiting to get on board watch the Nasdaq Futures 7:00 AM. Long-term Nasdaq moving average support is 1350. Nasdaq's 2-year downtrend was pierced to the upside for the first time since mid-May from significantly lower level with recent low at 1206 (May low 1540). Waiting to return is a significant portion of the $47 billion which fled stocks in July. It would only take 10% of the investment that has fled Nasdaq in the last 2 years to push the Nasdaq Composite Index up to 2100 in 3 months. RSI, MACD negative, rising stochastics are higher at 75%/48%, confirming uptrend. Subscribe to my Email Newsletter, and get 2 to 3 issues a week for 6 months for $50. My Aug. 15 issue, "Nasdaq would sell off sharply on early gap opening at 1350." That is what happened. It opened near 1350, sold off, and rallied back to 1350. I'm better than methodology used on Wall Street. My 150 newsletters published here in the past three years, please visit my Site Directory and see if I was on target. Especially one year ago, when I forecasted the deep recession and U.S. unemployment going from 4.6% to 5.9%.
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