During the depths of despair encountered over the latter part of 2008 the percentage of Nasdaq stocks above their 200-day MA languished below 10% for the best part of 5-months. The percentage of stocks above their 50-day MA enjoyed a brief rally from 10% to 70% before heading lower. While the bullish percents struggled to challenge the 50% mark.
If one was to flip this scenario on its head and apply it to the courent situation. the likely view going forward is the next 4-5 months will see the Nasdaq break lower with sizable downleg, perhaps taking it to a wide band of support running between 1,650 and 1,750. From there it will mount another challenge on September highs - possibly breaking through to continue the rally.
It's highly unfeasible the Percentage of Nasdaq Stocks above their 200-day MA will drop below 50% (this would require a crash-like move in the market); so expect this to meander in its upper range as stocks remain well above this key long-term average.
There is greater potential for a reversal in the Percentage of Stocks above the faster moving 50-day MA and Bullish Percents given the tight daily action of recent weeks will have set-up new point-n-figure signal-conditions and allowed time for the 50-day MAs to catch up with price action - making the latter vulnerable to breaks.
There is little to suggest the next major move down will not set-up another good tradable rally higher; perhaps overshooting a little past the 200-day MA. The May reaction low c1,664 is looking a good place for bulls to put up a defence. What happens on the second attempt at September highs will dictate market conditions going forward.
I have entered a Zignals Call for a push down to the low $33s for the QQQQ with a stop on a break of September highs.
Over the near term, look for the narrow action to continue until there is a decisive break of the Nasdaq 50-day MA.
Follow us on twitter here
Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts, stock charts, stock screener and stock portfolio manager website