December 22nd, 2009

Nasdaq 100 Jewels Beginning to Appear

I happened to catch Carter Worth of Oppenheimer & Co. on Fast Money tonight and I was amazed to hear him agree with me or, as he might see it if we ever had a chance to meet, that I agreed with him. It’s fascinating how two experienced technical analysts can look at charts and arrive at identical or, at least, similar conclusions.

Carter anticipates a short, shallow correction followed by a continuation of the bull market. What was even more striking to me, however, were his specific stock recommendations: IBM and AMGN. Not only did he see some upside opportunities in those charts but, dare I say, he liked them from a fundamental perspective also. For example, he pointed out that while IBM is at the same price it was at its peak 10 years ago, today’s P/E is around 11 as compared to the over 40 P/E back in 1999 (unfortunately, I failed to note the actual numbers). Amgen presented a similar technical and fundamental picture.

Carter may have been constrained by the broadcast schedule but, without those constraints, I had seen the same thing for some time and would even go father and say that the one area of opportunities in the next leg of the bull market (after the correction we both see coming in the coming New Year) is among nearly any of the large-cap Nasdaq stocks.

Scrolling through long-term charts (10 years or more of weekly and 9-day price/volume bar charts) of the Nasdaq 100 stocks and underscores one or more of the following common bullish characteristics:

  • 54 of 100 are have “bull crosses” alignment in their moving averages (price>50>100>200>300-DMA)
  • 74 have “golden crosses” in their moving averages (100>200-DMA)
  • 41 of 100 have 300-DMA that are upward sloping
  • about to break into new all-time high territory
  • successfully testing recent past resistance levels as support levels
  • breaking above extremely long-term downward sloping resistance trendlines
  • stocks in the group have out-paced the S&P 500 Index in that: 29 exceed their levels when the S&P peaked in October, 2007, 64 have better performance than the S&P since the S&P peaked and 54 have performed better than the S&P since the March 9 bottom

Contrary to the views of some readers, I am not a perma-bear. Actually, I usually remain optimistic much longer than I should and actually have a difficult time of restraining myself from buying stocks. But there are times when caution is warranted and the market’s recently being locked in a 2 percentage point channel is one of them.

But I would be remiss in not mentioning that the Nasdaq Composite has recently broken above a similar horizontal channel indicating that some NASDAQ 100 stocks have already begun climbing.

Some components of the Nasdaq 100 look awfully compelling, like ORCL:

and AMZNand IBM

It’s exciting, about as exciting as it felt back in March with all those clear reversal bottom patterns (remember, “shooting fish in a barrel”?). So far, however, it’s only a prospect, a possibility rather than a strong momentum ride on which to piggyback. After the correction Carter and I are expecting, however, this will be the place I begin mining for new opportunities.

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  • Jesse Caris

    guru, they originally posted a 3.5% gdp number for last quarter, but today we find out the real numbers were actually 2.2%, well short. We're at a critical point in the markets and everyone's trying to figure out which way the next move is. How do you think this number will effect the markets?

  • Minnesotalee

    Technicals indicate the SP500 at 1295; DOW30 at 12000; Trans at 4850 which confirms DOW THEORISTS (I use as curiosity only); and UTIL index at a wopping 508. The first three indicate approximately a 15% move from here and a 26% move up in utilities for early 2010. There will be minor pullbacks but nothing large since there are $$$ waiting to get in. It's all about technicals, but the fundamentals are beginning to sing the same tune.

  • Anonymous

    Guru, what is your take on XLF ($14-15)- Up, down or no change for next couple of month??

  • Joe

    Neutral on XLF for time being. Financials are having their correction from the March low recovery, breaking above the neckline of a 9 month inverted H+S bottom reversal pattern. This correction could be called a "buyers' remorse correction.

    Will the neckline at 13 support fail? I think not. It could take another 2-3 months before upward momentum resumes again.

  • Jesse Caris

    regarding the XLF, the 50MA and 200MA are getting closer and closer. The XLF is forming a head and shoulders and if it breaks, which I believe it will within the next couple months, the XLF will dip back to 11 quickly. You can see this same pattern showing up in a lot of stocks right now, but almost all of the financials. Look at the charts. You missed your chance to get out of XLF on Oct 14th.
    Minnesotalee, you have the boldest prediction Ive heard so far. You must be reading and looking at a completely different stock market than I am.

  • Minnesotalee

    Jesse- we'll see; I have seen your sell predictions here for several months and all along your method has been wrong, whatever that is. The 1295 on the S&P and the bull run thus far has been only a disappointment for you but been a prediction of mine on this blog since August. There is no technical indicator that you can show that would be contrary to these price objectives. It seems to me you are not a technician but a somewhat fundamentalist. Many times the technicals and fundamentals are not in agreement. But this is changing and the fundys will catchup with the bull market.

    I guess you'll change your tune when the fundamental (oops) GDP exceeds 5-6% in 2010! The markets continue to make new highs and the bears continue to get beat-up. This the wall-of-worry, and you'll sell and I'll buy until the technicals tell me different.

  • Minnesotalee

    Since the revision of the GDP, the market is up 300 points. I guess that's the critical point J. In other words don't fight the tape. Market will continue ahead,

  • clueless

    guru, u once mentioned lunar cycles/markets- why is this not a bi-monthly topic? Why only was it only relevant that 1 time??Please update us.

  • Jesse Caris

    lee, 5-6% GDP – lol! the government spent billions just to turn in a disappointing 2.2% GDP. They can't keep the spending up. I think you are forgetting that 70% of GDP is consumer spending and the consumer just finished spending there last dime on Christmas. Remember, I predicted the market would go to 1100 and top out there. We have stalled right about 1100-1125 range for a couple months now, essentially moving sideways. I was wrong about 1100, but I see more and more stocks across the boards starting to form head and shoulders patterns showing signs of tipping over. Fundamentals will catch up. I believe we could easily see a huge down day like we did back in 1987. We'll prolly go near 1150 and you'll see the sell off begin.

  • Jesse Caris

    lee, do you disagree with what I wrote regarding the XLF? have you looked at the chart? and do you not agree that the same pattern is showing up in a lot of the banks? Look at GS

  • Jesse Caris

    last comment. it will be interesting to see who is closer points wise to the top. I had 1100. You have 1295. Remember this post and we'll revisit it in a few months, maybe next year.

  • Minnesotalee

    Jesse- I have the XLF going to 21,5 in the next 6 months or less. You may not want to believe it, but the recent pullback in the financials allows a golden opportunity to buy here. It may go down a point but the next move is higher as indicated above. I by no means am right on market calls all the time, just 87% of the time. I use a statistical technical approach based on patterns. The best patterns with the highest probability are the ones I buy or short depending on the rising/downward momentum. For the XLF, SP500, DJ30, Trans, and utility index referenced in the earlier post have the very highest degree of succeeding to those PO's. I am not overly estimating these price objectives; I have estimates that are genuinely reasonable and realistic. I believe are GURU here has made a PO in the SP500 higher than mine in 2010. I think he wants a correction in the meantime. I feel we will not get the magnitude correction Joe is anticipating. We are in a bull market that has a series of small corrections (5%) and then resumes its rise. What system do you Jesse use? I've been very curious for the last 5 months that I have replied to this blog. It seems to me you are maybe throwing darts? Lastly let's look back in April/May about my predictions vis-a-vis yours. We may find out that I am wrong about 1295- maybe it will be even higher. This price objective can be revised by the charting technique. If it changes, I'll blog it. Happy New Year!!!

  • Minnesotalee

    Jesse- I looked at GS and am not positive near term. I have it going down to 146 notwithstanding the patterns being above the bullish support line (BSL). These stocks, as well as the XLF, need further accumulation before I'd buy any of them and ONLY on a new buy signal. I suspect though that this stock could eventually give a PO in the mid 250's. I will be watching for the correct time however. The bull market I am playing is in the metals, mining, agriculture, steel, coal and the techs like AAPL, NVDA, STX, and WDC– all with great high statistical BUY patterns. I bought these much lower and the patterns were convincing then and still are. Jump in the water it is warm in the right spots. High beta stocks like these are more fun to play than the banks, retail, and pharma areas. Everyone has there game plan and this is mine. I am negative on the USD. I easily am predicting it to make new lows in 2010. Again Happy New Year to you and Joe. I am just perplexed on what you are doing. I shouldn't be but it is natural to get your outlook since you are on the opposite side of the coin and I can't see it. Try to enlighten me; I have given you mine.

  • Jesse

    lee, I'm obviously not an expert! I read and follow a lot of elliot wave and gann guys.
    If GS goes to $142, you're talking about a 15% correction from here and 26% from the top. That would take the XLF down to about $12. I said we could easily go to $11, so we're not to far apart here. And that's where the make or break moment of this bull run will be. If we fall more than 15%, the run will be in serious jeopardy.
    Another note: Apple is a fantastic stock, but I wouldn't want to buy anything that's sitting at a 52 week high. I'd wait for a decent pullback imho. happy new year!

  • Minnesotalee

    Don't base the markets' future based on GS maybe going to 146. If it does, it's only a pullback. Gosh the stock gave a buy signal in April09 at 88. It needs one. However GS and the XLF are in bullish trend modes. There will be pullbacks along the way, but I am waiting for the signal that the pullback is over and I'll be all in on this stock. From a relative strength view it still may not be a group I'll put my $$$ in. I have given my views on sectors and stocks; I wonder where the guru is positioned in his top 5-10 stock picks. Even the fundamentals lately are getting better; look at the business news! Many teck gurus have higher targets than mine; then some have them lower. I feel based on my correlations, I need to be all in equities with the exposures listed in my previous blog.

  • Minnesotalee

    AAPL going to 231. It made it's pullback in November of 12%. We have been in a consolidation period for many stocks including mine. This may give you some grief that the breakout just happened to the upside. Give it a few months and let's revisit. Many pundits want you to believe the market is unsustainable. The reason is that they're not in. They are trying to talk it down so that they can get in. When they are squezzed they'll frantically buy and propell this market to levels higher than either Joe or I have written here. My calculus teacher told our class the following: "figures don't lie but liars may figure". I many years later have never forgotten this wise woman's words.

  • Joe

    Jesse and Lee, thank you keeping this conversation going while I have taken a long needed rest over the holidays to recharge my creative juices.

    I think I have to take Lee's side of this argument about the XLF and GS. Financial stocks (banks, insurance, etc.) will turn in unison with the market … or vice versa.

    I'm beginning the think that this 4-month lateral move has been that correction we've been all waiting for in disguise. Ever time there's been a move down, big sidelines money has flowed in to sop it all up. Which will run out first, the sidelines money or sellers looking to lock in last year's huge profits? Answer that and you'll have a look at what the market does during the first half.

    BTW, hope to have regular posts return on Sunday.

  • Jesse

    I actually thought that the guru's blog right before this one was very good and kinda helps my case. But like in every market, there are always those who buy at the top believing that the run will never end setting huge targets. We've had bubble after bubble, but traders never learn to take profits while they can. The market starts to give us warnings that it's losing steam, but the warnings are ignored and a lot of it is due to greed or not wanting to miss the move or I might say the media (shows like Cramer and Fast Money ect.). I'm comfortable staying short the financials or in cash here. I still can not convince myself to go long after a 60% rally. The markets continue to move sideways. I don't think you can say this is bullish or bearish right now. Neutral would be a better word to use. Nice if you're a day trader. we're 22 points over 1100. I'd still call it a topping process. I think we hit 1150 or close to it before we see a significant pullback. Over the past 4 months, investors are not finding reasons to buy overbought stocks. The move is not sustainable.