Technical Analysis: Indexes Hold Support

The Nasdaq, the S&P and the Dow all held support again today (see charts below), and with stochastics trying to turn up from oversold levels, the indexes could be in for a bounce. With opinion divided on the sized of an expected Fed rate cut tomorrow, it could be a volatile day. For the Nasdaq, support is 1597-1600, and resistance is 1620-1625. On the S&P, support is 977-980 and 960-963, and resistance is 993 and 1000-1004. The Dow has support at 9053, 9000 and 8931, and resistance at 9150-9200. Finally, more on the new intermediate term indicators we’re testing out (the Nasdaq has given an intermediate term sell signal, but the NYSE has yet to confirm): They are essentially just one more tool, along with charts, internals, sentiment and other indicators, for identifying trend and risk. The goal was to find something that identifies a potential change in trend with a minimum of whipsaws. We haven’t back-tested it over the long-term, so here are the results for 2002 and so far this year. In 2002, buying the intermediate term buy signals and selling the sell signals (playing only the long side; we haven’t tested it on shorting) returned 6%, versus a 23% loss for the S&P. This year the system has lagged the S&P, returning 9% versus 12% for the S&P. There were 9 trades under the system last year, and four so far this year. The biggest loss has been 5%, and the biggest gain 15%. In short, the system may lag in strongly uptrending markets, but provide an added measure of safety in down markets. We’ll continue to track its performance, along with continuing our work on other indicators, but the results aren’t perfect. As we said, just one more tool in the toolkit. We hope you find it of use.

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