Key NASDAQ Levels for 1/13 UP Above 1,450 DN Below 1,440

[haj600]

Drop and Pop
NASDAQ fills morning gap to end day higher. Watch triangle boundaries Monday.

The commentary on this page is based on the NASDAQ Composite index. Equivalent numbers for the NASDAQ 100 are in ( ) within the commentary. - SW Team
From Yesterday's commentary, "...The NASDAQ ended the day consolidating at the highs just beneath resistance (15 Minute Chart), which implies further strength tomorrow...A break either way from the consolidation is likely to determine the day's trend..."

The NASDAQ gapped down this morning, a Drop and Pop. The index immediately filled the gap to the upside and ultimately end the day positive. This once again points to the reason for our 30 Minute Rule - going Short at the Open would have been a big mistake.

Looking at the 15 Minute Chart, you see that the NASDAQ consolidated at the relative highs the rest of the session, forming a triangle pattern that is very "tightly wound" to a point. This gives us very tight but solid levels to watch for breaks. We will watch 1,450 (1,090) up, and 1,440 (1,080) down for the break, as a break of either of the levels has potential to move the index.

Short Term NASDAQ

Short term, the NASDAQ has formed a clear bearish pennant in the 1 Minute Chart. This is an indication of a possible downside break for Monday's Open. Watch 1,445 (1,085) for the break.

Medium Term NASDAQ

In the medium term, we closed our Long position this morning at the Open at 1,422 (1,060), taking a 7 (11) point loss in the trade. We later entered Long at 1,443 (1,082), but took a 5 (5) point loss in the position. We are now out of the market and will watch 1,450 (1,090) up, and 1,440 (1,080) down for Monday's market, with 5 (5) point stops. Observe the 30 Minute Rule.

Summary

The NASDAQ did a "Drop and Pop" today, sending the index higher after intially gapping down at the Open. The index ended the day near the session highs within the boundaries of a tight triangle. Watch the tight boundaries for Monday's market: 1,450 (1,090) up, and 1,440 (1,080) down.

 

[haj600]

(!) Definitions:

SHORT TERM VS. MEDIUM TERM: Most short term commentary is relevant to day traders for the following session. The Medium Term is 1+ weeks. In our Medium Term commentary, we are trying to get "on the right side" of the market for an extended, medium term move. Sometimes, these moves last only a day or two. The more typical duraction is 3-5 days and occasionally 2-3 weeks. It all depends on the levels that establish themselves, and how tight our stops are.

FULCRUMS: A fulcrum is essentially a "line in the sand" or "demilitarized zone" in the battle between bulls and bears. These lines, identified by experience, are equilibrium points between buyers and sellers, and are usually found in the centers of consolidations (trading ranges). When price moves away from a fulcrum, it usually moves quickly and a great distance.

TRADING RULES: Unless otherwise noted in the commentary, we ALWAYS follow the following four rules each day, starting with our levels.

Rule #1, The 30 MINUTE RULE: It is best to wait 30 minutes before entering new medium term positions. Otherwise, you can easily get caught in a fading market, since markets often gap in the direction of trend at the Open, and then fail. For the purposes of this commentary, we will only enter trades after the first 30 Minutes of trading have played out. If our entry level is triggered before the first 30 Minutes of trading have passed, we will wait until after 10:00 AM EST to enter the position upon the crossing of the intraday high (or low) made during the first 30 Minutes of trading. That is, if our Long entry trigger level is 8,500, but the high formed during the first 30 Minutes is 8,550, we will enter Long above 8,550 after 10:00 AM EST. No positions are entered in the last 30 Minutes of trading.

Rule #2: The HIGHER HIGH RULE: When we establish a fulcrum, we watch for higher highs or lower lows around the level, and do not enter again in a move away from the fulcrum unless the recent highest high or lowest low has been broken. By doing this, we are able to avoid multiple whipsaws -- UNLESS there is an expanding triangle - a rare occurrence.

Rule #3: VOLATILITY RULE: The Higher High (Lower Low) Rule will get us in after we are stopped out, provided the market makes another attempt in the same direction. However, after 2 losses in a row, we are likely to be forming a consolidation and therefore will not trade a 3rd time (i.e., a third Long or a third Short, in a row).