Are the Indexes Poised to Challenge their 2012 Highs?


The NASDAQ might be on the verge of something big.

ETF Stocks sees a right angle triangle with the flat edge acting as resistance on the top and an ascending line of support on the bottom. Typically, this formation signals an impending reversal and usually occurs near or at the bottom. However, it could mark the end of sideways trading for the index.

Imagine sellers lined up near a specific price; in this case around 2,970.  Since the start of July, when the index approached this level, bears sent bulls packing. Meanwhile, buyers returned at higher levels than the previous correction lows dating back to June 1, 2012 – like an upward moving escalator.

It’s sort of like a chick pecking its way out of an eggshell. Peck, peck, peck, and all of a sudden there is a breakthrough, and the next stage of life begins. The same holds true for the right angle triangle. Bulls peck at resistance over and over again, until bears give up and stocks break free of constraints.

The Dow and S&P have already moved up like George Jefferson (RIP), but for ETF Stocks to rejoice with stocks rolling up and down, we need confirmation. Two out of three might make for a platinum or gold record for Meatloaf, but it doesn’t work for the stock market. Until the NASDAQ joins its cousins on the east side, investors would be wise to act cautiously.

Once the NASDAQ shows us 2,980ish, the trio of major indexes should challenge their 2012 highs.

Despite Ben Bernanke disappointing Wall Street by withholding the Street’s zero interest welfare loans, it’s expected that the Fed will ease on September 13. The algorithms are counting on the European Central Bank pumping out Euros and China stimulating. High frequency traders anticipate a tidal wave of money that will need a place to flow.

Of course, stocks will be a beneficiary, but so will commodities and, unfortunately, inflation, too. Intuitions might be tipping their cards. iShares Silver Trust (SLV) and ETFS Physical Silver Shares (SIVR) triggered our 50-day moving average reversal screen. We prefer SLV as we think the exchange traded fund has upside to $30 and downside to $25.60ish. It closed last week at $26.96. In our opinion, it offers investors a 2:1 reward to risk ratio. We’ll take it.

We would also consider adding SPDR S&P 500 (SPY) now, and PowerShares QQQ (QQQ) if and when it rids its shell at 2,980.

Good luck, and we'll see you next Monday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs , Investing Ideas , Stocks

Referenced Stocks: QQQ , SIVR , SLV , SPY

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