Today is March 8, 2006

Last week we showed a chart of the NASDAQ with the volatility slow indicator below it. The purpose was to show how dramatically the volatility in the stock market has decreased since 2000. This week we are using a different volatility indicator, Bollinger Band Width. This is a weekly chart of the NASDAQ 100 and we have added a 50 day moving average on the indicator. Just like last week's chart, you can see how much the volatility has decreased in the past five to six years. Eventually volatility will have to increase, but for now we have no choice but to sit and wait. You can see a great example of how nonvolatile the market is by looking at the second of the two charts below. It is a chart of the NASDAQ 100. From the peak in January until the possible February 10th bottom, the NASDAQ 100 fell less than 7%. That is definitely a slow downward move.


Commentary

Well, there is good news and bad news since last week. The good news is that the S&P 500 and Dow Jones Industrial Average had an outside day today. We have talked about outside days in two other commentaries and you can see the effect of the outside day from the the first day of the year in both charts below. Quite a strong rally followed. The bad news is that the NASDAQ 100 is still in a clear head and shoulder formation and SMH has broken the neckline of its head and shoulder formation. SMH did fall into its 200 day moving average today and was able to close above it. If SMH does not start rallying in the next few days, the NASDAQ 100 will most likely break its neckline as well. The NASDAQ 100 and its tracking ETF, QQQQ, have had a large amount of volume in this last drop. Usually head and shoulder formations have light volume on the right side. This is a small positive for what seems to be a clear bearish formation.

The first chart below is of the Russell 2000. Even though the Russell 2000 did not have an outside day today, the index did have a reversal day, ran into its 50 day moving average, and had its low right above the uptrend line from October 2005. This is definitely a positive and would possibly suggest the end to this correction.

The indices are telling different stories right now. The outside days on the S&P 500 and Dow can be viewed as extremely positive, as can the Russell 2000 falling into what is usually strong support (50 day moving average and uptrend line). Technology has continued to be very weak. We really need a strong turnaround in technology if we are to believe that the correction is over.

Take Care,

Stephen Brown
Founder of Nasdaq Wizard, LLC