NASDAQ Technical Picture - Hanging Man to End Bullish Week

The stock indices followed up on Thursday's strong performance with a move to new multi-month highs in opening trade Friday but gains were extremely minimal with the S&P 500 and Dow stalling shy of their 200 day sma, before reversing for some morning profit taking. The pullback retraced close to 62% of the previous day's range before stabilizing ahead of a late day move back to recent range tops. This action carved out a hanging man on the NASDAQ. Hanging men need to be confirmed, so we need to see a close below before we can anticipate a pullback.

That said there are some early warning signs that lead us to believe that a correction is likely at these levels. We see some negative divergence of the RSI and MACD on the intraday chart. Heavier volume during recent intraday profit taking periods. A low fear factor as measured by the VXN volatility index which is testing a key pivot point as highlighted on the chart. This level marked the most recent peaks in October 2007. Other tell tale signs are a general lack of participation in recent bullish action by NASDAQ leaders, as well as financials on the S&P. Also the ratio of stocks carving out bearish engulfing bars vs. bullish engulfing bars: 87:13 on the NAZ and 67:6 on the NYSE.