Sunday, October 01, 2006

NASDAQ Technical Picture - Bearish Engulfing Pattern

Friday's action was long overdue. This rally needs to consolidate before earnings season starts. The NASDAQ carved out a bearish engulfing pattern after edging up higher earlier in the week. The session opened with some profit taking, consolidated midday, and the selling resumed in the afternoon and into the close. The SOX paced the way down, followed by networking. Hardware (RIMM) gained 7.5 points or 2.14% on the session, almost all of which transpired in the pre-market. The NDX winners were RIMM and NIHD, both of which gapped up on the open but closed at or near their lows for the day (bearish sign).

The weekly timeframe of the NASDAQ shows that we have rallied back to the broken trendline, however, we have yet to recapture it. In my mind, this will require further momentum propelled by a strong earnings season. A closing target of 2290-2300 would bring us back above the trendline from our current threshold at 2258.

The QQQQ 60 minute timeframe is signaling a pullback. Rounded tops are bearish because they imply an over supply. A potential short trade is setting up on a high volume break of $40.50 (preliminary target $39.75 - $39.50)


Anonymous said...

I enjoy your blog, but there is no bearish engulfing pattern in place on the Nasdaq. A bearish engulfing bar "engulfs" the prior day's trading range and closes down on the session. Friday's low held well above Thursday's low. It closed near the low of the day, but that doesn't make it a bearish engulfing bar. For an example of a bearish engulfing bar, look at 9/21, instead. While I think a pullback may be in order soon, Friday's action held support and is fairly neutral after a week of gains. Have a good one.

TJ said...

I'm glad you enjoy the blog and hope you continue to enjoy the blog going forward even though we do not share the same definition of a bearish engulfing pattern. My bible when it comes to candlestick charting is Steve Nison and according page 43 of the second edition of "Japanese Candlestick Charting Techniques", there are three criteria for a bearish engulfing pattern:

1. The market has to be a clearly defined uptrend.
2. Two candles comprise the engulfing pattern. The second real body must engulf the prior real body (it need not engulf the shadows).
3. The second candle should be the opposite color of the first real body.

I believe that we met all of the criteria for a bearish engulfing pattern on Friday. And, BTW, I also called it on the 21st. So, two bearish engulfing patterns in the space of eight trading sessions is very bearish indeed.

Good trading!

Glenn said...

Nice call on the Q Jamie, break of 40.50 just after NY gets back from lunch with x-high vol. I think they all read your site.

TJ said...


Hey Glenn,

I was bearish going into the session, but the AAPL downgrade certainly helped put the Q's on the defensive today.