Exposing Ideas to the Envelope of Serendipity

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Tuesday, September 28, 2010

Following the Leaders

While I frequently comment on the importance of monitoring the action of leading stocks for valuable clues as to overall market direction, this time I am turning the spotlight on the major indices that have been leading the way in the rally off the August lows. The Nasdaq indices have led this advance in spades, with the $NDX up nearly sixteen percent from its summer low while the $SPX is up just slightly more than ten percent. Very often (nothing is absolute), the leading index in a rally will provide a preview of where the other indices are headed -- particularly when its move is pronounced. Most intriguing in terms of a potential "big picture" view right now are the very long-term charts of the Nasdaq indices, which are moving up to some very key levels and have some extremely positive patterns taking shape. Let's take a look at the $COMPX here, although the $NDX is even closer to a test of its respective "neckline" and possible bullish upside breakout. While I would normally use a logarithmic chart for such a long time frame, in this case the linear view lines up too perfectly to be ignored. However, log fans may take note that the indices have move decisively above the trendline in a log scale as well.

Obviously, until the key horizontal lines of resistance are bypassed, this view is mainly something to be alert to and to contemplate. The bullish patterns currently taking shape have yet to confirm, and are more vulnerable to failure until they have..

Trade well.

-- Brinkley
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