More Long Term Thinking

Last week I posted a chart on the S&P 500. It was through the lens of the Renko trading methodology at stockcharts.com; a method that solely focuses on price and ignores time. It is in other words, pure price action. the S&P chart, if you remember, showed the S&P correcting from its 1200 highs but remaining above the major trend moving average. Today, I look at the other three major indexes in the marketplace; the Nasdaq 100, The Dow Industrials and the Russell 2000.

Nasdaq 100

As the chart shows (along with the others), the trend of the renko chart for the NDX 100 is higher and broke out with price action over the past few months.  In theory the market should migrate towards the next trendline drawn on the chart but that is rather simplistic as I use many other variables to confirm a trendline. The RSI model that the momentum is currently bullish and moves over the 2000 and to the 2500 level would not be unreasonable. With the move also over the 13 month MA, the bulls hold the ball. Key now is to take out the 2000 level as that would make a higher high and get the bears back on their heals rethinking this "double dip" talk that has swarmed the street and the airwaves over the past few weeks.

Russell 2000
The Russell 2000 shows the same bullish setup as the other charts mentioned with a move over the 13 month MA and an break above the 550 level that contained trade in the bull market of the 1990s. A move over the 750 level would argue that the new bull market is in full force and higher highs will be seen in the other major indexes (though the Nazz has a long way to go). RSI argues that the momentum is higher so this chart argues the bullish story as well from a long term momentum standpoint. In the past when the RSI has moved over 70 on this chart, we have seen the Russell move up appreciably. This is by far the strongest of the charts shown here.

Dow Industrials
The Dow Industrials chart shows a distinct double bottom and trading range for the most part with a false breakout above the 12000 level during the last bull market. Thus 12000 is the level that will provide the biggest resistance for the market. From an RSI standpoint, momentum has not confirmed on the upside and from a negative standpoint, if the momentum in this index peters out here, downside momentum could pickup. I would not argue that is a high probability at this point but it is worth mentioning giving the lagging momentum of this indicator relative to the S&P 500, the NDX 100 and the Russell 2000.

So on balance, taking these three indexes together with the S&P one discussed last week, the trend is higher for the markets from a momentum standpoint. Generally speaking, each downturn in the markets has seen the RSI get to an extreme point and then fall lower. We have not seen that in the Dow yet which argues stocks move higher before the possibility of a bear market kicks in. Thus I am bullish.

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