Sunday, January 13, 2008

The making of a support line


If we look in the chart above we can see how a new support for the Nasdaq composite index is being created around 2440. This tells me that bears who try to lower the price find resistance by the bulls who struggle to slow the momentum and reverse its direction.

The RSI position at 32 indicates the Nasdaq is overbought. We can see that 40 which was used as a support line since August was recently broken. Breaking the support usually turns the line to a resistance and if we look at previous times, in the last couple of years, when the 40 became a resistance we can see that it took the Nasdaq between 2 to 3 weeks until the resistance became support once again. This statistics is correct in bullish periods were corrections periods last about 2 weeks. If the RSI will get back above 40 in 2 weeks I'll consider the last month as a correction or should I say one deep plunge.

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