The Nasdaq Composite and S&P 500 continue to hold up despite being overbought in the short-term. It is possible that the averages may simply consolidate by time rather than price, which would allow the rising 10-day MAs to catch up.
When the market is in a strong uptrend, we have seen a major average ride above the 10-day MA for 30 to 40 sessions before breaking down. Is the Nasdaq ready to launch another multi-week run above the 10-day MA?
Current long positions in Facebook ($FB) and Twitter ($TWTR) have failed to extend much beyond the original buy point but are still trading in a tight range. These tight patterns may need a one or two day dip below the 10-day MA to scare away the weak longs.
An undercut of the 10-day MA intraday, followed by a bullish reversal to close near the highs of the session, would produce an excellent low-risk buy point for those who missed the original buy point on August 13.
With our market timing model on a clear "buy" signal, the focus in our nightly swing trading lettershould be on locating low-risk entry points in top ranked stocks.
Deron Wagneris the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, andMorpheusTrading.com, a trader education firm.
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