Good morning traders. It will be important for traders to keep a close eye on the NASDAQ Composite Index (COMP) to help gauge the strength of the reversal in stocks we have seen so far this week. Please observe the chart below.
The good news for bulls is COMP held support of the prior lows (blue line), the ascending trendline from the low on 11/16/12, and the 200 day moving average (200ma).
Although bulls might be feeling confident from this result, they have yet to take control of the market back from the bears. In order for this to be accomplished, bulls need to break at least the 3rd of three short term descending trendlines (red) illustrated on the chart. The steep slope of the 3rd trendline dictates that this will be decided no later than the middle of next week. Of course the worst case scenario for bulls would be a price reversal lower and undercut of yesterday’s low at any point in the near term. This scenario would almost certainly lead to another leg lower.