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However, in the short term - now that the Nasdaq has found temporary support at 2240 - a rebound to test the slanting hypotenuse of this triangle at approx. 2300 is likely to occur. The inverse correlation between the Nasdaq and the OTC Bulletin Board Trin Indexes seems to be in agreement with this assessment.
Comparing the Nasdaq Trin Index against the OTC BB Trin Index came about accidentally while chatting with other fellow chartists sometime last year. Of course, back then I had no idea that it would turn into something significant. Without getting into specific technical details, generally speaking, the Trin Index below 1 is considered bullish, and the index above 1 is considered bearish. The blue horizontal line on Chart 2 is at 1, which is neutral. Every time the OTC Trin (red curve) crossed above the Nasdaq Trin to the upside, the Nasdaq market turned upward. It happened at the end of August, September, October, and the beginning of 2006. However, when the Nasdaq Trin dropped below 0.80 (left axis), which created a wide gap between these 2 Trins (blue arrows), it marked the short-term top of the Nasdaq market. And, that happened in mid September, end of November, and mid January (black circles). Last week, the crossover between the OTC Trin and the Nasdaq Trin took place again. The Nasdaq Trin is now under 1, which is in bullish mode. While the OTC Trin may have reached the extreme high and getting ready to come back down, the Nasdaq Trin has yet to reach the extreme low of 0.80. The Nasdaq Trin is currently at 0.92. It's likely to decline further before a reversal takes place. And, that would have to be supported by a few more days of the Nasdaq Trin staying below 0.90, which means a few more updays for the Nasdaq market before it goes down again. Another market breadth Indicator, the McClellan Oscillator, seems to be in agreement with the Trins.
The Nasdaq McClellan Oscillator on Chart 3 shows that whenever the 20-day MA (moving average) crosses below the 50-day MA, a short-term rebound is due to happen. The interesting thing about this crossover is that it works on almost all stock charts. Although it's longer term bearish for the 20-day MA to stay below the 50-day MA, the crossover does provide a temporary boost to the market. And, I'll leave that to my readers to determine why. For me, the best way to learn is always to find questions, not answers. In any case, the 20-day MA of the McClellan Oscillator crossed below the 50-day MA on October 10, December 20, and Friday. The Nasdaq bottomed both times on October 10 and December 20. A temporary bottom is due to happen again soon.
Under the circumstance, next week or two, may present a great opportunity to sell into the rally before the market begins to trend downward.
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