Long Term View is Sound

The market reversed in a fairly ugly fashion on Friday. Normally this would be a strong warning signal but we are under the impression that the reversal was more about end of the week games and not about distribution. There is a strong probability that the reversal was merely program traders manipulating the index prices by working a few high profile index components. Scans just did not back up the weakness that is reflected in the indices. Moreover, if you pan back to the weekly view, index charts look rosy. Take a look at what has occurred over the past four weeks with the QQQQ (NASDAQ 100). Four dojis printed above its 20-week average. The past month has been frustratingly boring and lots of theories have been flowing as retail traders debate on the direction of the market. Shorts have been burned and longs have been frustrated by stocks that don't move. From the weekly view however, this action has been indicative of base formation. Indicators, volume, and price patterns all favor an upside breakout in the not too distant future.