$NDX BULLISH PERCENT TURNS UP -- OTHER INTERNAL NASDAQ INDICATORS REACH SELLING REVERSAL LEVELS -- THE 50:200 RATIO ALSO SUGGESTS WE ARE NEAR THE LOWS -- TIME SPAN FOR MARKET PULLBACK IS SIMILAR -- THE HIGH FLYERS ARE STILL DRIFTING

$NDX BULLISH PERCENT TURNS UP... The Nasdaq Exchange has been one of the hardest hit in the latest downturn. While the Dow Jones Industrial Average ($INDU) was hitting new highs and the S&P 500 ($SPX) kept retesting the 1885 level, the Nasdaq Composite ($COMPQ) kept dropping as shown in Chart 1. This week, the market had three strong opportunities to let go. All three days had significant lows below the 20 DMA and on two of three days, new buyers stepped in and closed near the highs for the day. Buyers appeared to be showing up to buy at these levels. Today opened strong but we are losing strength throughout the day. That is worrisome as the bulls were starting to build some momentum. Support sits at 4020.

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Chart 1

The Nasdaq internals are at common reversal levels if we can get some upthrust. The Nasdaq Large Cap 100 stocks ($NDX) shown in Chart 2 appears to confirm that opinion with some of the stocks in the index now turning up on the PnF Charts into full buy signals which triggered the change in the Bullish Percent Indicator ($BPNDX). If we are not able to hold these levels, the stops can be kept tight. You can see in Chart 3, the broader Nasdaq Composite ($BPCOMPQ) has not turned up yet. This change in trend for the large caps is promising, but only if the rest eventually turn.

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Chart 2

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Chart 3

OTHER INTERNAL NASDAQ INDICATORS REACH SELLING REVERSAL LEVELS... Strong stocks are probably turning higher already to make the $BPNDX turn up. With the Number Of Nasdaq Stocks Making 52 Week Lows ($NALOW) above 130 on Chart 4, we can see that this is an infrequent event to see the number of lows spike up to 130. The frequency is low enough to suggest a bounce coming soon in the $COMPQ. If this is like 2010, the market will grind sideways, but strong stocks should hold up. If it is like 2012, these were excellent buying points. If it is like 2011, we probably have another strong rally in us before the bulls are interested in getting more defensive.

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Chart 4

THE 50:200 RATIO ALSO SUGGESTS WE ARE NEAR THE LOWS... When looking to buy near the lows, the whipsaws are large. Strong stocks usually don't bounce around as much. They seem to accelerate from the lows. Chart 5 shows the Ratio of Nasdaq 100 Stocks above the 50 DMA compared to the 200 DMA. ($NDXA50R:$NDXA200R) We can see when it gets at or below the green line, longs become an attractive entry. If wrong, we can place tight stops. If right, we have bought near the lows. I like to wait for the turn up which we now have.

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Chart 5

TIME SPAN FOR MARKET PULLBACK IS SIMILAR ... We have tried to make new lows for 2 months now as shown on Chart 6. We are 46 days off the high. You can see this is a typical time before the market tries to make a new rally. While we can't predict the outcome of the rally, there does seem to be some momentum to go higher.

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Chart 6

We are also at the lows of the Head/Shoulders top as well. It seems like every head /shoulders breakdown has been a buying location throughout this uptrend. Yesterday was one of a few high volume days, however the market did not make upward progress. High volume lows can be a good signal as well. I have frozen the chart on May 7th. I set the green line on the volume to show how Wednesday's volumes compared.

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Chart 7

THE HIGH FLYERS ARE STILL DRIFTING... One concern is the high flyers don't appear to be basing as Telsa (TSLA), Facebook (FB), Pandora (P), Amazon (AMZN), Netflix (NFLX), Google (GOOGL) and Twitter (TWTR) charts show.

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Chart 8

TELECOM INDEX CLOSE TO A 52 WEEK HIGH... The Telecom Index ($DJUSTL) broke out to new 11 month highs today as shown on Chart 9. The Telecom ETF (IYZ) (not Shown) has not been able to break out. It is very timely here that the telecoms are breaking out now. Last year, when the market started to accelerate in May, the telecoms were selling off. This price action points to more safety. However, it might be more rotation than actually have the broad market go lower.

The big three lead this industry and AT&T (T) just broke out to a 52 week high today. Some of the better performing stocks inside the Industry are Century Link (CTL), Level III Communications (LVLT) and Frontier Comunications(FTR).

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Chart 9

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Chart 10

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Chart 11

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Chart 12

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Chart 13

GOLD FALLS BACK BELOW THE 40 WMA... A few weeks ago, the gold miners in Canada really started to jump. I thought there might be more to the trade. Unfortunately, it looks like we will be on the normal cycle for Gold ($GOLD) at this point. Gold and the gold miners barely bounced as the US Dollar ($USD) fell. That can hardly be encouraging. Yesterday, Gold lost $20. By zooming in on Gold's history, we might take some notes on when to get long.

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Chart 14

GLD (Gold's SPDR Tracking ETF) has made nice trade-able lows the last week of June in each of the last 3 years. It also plummeted off the May 1st price levels in all 3 of the last 3 years. Currently it appears to be building a head and shoulders base, but it does not seem to have the required momentum to finish the pattern. We have traded between $1200-$1400 on the $GOLD chart or 115 to 135 on the GLD chart for 11 months.

John covered the $USD on Wednesday's market message. It is at a critical point. Arthur covered Gold and the Euro in today's edition of Arts Charts. Both are interesting if you trade Gold or the Gold miners.
To conclude, the price action is choppy here. Enough of the indicators are marking near reversal levels to make long positions attractive. We still want to see price confirmation to enter this market near the lows.

Good trading,
Greg Schnell, CMT