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Shaving God's dice
Time to start bottom feeding the NASDAQ 100
by Adam Lass
Sitting back at the end of the day, feet up, martini in hand, watching the evening news. Guy in the high priced suit and airbrushed hair says the NASDAQ's up 100 points. And you think, "God, if only I could have seen that coming, I could have made a mint."
If only you had an accurate barometer of the market, a true indicator of fair or stormy trading, you'd be — well, I don't need to tell you how rich you could be. It would be like owning a lock on the million-dollar lottery number or the winner of next Saturday's Notre Dame game.
A drunkard's walk
It's a shame, but no such crystal ball exists. At least that's what we're told by the experts. The market's path is a drunkard's walk, a blind stagger from side to side — total, fluid chaos. You've seen and heard it a thousand times: Past performance does not guarantee future profits.
Well excuse me. After all that conventional wisdom, I'm going to tell you something that may sound odd and maybe a little off-putting, but here it is: You can predict the future.
God's dice
This issue of predictability is hardly new. Einstein spent his life sorting out the hidden order underlying the seemingly random universe, only to see critical aspects of his theory shredded by Heisenberg's "uncertainty principle."
Einstein's answer that "God does not play dice with the universe" is finally being proven right by the newest generation of chaos theorists (although the dice may be shaved, mind you). And lo and behold, when these same tenets are applied to the drunken market, repetitive, predictable patterns begin to emerge.
When this sort of number-crunching is applied to the financial sector, it's called technical analysis (or TA for short). And while it may not be able to tell you if the next card in the deck is an ace, it sure can tell you the odds on drawing an inside straight.
Crowd behavior
I love to watch crowds of all kinds. Folks in the supermarket, kids at concerts, demonstrators at rallies, traffic jams. Crowds like these may be composed of unpredictable, individual elements, but once these elements come together as a group, they behave almost as if they are alive, and they all establish predictable patterns.
TA can't predict the news — it can't tell you whether some judge will try to break up Microsoft. But by quantifying the past behavior of the great sweaty mass of investors, it can measure the herd's readiness to hear that news and make predictions as to the likelihood of investors moving in certain directions en mass. And it is those predictions that you can act upon to your profit.
When to buy and when to duck
The TA method I use is a proprietary system developed over 10 years. It's a blend of both western momentum methods (primarily Martin Pring's Technical Analysis Explained) and Eastern reversal indicators (Steve Nison's ground-breaking Japanese Candlestick Charting Techniques).
It's enabled me to call every major turnaround of the past few years in my own newsletter, Penny Stock Fortunes — including 1999's midsummer head-and-shoulders top and this year's March top and May bottom — well in advance of the actual turnaround points.
For this column, I'll be using 52-week candlestick charts of the NASDAQ 100 (NDX) Index, which tracks the top 100 companies on the NASDAQ by capitalization. This includes such well-known tech giants as Intel, Microsoft and Cisco, as well as critical financial, industrial and pharmaceutical players. I find the NDX chart to be the best guide to the market's leading edge.
It may not be an iron-clad guarantee that any particular stock you own will go up or down on any given day. But it will offer you powerful insights into which way the wind is going to blow over the next four weeks. I trust you'll figure out how to trim your sails accordingly.
The NASDAQ 100 Index (NDX) forecast for the next four weeks:
Two steps and pause, two steps and pause... expect this dance continue for the next two weeks. Look for a major wrestling match between the bulls and bears around the strong 52-week 25% line at 2750, followed by a three-week run to the top of the long-term falling trendline peaking in late November. This run-up may be the beginning of the 2001 turnaround, but we'll have a clearer view on that story next month. |
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