Special Alert: NASDAQ COMP Severely Oversold
(January 9, 2008)
Dear Subscribers and Readers,
I hope all of you got my signal to cover our 50% short position in our DJIA Timing System and to concurrently go 50% long during this morning's session. I am writing again to bring attention to you to the following chart – which in essence, is somewhat related to the SPX chart that I had showed you in last night's commentary:
The above chart shows the NASDAQ Composite Daily High-Low Differential Ratio from January 1, 2001 to January 9, 2008. This is calculated by taking the daily difference between the number of 52-week highs and number of 52-week lows on the NASDAQ Composite and dividing it by the total number of all NASDAQ Composite issues outstanding. This ratio just spiked down to a reading negative 18.26% - which represents the most oversold reading since October 8, 1998, when it reached negative 24.27% (not shown on this chart). Curiously, even during the bursting of the NASDAQ bubble from 2000 to 2002, we had never gotten a reading as oversold as this. The closest we came was on September 21, 2001, when this ratio touched a low of negative 17.45% in the aftermath of the September 11th attacks.
More importantly – in a space of only five months – we have already seen three such spike downs. Based on the 30 years worth of high-low data I have on the NASDAQ Composite, this is truly unprecedented.
As I mentioned in last night's commentary, either we crash at this level, or we bounce around for a few more days and then take off on a tradable rally – a rally which could potentially last months. Should the market fail to crash by Monday morning, then we intend to go 100% long in our DJIA Timing System. We will provide more details in this upcoming weekend commentary.
Best of luck,
Henry To, CFA