Daily Gains Letter ( — www.DailyGainsLetter.com), an e-letter of Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that technical indicators are foreshadowing a potential sell-off on the NASDAQ.
A recent buying streak offered some optimism that perhaps the worst is over for the stock market, but technical indicators suggest otherwise. While blue-chip and large-cap stocks are holding up fairly well, the same cannot be said for the technology, growth, and small-cap segments.
“The NASDAQ is flashing warning signs that foreshadow a potential sell-off in the weeks ahead,” says financial analyst George Leong. “The stock market index had been down nearly 10%, which is the technical reversal point, but the NASDAQ managed to rally and is currently down only about seven percent.”
Leong explains that while the NASDAQ is above 4,000, a failure to hold would be the third time the index has failed to do so while above this level. Investors should see this as a red flag for pending weakness in the stock market.
“For starters, there could be a bearish ‘head-and-shoulders’ formation in development. This could play out if the NASDAQ can hold near the current level of around 4,000 and subsequently rally back to around 4,250,” Leong notes. “If the index fails to extend higher towards 4,350 and falters, then we could see another downside move back towards 4,000. Failure to hold here could set the stage for a bigger downside move, which would complete the head-and-shoulders formation.”
He adds that while the technical formation of a bearish head-and-shoulders pattern may or may not surface, investors should still keep this indicator on their radar; especially if growth areas, such as biotech and technology, fail to generate momentum.
“The reality is that there are many stocks on the NASDAQ 100 that have already corrected by more than 20% and are thereby deemed to be in a technical bear stock market. If these previous momentum and brand-name stocks fail to attract sustained buying, then investors could see more downside moves for this group in the upcoming months,” Leong concludes. “Given this, I would be careful about jumping in at this point; instead, I’d wait for some sustained buying support in the stock market and renewed leadership from the technology group.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Daily Gains Letter, visit www.lombardipublishing.com.
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