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Nasdaq Confirms Cup-and-Handle Breakout

The index is now in virtually uncharted territory


Friday’s session ended mixed on low volume. And even though the S&P 500 closed lower by 0.2%, it still traded higher intraday than Thursday’s record close. The Nasdaq closed higher by 0.1%.

Many who expected to receive a hint as to when the Federal Reserve may hike interest rates were disappointed. Fed Chair Janet Yellen, who was the keynote speaker at the central bankers’ conference in Jackson Hole, Wyo., offered little in the way of guidance. Her remarks were in line with previous speeches and policy announcements.

The 10-yrear Treasury note ended with a tiny gain and a yield of 2.4%. And stocks moved off their lows when it became apparent that despite tough talk from NATO, the Russian column of relief vehicles would be allowed to return to Russia.

Dynegy (DYN) jumped 8.8% after agreeing to purchase coal and gas generation assets from Duke Energy (DUK), which fell 0.2%. Foot Locker (FL), Ross Stores (ROSS), and GameStop (GME) all gained following better-than-expected earnings.

At Friday’s close, the Dow Jones Industrial Average was down 38 points to 17,001, the S&P 500 was down 4 points to 1,988, the Nasdaq rose 6 points to 4,538, and the Russell 2000 rose less than a point to 1,160. The NYSE’s primary market traded 521 million shares with total volume of 2.3 billion shares. The Nasdaq crossed 1.3 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, there were slightly more advancers than decliners.

For the week, the Dow rose 2%, the S&P 500 gained 1.7%, the Nasdaq gained 1.7%, and the Russell 2000 also rose 1.6%.

Nasdaq Chart
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Chart Key

The Nasdaq began forming a broad consolidation in March that developed into a seven-month cup-and-handle formation. That very bullish formation, first recognized by William O’Neil of Investor Business Daily fame, usually takes months to develop. And like the Nasdaq’s formation, it most often has a low relative strength (RS) in comparison to the S&P 500, which during the same period was making new highs almost monthly.

RUT Chart
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While the Nasdaq slowly plodded its cup-and-handle, the Russell 2000 has been trading in a very broad range between roughly 1,083 and 1,213. Last week, while within a bullish “V”, it managed to close above the narrow trading range of 1,147 (200-day moving average) and 1,159 (50-day moving average). Resistance is now at the double top at 1,164.


While there is still a lot of life left in the big caps (Dow and S&P 500), the little guys (Nasdaq and Russell 2000) did well last week. The higher close on Friday by the Nasdaq confirmed a cup-and-handle breakout — one of the most bullish of all formations — putting the index into virtually uncharted territory.

Some may argue with the last statement because the Nasdaq is still 600 points from its all-time high of 5,133, made in March 2000. However, I doubt that there is much overhead remaining from those who bought Nasdaq stocks 14 and a half years ago.

Traders will want to keep an eye on the Russell 2000’s narrow trading range of 1,147 to 1,159. A break in either direction could be very significant. A pop above the double top at 1,164 could quickly run the index to a challenge of the high at 1,213.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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