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VIX Fails Breakout Attempt, NASDAQ May Be Turning Higher

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My Thursday morning message showed the Volatility Index (VIX) trying to break through resistance near 17. It rose as high as 17.65 intra-day which was the highest level in two months. Fortunately, it wasn't able to close there. The good news is that the VIX closed at its low for the the day and dropped again on Friday. That left it well below the 17.00 resistance level. An upside breakout in the VIX would have signalled lower stock prices. The fact that the breakout attempt failed helped stabilize the market at week's end.

The next chart suggests that the Nasdaq Composite Index may be poised for a rally attempt. The daily bars show the COMPQ stabilizing above its early February peak near 4650 (green arrow). The Nasdaq/SPX ratio (solid line) is starting to recover. That shows new Nasdaq leadership. The 14-day RSI line (top of chart) may be about to cross over its 50-line. And daily MACD lines (below chart) look ready to turn positive. The key, however, to a Nasdaq upturn will be its ability to clear its moving average lines. The ability of the blue 50-day line to exceed the red 200-day line would be another positive sign. The Nasdaq is getting some new help from the technology sector which is starting to show relative strength. The Technology SPDR (XLK) gained 1.2% this week versus an S&P 500 gain of 0.28%. A biotech gain of 4.5% also helped the Nasdaq. An upturn in the Nasdaq would most likely lend support to the rest of the market.

- John

John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More
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