Three Charts That Convey a Lot of Information About the Stock Market

06/25/2015 6:00 am EST

Focus: STOCKS

Although stocks will experience a correction at some point, it all must start with a lower high, which—as Chris Ciovacco at Ciovacco Capital Management points out—is something he does not see on the 2015 chart of the Nasdaq…yet.

Stocks Peak in 2000

The chart below shows the 2000 peaking process in the Nasdaq. The index made a lower high, a lower low, and then dropped below the 50-day moving average shown in blue.

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Stocks Peak in 2007

The chart below shows the 2007 peaking process in the Nasdaq. The index made a lower high, a lower low, and then dropped below the 50-day moving average shown in blue.

chart
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How Does the Same Chart Look Today?

The Nasdaq recently made a higher high, which for now negates the possibility of a lower high and lower low. The index is still above the 50-day moving average and the slope of the 50-day is positive (bullish).

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Click to Enlarge

Taking It Day by Day

Could the major indexes begin to fade in 2015? Sure they could, but under our approach, there is no need to anticipate, forecast, or guess. At some point, stocks will experience a correction, but it all must start with a lower high, something we do not have on the 2015 chart of the Nasdaq.

New Highs in 2015 vs. Lower Lows in 2007

On Twitter, we have recently shown new highs in small-caps, consumer discretionary, and healthcare. This week's video showed lower highs that were made in small-caps, consumer discretionary, and healthcare in late 2007 before the ugly returns of 2008.

New Highs Speak to Probabilities

Are lower highs and lower lows always a big deal? Not necessarily, since they happen frequently. The point is a lower high and lower low is one of the easiest bearish thresholds to cross. Said another way, not too many bad things can happen if you can avoid lower highs and lower lows by making new highs.

By Chris Ciovacco at Ciovacco Capital Management

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