Many introductory Philosophy courses use The Tao of Pooh to illustrate the basic tenets of Taoism. Winnie the Pooh is the perfect Taoist. This weeks market's reminded me of another Winnie the Pooh character: Tigger. Tiggers love to bounce just like markets. The two markets I'm primarily concerned with are the Nasdaq 100 and the U.S. dollar.

U.S. dollar Index

The U.S. dollar Index measures the U.S. dollar against 14 other currencies on a trade-weighted basis (see chart).  The dollar bounced about a percent and a half last week. It was ridiculously oversold from a technical perspective and was due for a counter-trend rally. The fundamentals for the dollar are still horrible, but this rise is technical in nature and will probably continue until a certain level is reached. Of course, the big question is which level? An optimist would say that it can bounce all the way up to 80 which represents serious long-term resistance and coincides with the neighbourhood of the 200-day moving average. I don't think anybody has ever accused me of being an optimist, so I've got a more conservative target of 78 to 79. Tiggers may love to bounce, but counter-trend rallies tend to be sharp, and short-lived.

Nasdaq 100

The Nasdaq 100 is the 100 largest companies by market capitalization listed on the Nasdaq (see chart). It likes bouncing almost as much as Tigger. It bounced twice this week. It bounced up to finish about three percent higher on the week and then hit the 50-day moving average and bounced down on Friday. Aside from that 50 DMA around 2120, there's very little technical resistance until the previous high around 2225. I don't think testing the new highs is in the cards for our momentum stocks that have been driving the Nasdaq 100 higher this year.

RIMM got hammered on Friday as it looks like many traders used the bounce as an excuse to sell. AAPL also experienced some selling on Friday after its recent run-up. GOOG found resistance at $700. AMZN has an impressive week and may continue to rally into Christmas as it is essentially a retail stock. MSFT was flat for the week as traders focused on more volatile stocks. INTC rallied for the week, but also came under selling pressure on Friday. I find the inclination of traders not to want to hold these names into the weekend to be a sign of weakness.

If the Nasdaq 100 decides to go down instead of up, there are a couple of technical lines in the sand that I think bear watching. The 50 DMA is around 1925. This acted as support for the August lows and I wouldn't be surprised to see a bounce around that point. If that support gets broken, I think it would be a short ride until the Nasdaq 100 joins the other indexes around it's 200 MDA. That's probably something that will happen in the New Year, but I try to keep it in mind.

SunTzu