Murphy’s law would have it that I’m on holiday and away from a reliable internet connection on day to day basis during this market event. I knew we were entering a possible cycle turn, but I was hoping it would wait for my return…If only markets coud be so cooperative. The DOW failed another 20 DMA close and weakness was definitely creeping in before the Chinese rate crisis kicked in. We all knew another carry trade unwinding was just around the corner and it reared its ugly head once again. The exit door is just too narrow after a broad based parabloic rally and the end result is often brutal. The writing was on the wall, but the main events were repeatedly pointed out here: failure of NYSE at 100% projection 2000/2002, OEX struggle at 670 (61.8% 2000/2002), lagging OEX and NDX, nosebleed NDX bullish percent index and multiple 9 VIX readings. OEX puts are now definitely confirming their non-contrarian status. The one concern bears had was the persistent buildup of equity puts but all that meant was that we had much further to go in overall negative sentiment.
Where are we now? On the pivot front, we pan out to the monthly and it’s clear that YM (DOW futures) is the weakest on a relative basis. Monthly S2 is at 12301, for ES (SPX futures) it’s at 1399 and NQ (NDX futures) 1685. In fact. NQ found support (so far) at it’s monthly S1 (1743.75). Note that these are February pivots which expire today, the numbers change tomorrow. Since crude oil held its own and would normally help ES more than NQ, we can assume that leadership coming out of this correction could very well be in the tech sector and that would be healthy for the next rally, whenever that comes. Even though the selling might seem violent, the market is merely correcting to a more normal mean and we are getting rid of the excess. We should have further down to go if ES is unable to regain 1400 soon. Futures are above that level as I type.
QQQQ still has an old gap to close in the 41.90/42.10 area, it will be interesting to see if we get another round of selling after the obligatory reactive bounce. I certainly hope trading remains this volatile by the time I get back to the office. Hopefuly, some of the glory days with large intraday price swings are coming back. For those new to this, I will run through some basic set ups that take advantage of such an environment.
The DOW lost its 50 DMA (now shorteable resistance at 12541) and it could conceivably head down to the 200 DMA at 11775. For SPX, that would be 1343, which is a hair below the 10 month MA. Lasting bear markets only take hold if we lose the 20 month MA, now at 1302. Since that would be a 10% correction, it's not unrealistc as we are long overdue. ISEE is now below 100 and that should create a bounce. Trade this day by day, using the VIX as your guide (do not go long a rising inraday VIX, but if it drops and stays red, give it a shot, but only scalp it). As usual, use tight stops and book profits. The trend is now down, we are in short the rallies mode until proven otherwise (close back above 50 DMA's).
As for stocks, I have been waiting for iNTC to break its neckline around 20, if it does, 38% head and shouder retrace would have us near 19, a good spot to start accumulating this stock, which should do very well once Vista realy kicks in. Just keep that QQQQ gap at 42 on your radar.
I will try and check in tomorrow as I'm still on the road.
Where are we now? On the pivot front, we pan out to the monthly and it’s clear that YM (DOW futures) is the weakest on a relative basis. Monthly S2 is at 12301, for ES (SPX futures) it’s at 1399 and NQ (NDX futures) 1685. In fact. NQ found support (so far) at it’s monthly S1 (1743.75). Note that these are February pivots which expire today, the numbers change tomorrow. Since crude oil held its own and would normally help ES more than NQ, we can assume that leadership coming out of this correction could very well be in the tech sector and that would be healthy for the next rally, whenever that comes. Even though the selling might seem violent, the market is merely correcting to a more normal mean and we are getting rid of the excess. We should have further down to go if ES is unable to regain 1400 soon. Futures are above that level as I type.
QQQQ still has an old gap to close in the 41.90/42.10 area, it will be interesting to see if we get another round of selling after the obligatory reactive bounce. I certainly hope trading remains this volatile by the time I get back to the office. Hopefuly, some of the glory days with large intraday price swings are coming back. For those new to this, I will run through some basic set ups that take advantage of such an environment.
The DOW lost its 50 DMA (now shorteable resistance at 12541) and it could conceivably head down to the 200 DMA at 11775. For SPX, that would be 1343, which is a hair below the 10 month MA. Lasting bear markets only take hold if we lose the 20 month MA, now at 1302. Since that would be a 10% correction, it's not unrealistc as we are long overdue. ISEE is now below 100 and that should create a bounce. Trade this day by day, using the VIX as your guide (do not go long a rising inraday VIX, but if it drops and stays red, give it a shot, but only scalp it). As usual, use tight stops and book profits. The trend is now down, we are in short the rallies mode until proven otherwise (close back above 50 DMA's).
As for stocks, I have been waiting for iNTC to break its neckline around 20, if it does, 38% head and shouder retrace would have us near 19, a good spot to start accumulating this stock, which should do very well once Vista realy kicks in. Just keep that QQQQ gap at 42 on your radar.
I will try and check in tomorrow as I'm still on the road.
This entry was posted
on Wednesday, February 28, 2007 at 2/28/2007 06:09:00 AM.
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