There is a noticeable shift in sentiment and that comes from the fund sell programs on Friday. You would be hard pressed to find anyone pushing retail traders into buying this market and that is a significant change in the overall tone of the media. While I normally consider such movements as contrarian support, it is coming after numerous opening distribution days and a double top SPX reversal with no closing bounce to speak off. In fact, when closing bounces barely manage to get back above 20 DMA's, odds favor a retest and failure. A 20 DMA support bounce has to be strong, such as the one produced by the DOW just two days prior, which turned out to be a massive headfake. As I mentioned on Friday, there is little left in terms of earnings to move us up to new highs. What this means is that the markets will most likely use any rally next week to lighten up. How much they lighten up is the real question on everyone's mind. Whatever Bernanke says is irrelevant if funds have decided to allocate less capital to stocks going into Q2.
As usual, the best advice comes from charts. SPX coiled for four days, then abruptly sold off and bounced back up to highs at the close, namely from a reaction to DOW 20 DMA support. But it sold hard again the next day, this time with a confirming COMP failure at November highs. The angle of descent from a parabolic move of 5 DMA indicates a cross of 10 DMA coming very soon. If that occurs on a failed test of November trendline support, now at 1428, it would usher in a correction that could be deeper than the long anticipated 2%. Your first clue will be how we trade on a bounce to 10 DMA, now at 1441. ES traders will note key resistance at 1445 and 1447, an area that bulls must regain at the close on Monday. Weekly pivot is aligned at 1446, right in the middle of those two key numbers. Watch COMP 2468 on any bounce,. There are virtually no reasons to go and buy techs, especially now that MSFT keeps dropping with no buyers remotely interested. I also noted a few days ago the possible confirmations of the large daily INTC head and shoulder should we fail at 21.38. That happened and we could see the neckline at 20 in the coming days. The other tech stock to watch is NVDA, a key Vista component play, which had a strong rejection at 50% December/January. Not a good omen, especially considering the close (once again) of NDX below its 50 dma, a first this month. You cannot have repeated failures at 50 dma/10 weekly and expect investors to throw in new money.
A wild card is the financial sector. Since you need both techs and financials to support a bull market, one dropping alone produces chop, but both dropping together produces sell-offs. The BIX tested its 50 DMA at 403.22 and barely closed above (403.56). XLF is not as far down, but it has decisively lost 2007 retrace fib supports, now barely hanging on to 23.6%. I would not trade the coming days without a chart of NDX and XLF side by side. Confirmed failures by both means short the bounces. One higher, the other lower means chop and both up of course means buy the dips. Pretty simple, but add option expiration noise and the ride could be a wild one.
I also do not need to remind you to watch TNX 48/48.10 level.
As usual, the best advice comes from charts. SPX coiled for four days, then abruptly sold off and bounced back up to highs at the close, namely from a reaction to DOW 20 DMA support. But it sold hard again the next day, this time with a confirming COMP failure at November highs. The angle of descent from a parabolic move of 5 DMA indicates a cross of 10 DMA coming very soon. If that occurs on a failed test of November trendline support, now at 1428, it would usher in a correction that could be deeper than the long anticipated 2%. Your first clue will be how we trade on a bounce to 10 DMA, now at 1441. ES traders will note key resistance at 1445 and 1447, an area that bulls must regain at the close on Monday. Weekly pivot is aligned at 1446, right in the middle of those two key numbers. Watch COMP 2468 on any bounce,. There are virtually no reasons to go and buy techs, especially now that MSFT keeps dropping with no buyers remotely interested. I also noted a few days ago the possible confirmations of the large daily INTC head and shoulder should we fail at 21.38. That happened and we could see the neckline at 20 in the coming days. The other tech stock to watch is NVDA, a key Vista component play, which had a strong rejection at 50% December/January. Not a good omen, especially considering the close (once again) of NDX below its 50 dma, a first this month. You cannot have repeated failures at 50 dma/10 weekly and expect investors to throw in new money.
A wild card is the financial sector. Since you need both techs and financials to support a bull market, one dropping alone produces chop, but both dropping together produces sell-offs. The BIX tested its 50 DMA at 403.22 and barely closed above (403.56). XLF is not as far down, but it has decisively lost 2007 retrace fib supports, now barely hanging on to 23.6%. I would not trade the coming days without a chart of NDX and XLF side by side. Confirmed failures by both means short the bounces. One higher, the other lower means chop and both up of course means buy the dips. Pretty simple, but add option expiration noise and the ride could be a wild one.
I also do not need to remind you to watch TNX 48/48.10 level.
This entry was posted
on Sunday, February 11, 2007 at 2/11/2007 10:52:00 AM.
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