All Bets Down
By Ron Taylor
8/2/2002 3:20 PM ET
If the market's recent rally is for real, I would expect the bulls to try to make a stand somewhere near these levels. We have given back approximately 50 percent of the recent gains on the Dow Jones Industrial Average (INDU – 8221.1) and are attempting to hold support at the 8200. I'm keying on 8200 because it is the approximate closing levels of the July 24, 25, and 26 bars (shown in the chart below) Technically, we have also filled the recent gap on the Nasdaq Composite (COMP – 1237.9) chart and have come close on the S&P 500 futures chart. In order to fill in the futures gap, we will need to trade down to 853.70.
Additionally, the volatility indices have spiked higher. The Nasdaq-100 Trust Volatility Index (QQV – 54.40) chart, in particular, appears to be rolling over and is currently just below its 10-day moving average. Whether or not a moving average will serve as resistance on a volatility chart is up for debate, but I generally use the moving averages on the volatility indices simply as a reference point. It helps the mind to more clearly make sense of the data.
Another interesting aspect of the technical equation comes from the chart of the Nasdaq-100 Trust (QQQ – 21.93). If we hold at the current levels around 22, the bulls could make the argument that we have had a successful double bottom. It appears to be crunch time for big-cap names in the Nasdaq. This index has remained mired a downtrend after being rejected recently at its 20-day moving average. So the appearance of holding support on the weakest of the major indices could be a psychological rallying point for the bulls.
Frankly I don't know why I am expecting a rally here. We remain in a vicious bear market and this should be at the forefront of the minds of all traders and investors. Mainly, I just feel that the powers that be on Wall Street will try to orchestrate another rally to suck people back into the market. The fear levels spiked and there was some moderate panic as the Industrials plunged below their lows from September 21. It is in the best interest of Wall Street to try to get this market higher and give people the perception that the market has bottomed.
The other possibility, of course, is that people are starting to catch on to the games, and mutual fund outflows will fail to ebb despite the recent massive 1,200-point rally. If we are at that stage of the bear market, crowd psychology will have completely taken over and there may be little that can be done. There have, however, been recent rumors of another fed rate cut before the August 13th FOMC meeting. While this could be a potential short-term catalyst, I personally see little benefit from fully adopting Japanese techniques for combating a deflating bubble.
All bets down. All bets down.
- Ron Taylor
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