Some weekend comments from Ed Downs....
Updated Saturday, 8/26 for Monday's Market
Key DOW Levels for 8/28
UP Through 11,250
DN Through 11,150
Caution is Advised
Could not penetrate 11,200. Move mental stops up to
11,150.
A lot could be written about Friday's wild ride during the
day as a result of some false reports entering the market.
But, for those of us holding for the medium term, it was a
non-event. And, looking at the charts, you see a more-or
less steady picture, with slow meandering gains up to our
present levels across all the indexes.
Today, I want to focus on the basic chart patterns evident
in the Dow and OEX, as I think we now have new information
that tells a lot about what to expect next week. Let's
start with the Dow.
If you take a look at the 60 Minute Chart, you can see that
we have formed a lower trendline (blue) across the valleys
leading up to about 11,150. Yesterday I suggested the
idea of moving stops up to this level. Today, I'm a bit
more emphatic about it. Why? Because I think the odds are
VERY high that we will see a push down through this line
Monday or Tuesday, bringing the Dow as low as our key
support level at 10,950. So, I am suggesting that you set
your mental stop at 11,150 and exit if it is crossed. That
will still give us 150 Dow points in profit, but will
protect us from what I believe will be a nasty
retracement.
Does this mean the party is over? No. We still have a
general consolidation above a key trendline above 10,900.
If you take the consolidation midpoint of 11,100 and go
back to the recent significant low at 10,500 you get a 600
point difference. Add 600 points to 11,100 and you end up
with an implied upside move to about 11,700. that is our
ultimate upside target.
What you have to do is decide what your timeframe and
activity in the market is. * If you have been following
this page for several months, and have entered and exited
each time we discussed doing so, you should have made
consistent gains with low risk. That's our goal. But, this
approach also requires watching the market each and every
day for what I call "trigger points" - the levels we post
at the top of this page.
If you are unable to watch the Dow and other index levels
intraday then you are really more of a medium term player,
and would probably want to just hold your Longs, even if we
push through 11,150 and only exit if we push back through
about 10,950 (which should not happen in one day unless the
market crashes). Since we entered this run at 11,000 that
would be a stop loss of 50 points rather than a profit lock
of 150 points. (!)
I try to write this page so it will work well for both
kinds of investors - the medium term folk who can only look
at the market once a day, as well as the short term players
who have the ability to exit or enter during the day. Note
that this is NOT the same as day trading. If you have an
on-line discount brokerage account, it's easy to fire up a
browser from just about anywhere and exit your positions.
Day traders, on the other hand, are looking to make an
eighth or quarter, and are typically leveraged 10 to 1.
That's an entirely different game, and this page doesn't
attempt to enter that arena (too stressful for my blood!)
So, here we are at a toppy position on the Dow, with a
likely retracement, but overall, a bullish outlook to
something like 11,700 - if the consolidation measurement is
accurate. I think they are. Now, let's discuss the other
indexes briefly.
The NASDAQ composite also looks a bit toppy, so I am
recommending moving mental stops up to 4,000 there. And,
the OEX (SP 100 index) is DEFINITELY in a tight squeeze,
with the 60 Minute Chart showing two converging trendlines.
** Therefore, I am suggesting moving stops on the OEX up
to about 820, and exiting positions if we cross it in
anticipation of the next buy opportunity.
Thanks for listening and Good Luck in Your Trading!
Ed Downs
edowns@nirvsys.com
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* Short term vs. Medium term. We define short term as 1-4
days, and medium term as 1-4 weeks. This column is designed
for both types of trading/ investing.
** We are now publishing charts on the NASDAQ and OEX (SP
100 index) in our Premium SignalWatch section. Click
"Subscribe" at www.signalwatch.com for more details.
*** Our software, OmniTrader, includes a feature we call
OmniTrader Online, in which we post alerts during the day
when they appear to us. To find out more about OmniTrader,
visit www.omnitrader.com.
(!) When I indicate I am "going long" or "going short" on
the page, that is a conceptual position that I use to "keep
score" on my commentary. Some folks have asked, "What do
you actually trade?" Again, I use these positions to keep
track of how well I am doing. To mirror the positions,
you can trade "Diamonds" (Dow-based symbol, DIA), options
on the DIA, or the basic stocks making up the index.
Thanks.. Ed Downs
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LINKS TO CHARTS:
60 Minute Chart
signalwatch.com
Daily Chart
signalwatch.com
Weekly Chart
signalwatch.com |
