OCT 3 INDEX UPDATE
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Short-term technical readings:
DOW - midrange
SPX - lower midrange approaching oversold region
OEX - lower midrange approaching oversold region
NAZ - borderline CLASS 1 BUY signal
NDX - borderline CLASS 1 BUY signal
SOX - pending CLASS 1 BUY signal, hint of negating the CLASS BUY signal
VIX - 23.46, midrange - smack in the middle
CBOE PUT:CALL RATIO - .76
Per my short-term technicals, the overall market is basicly in the oversold region, and if the overall market continues down I could get a CLASS 1 BUY signal in 1-2 days(talking in terms of the overall market -averaging of the DOW/SPX/NAZ).
Needless to say that the action in the NAZ/NDX was quite negative today:
1) Both the NAZ and NDX formed "3 BLACK CROWs" again. As mentioned previously, the "3 BLACK CROWs" is a very reliable bearish continuation pattern. It is common that the day after the "3 BLACK CROWs" is formed the index could rally, but the rally should be weak and the selling should resume and intensify to the downside. So do NOT be surprised or overly bullish if the NAZ/NDX rallys tomorrow, and if there is a rally it should be shorted.
2) Per the DAILY charts there has been a BULLISH FLAG forming on the NDX. The LOWER TRENDLINE of that BULLISH FLAG was around 3400 for today. Unfortunately it was pierced to the downside. If the NDX cannot recover back into the FLAG immediately, then I would have to conclude that such BULLISH FLAG was negated to the downside. NEGATED chart patterns commonly result in strong moves in the direction of the break.
3) The SOX got a CLASS 1 BUY signal yesterday and today was the BUY-IN DAY. If an index closes at/near the intraday lows on the BUY-IN DAY, that is the first hint of a negated CLASS 1 BUY signal. It could also just be a late response, which implies that the rally should be weak. If the SOX closes negative tomorrow, that would be the first confirmation of a NEGATED CLASS 1 BUY signal, and that is just NOT GOOD.
We have been working on a new indicator which analyzes divergences. It is still in the test stages, but already has had good results. It is now saying that the there is a minor negative divergence in the DOW and a minor positive divergence in the NAZ/NDX, and the SPX has no divergence. This implies that we may see the selling in the DOW continue while the NAZ/NDX holds up better and may even move to the upside as soon as tomorrow. These are only minor divergences so Im only talking about short-term moves, nothing major. So this positive divergence in the NAZ/NDX is lining up with the "3 BLACK CROWs" in that there is commonly a temporary/small rally right after the "3 BLACK CROWs" are formed, before the selling resumes/intensifies. Also my borderline CLASS 1 BUY signals are lining up with this situation. I will not play it to the upside, just that I will be preparing to re-short the NDX if this rally occurs. Again dont get too optimistic if the is a rally in the NAZ/NDX soon.
The SENTIMENT INDICATORs are confusing me a little. The VIX is still relatively low implying complacency/lack of fear, but the PUT:CALL ratio rose again to .76 which is showing fear and is bullish in that it is implying that the market is getting closer to some sort of a bottom. Yes I realise that the PUT:CALL ratio can still move alot higher but when it gets above .70 it is common for reversals to occur.
My guess, and its just a guess, is that the the PUT:CALL ratio is acting more as a short-term indicator for the interim while the VIX is more longer-term implying that an important bottom has not yet been set. Again thats my guess. Just want to restate that an IMPORTANT BOTTOM doesnt have to occur now, although it does look like it is in the process in light of the weakness in the NAZ/NDX.
Here are the next supports for the NDX. Please also keep in mind that the NDX did break below the MAIN TRENDLINE from OCT 1998. As PAUL mentioned, is that TRENDLINE now redrawn, or does it just head down:
3342 - horizontal support
3235-3200 - horizontal support
3107 - horizontal support
2897 - MAY's LOWs
If the 3342 support does not hold, I suspect that the NDX should at least start a small bounce off of the 3235-3200 support area. Im not saying that 3235-3200 will be the bottom, but just that we should at least see a small bounce there if it doesnt bounce off of 3342. In light of all this negativity, the chances of a retest of the MAY LOWs are increasing. And if it gets that low, there is still no assurance now that the MAY LOWs will hold. Just have to wait and look for clues if it gets that low.
The only positive I can think of is subjective. How low will the "POWERs THAT BE" permit the market to decline prior to the election. |
