Love from Spain.Updated Thursday, 3/1 for Friday's Market
Key DOW Levels for 3/2
UP Current Trend
DN Through 10,300
10,300 Held.
Dow continues down from 10,500 but reverses off 10,300-
forming a double bottom. Now, watching for a higher low to
form.
From yesterday's commentary, "...we were still weak, and
have another 200 points to go before our channel low at
10,300 is hit..."
Isn't it amazing how these lines work? It's almost as if
someone, somewhere hollers "buy" and everyone else says,
"o.k." We went down from the Open, declining steadily
(except for the normal, 50% retracements) until we hit
10,300 - almost exactly. Then, zoom! The chart is almost
straight up from there.
That's good. I really didn't want to see our Diamond
pattern prevail over the Dow (the Diamond pattern in the
Weekly Chart is bearish). So far, so good. The bounce off
the support line in the Daily Chart tells us we may push
back to the upper line at 11,000 again, and eventually
break it. But, before we pronounce the market "good to go"
I want to see a higher low form.
Such a pattern would likely take the form of a retracement
back to 10,400 and a new push up from there. We may go
higher first, but I am going to advise against jumping in
until we get a clear, definitive sign of a bottom.
Short Term Dow
Yesterday, I suggested getting in at the Open in the
direction of the move, and we started down immediately.
So, going Short ended up giving us a 200 point day, with
another 100 on the backside of the saucer that formed at
2pm EST. For tomorrow, we have a clear case for selling if
we drop through 10,430. I would be leary of buying at the
Open, since we came a Long way at the Close today (and you
might get caught in a head fake - a rally that fizzles back
into the gap formed by the Open). If we do drop, I would
look at going Long at the reversal, which sould occur in
the 10,375 zone if it is going to happen.
Medium Term Dow
Yesterday, I indicated, "On the downside, I would short
immediately if we drop tomorrow, holding your cover point
at 10,500." That was pretty cheap insurance, since we were
driving down to the Low. In light of today's rally at the
Close, I would cover at the Open (which should be about
10,475). Are we ready to go Long? Not quite yet. While
there was tremendous strength at the Close today, there
will just as certainly be a retracement. That is where I
would get in. For example, if the market pulls back to
10,375 and turns up.
If you cannot watch the markets during the day, I would
suggest you kick back a few days and see how this thing
develops. Short covering is going to drive the market
higher quickly (that is, folks who were short and are now
buying to cover) but then what? We are in a wide
consolidation from 10,300 to 11,000 - a 700 point range. I
want to see more definitive signs of a bottom before
recommending a blanket Long position. However, if you can
hold tight stops and watch for the retracement and turn
during the day, that could be a great place to go Long for
the next move up.
NASDAQ and OEX
Maybe the NASDAQ won't go to zero after all. We got within
earshot of the infamous 2,000 level and suddenly reversed,
breaking a very solid trendline in the 5 Minute Chart and
heading skyward. Lots of strength and volume behind the
move in the last hour of the session.
While this kind of rally is powerful, we can't forget the
gap up through the trendline in the 60 Minute Chart less
than two weeks ago, followed by the gap down the next day.
Today's rally crossed the same line. This is a good sign,
but I think we should wait for a higher low to form before
going Long this time. **
We had set 635 and 645 as our short/long boundaries on the
OEX. Well, 645 was never approached today. We sold off
through 635 right away and continued down all the way to
626 before turning. As with the NASDAQ and Dow, the turn
was fast and furious, leading to a quick 15 point gain in
two hours. Here, too, we want to see a retracement and
higher low form before getting on board. With the NASDAQ
and OEX bouncing off critical levels of (nearly) 2000 and
625 respectively, this could be "the" bottom.
In Summary:
We made it to the bottom of the channel in the Daily Chart
today. If you look at that line, you can see how strong it
is. This formed a double bottom, and now we are watching
to see if a higher low forms for a new rally back to the
top of the channel and (hopefully) a break of the top. The
NASDAQ and OEX also bounced off critical support levels, so
there is hope there too. My suggestion is to wait out the
next day or two and see whether we get our higher lows.
That would be a good time to get on board. If we drop
through our support levels (10300 on the Dow, 2000 on the
NASDAQ) we have to go Short again.
Thanks for listening, and good luck in your trading!
Ed Downs
edowns@nirvsys.com
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Definitions:
Short vs. Medium Term: The short term is defined as 1-4
days. Most short term commentary is relevant to day traders
for the following session. The medium term is 1-4 weeks.
Fulcrums: A fulcrum is essentially a "line in the sand" or
"demilitarized zone" in the battle between bulls and bears.
These lines, identified by experience, are equilibrium
points between buyers and sellers, and are usually found in
the centers of consolidations (trading ranges). When price
moves away from a fulcrum, it usually moves quickly and a
great distance
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LINKS TO CHARTS:
Dow 15 Minute Chart
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Dow 60 Minute Chart
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Dow Daily Chart
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Dow Weekly Chart
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legend
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