Updated Wednesday, 5/23 for Thursday's Market
Key DOW Levels for 5/24
UP Above 11,200
DN Current Trend
Broke 11,200
Dow breaks 11,200 - a Warning sign for further weakness.
>From yesterday's commentary, "Since we did not definitively
break out today, I am holding the index suspect, and
especially with the NASDAQ at an important consolidation
target, you have to surmise that we are vulnerable for a
retracement across the board... For tomorrow, we will
simply watch our boundaries, 11,200 and 11,300 for signs of
action. Since today's rally attempt failed, we have a fair
chance that the index is going to pull back and break
11,200 and need to be prepared for that..."
Well, it happened. First, the NASDAQ gaps down through
2,300. Then, the Dow fails through the lower boundary of
its consolidation at 11,200 and forms a new range at 11,150
before closing still lower. Perhaps the biggest news was
the OEX, which broke 675 right away and headed down, down,
down to consolidate at 667.
This is what I was concerned about, since we had moved so
much and the NASDAQ was at its target for the prior move.
The interesting thing about today is the fact that we
formed downside consolidations on EACH index at points
which imply targets BELOW critical support. This says
"Warning" and we need to start playing defense.
Short Term Dow
We broke 11,240 fairly quickly today, which led us to
11,200 right away. Then, we hesitated. I thought we might
bounce, but the weakness on the other indexes was too much,
and we proceeded to break 11,200 and head down to
consolidate and end at 11,106. For tomorrow, we want to
watch 11,115 for an upside break (for short term, Longs)
and 11,100 for downside action.
Medium Term Dow
Yeserday I indicated that "Technically, we should still be
good to go, unless 11,200 is violated." Well, it was
violated. So, we closed our Long positions and watched (in
the medium term). If you look at the consolidation that
formed in the 15 Minute Chart, you can see a center at
11,150 from a high at about 11,320. The difference of 170
implies a further drop through 11,000 - to 10,080. If this
happens, we could see a much more serious decline develop.
We want to stay loose here. Buy at 11,200 and Short at
11,000. In between these numbers, anything can (and will)
happen in the medium term.
NASDAQ Composite and OEX (S&P 100)
The NASDAQ gapped down hard starting the day just below
2,300 - our sign to exit Longs there. We are forming a
similar downside consolidation pattern on both the OEX and
NASDAQ, with the NASDAQ targeting 2,200 and the OEX 655.
That's a ways down from where we are. We have very
consistent negative chart patterns, as a result of the
consolidations that formed towards the end of the day on
each index, and would thus expect the market to go lower
now. **
In Summary:
I was expecting a retracement on the NASDAQ, and was not
that sure about the Dow. As the NASDAQ dropped hard
through the boundary of its trading range in the 15 Minute
Chart, the other indexes followed suit and there you have
it - a big retracement day. Now, the question is, will our
next critical support levels hold (11,000 on the Dow, 2,100
on the NASDAQ and 650 on the OEX)?
The jury is out. My current index targets push through
these levels, so right now I am concerned about a further
decline coming. What I would do is stay in cash in the
medium term until we see signs of getting back above
11,200. In the meantime, it's going to be primarily a day
trader's market market where you are more likely to see
Short opportunities than Long.
Thanks for listening, and good luck in your trading!
Ed Downs
edowns@nirvsys.com
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Definitions:
Short Term 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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