Updated Wednesday, 5/30 for Thursday's Market
Key DOW Levels for 5/31
UP Above 11,000
DN Below 11,000
Broke 11,000
The Dow pushes through 11,000 in the likely beginning of a
larger retracement.
>From yesterday's commentary, "If we push down hard through
11,000 all of us need to get Short, with stops at the same
level. Actually, waiting for 11,980 is more prudent based
on today's chart..."
Well, we got our answer this morning. Shortly after the
Open, the Dow moved on down to take out 11,000, then 10,980
and then on down to settle at 10,871 for a 150 point drop
for the session.
As I indicated yesterday, 11,000 is critical to the
market's health. The reason is, there is a long upper
trendline in the Weekly Chart at this level, and there is
also significant support built up across time there. A
failure through this level is important and recognized by
many market players. Fewer folks are willing to buy in the
face of a potential, major retracement.
One technical factor that does bear discussion is the way
the market has pulled back to 10,870. You don't see a
rapid decline, only a slow stair-step descent. This kind
of decline is likely to see a fairly stiff reaction rally.
If we get such a rally, and it pushes us through 11,000 we
will exit our Shorts. I am suggesting using 11,000 as our
next fulcrum because we have broken it. But right now, the
jury is still out - we are close enough to move back up and
consolidate.
Another day will likely tell us if this is indeed going to
be the start of a larger retracement. If we drop a bit,
and rally back to 11,000 and drop again the verdict will be
in (lower). If we push through 11,000 with great strength,
it will be muddy again.
Short Term Dow
In the very short term, watch 10,950 up. That will give
you a clue as to whether a reaction rally is going to put
us back in the 11,000 to 11,300 channel. If we drop
through 10,870 the odds of this happening will be low, and
we need to continue looking for Shorts.
Medium Term Dow
My hunch on the upside for today was disproven right at the
Open, as the index pushed down through 11,000. We are
therefore Short, with 11,000 as our cover point. This
could be the start of a major retracement, and will be
confirmed if the index either rallies and pushes down below
11,000 or just starts down at the Open.
NASDAQ Composite and OEX (S&P 100)
The 2,170 support level was broken right away this morning,
ushering in a new push down on the NASDAQ. We have held a
Short position since 2,240 and are now sitting with 150
points of profit on that index. We are coming up on 2,050 -
an important support level and likely place to see a
reaction rally bounce. The OEX is now through an important
line at 655 and also through 650. We are going to hold 645
as our fulcrum on that index. **
In Summary:
Yesterday I indicated that "rather than forecast the
outcome, I prefer to see which way we break. The tight
range from 11,000 to 11,050 is very clear, and will provide
the direction bias we need for a medium term entry." We
got our answer today, and are Short at 11,000. Now, we
need to manage positions and exit if we push back through.
Looking at the charts, and especially the OEX, I think the
odds for further downside are fairly high.
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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