What to expect now. October 22, 2001. Ord Oracle.
On last Thursday commentary, we said, "Yesterday's new short term high on high volume can imply that the S&P may need to attempt to test that high. A test could be just a 50% retracement of yesterday's decline, or a bounce up near the 1090 level on the December S&P. After this potential bounce, we expect a decline down to the 970-gap area." The short-term bounce we talked about last Thursday is in process. As long as the volume remains light on this bounce, the bearish scenario will persist. The "5 day ARMS" closed last Friday at 6.08 and implied the market could take a bounce. Today's "5 day ARMS" closed at 5.50 and still on the bullish side of neutral and warn the market could follow through up another day or so. Once this re-test is complete, we are looking for another decline to take hold and fill the gap down near the 970 level on the S&P. The S&P should not close above last Wednesday high of 1110.50 on the December S&P to keep the bearish scenario. We are short the SPY at 107.90 with a stop at 111.32. Downside target remains at 97. We are holding the GE November 35 puts. GE Downside target is near the 31.50 area. We are short the SPX at 1091.61, downside target near 970 level.
The NDX drew a bearish candlestick pattern called a "Bearish Engulfing" pattern last Wednesday. Wednesday's "Bearish Engulfing" pattern engulfing the last four trading days. The more days a "Bearish Engulfing" pattern engulfs, the stronger the signal. Last Wednesday pattern can also be called an "Upthrust" and is also a bearish signal. When an "Upthrust" breaks the previous high by a wide margin, than usually a re-test of the "Upthrust" is needed before the decline continues. As long as the volume is lighter on the re-test than the volume on the "Upthrust" day, than the bearish scenario will continue. Since the "Upthrust" broke the previous high by a wide margin, we are expecting a re-test. The re-test can end anywhere from a 50% retracement to as much as a 100% retracement. We are expecting around the 50% retracement level, or near 1375 level on the NDX. Today's high was 1383, however, no bearish candlestick pattern formed today. We will wait for a bearish candlestick pattern before shorting the QQQ's. Staying flat the QQQ for the moment.
The XAU may consolidate to the first part of November before the strongest part of the up-move begins and that up-move may last into next year. Still, most gold stocks are making higher highs on increased volume and remains in a bullish up-trend since the November 2000 low. Our upside target on the XAU is still 95 minimum.
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