Daily Report November 14th, 2003
Dear Member,
-Stock Indices: Nasdaq Comp, DJI, S&P500
For a week, we have traded for the short term and we have turned our portfolio into 70% cash. The positions we have are now protected with tight stops. The reason is that we are currently evaluating a correction risk for the stock markets. From the beginning of October, we have talked about a rising wedge in formation and the chart indicates the end of a movement. For this case, it is indicating the end of the rise from the lows of March in 2003.
There are several technical indicators that show this risk. The volatility index (VIX) moves now in an extreme degree of confidence which corresponds to the level from the highs of August 2000 and to the level of the intermediary high from July 1998. It is a perfect example, because the current risk for the market inevitably does not indicate a crash landing as the highs from August. It can also indicate a correction similar to that of 1998. The latter case remains our preference, but even if it is only a correction, it will most likely be strong.
The second indicator is the Fibonacci ratios. One can tell from the S&P500 monthly chart the objective for the wedge at 1080/1100 corresponds to 1/3 (0.382) retracement for the entire bearish wave of 1550/768. This level is still important. It is the first level of the objective that once the index cancels the “bearish market” by exceeding the first ratio of Fibonacci of 0.236 retracement that is located at 960. This level also corresponds to the base of the wedge. It will be the rendezvous level when the wedge is finished. The support for the break in the wedge is if the S&P500 goes below 1025.
The risk is present and we have to be aware of it. The indices have risen for the last 8 months and there are some good profits on the table. The strategy is to lock in these profits. Since the wedge is still alive, we can still profit from the remainder potentially for the short term trading and be ready to flip it back out when the risk is confirmed. A recall of the risk levels; 1025 for the S&P500, 1890 for the Nasdaq and 9500 for the Dow. The objectives for the correction are at 975/960 for the S&P500, 1640/1600 for the Nasdaq and 9000/8850 for the Dow.
For this morning, we have the PPI and the Retail Sales due out at 8:30 a.m., the Industrial Production at 9:15 a.m. and the first data for November the U of M Confidence Index at 9:50 a.m
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