Bill and all,
Some thoughts for tonight...(a bit long, but worth the reading).
From Last Thursday's Posting:
<<If you want to hold onto equities, a suggestion would be to pick up a few of the in the money puts on the Dow on any further strength>>
For those of you who did that on the strength Friday or this morning,
congrats to you (and me too.)
So what's next?
Well, to say the least, today was quite an interesting day. One half hour of strength with the tick on the NYSE as high as 400+, followed by seven hours of selling (especially in the final 60 minutes). During that selling, the tick on the NYSE got as low as -1320 and the arms index as high as 1.95.
These are two signs that there was some fear in the market late in the
trading session.
Normally, an arms index above 1.50 signals a short term bottom but there are other reasons that today was no bottom.
For starters, the new lows on the NYSE was 98 today, the 7th day in a row above 40. The new highs were not strong...there were 60 today. The Nasdaq, Dow and just about any other index tried to come back around 3:30 this afternoon, but were hit by 30 minutes of heavy selling. For the Dow, that in itself was quite a telling story...(more on that in a moment).
The Dow closed below its 50 day moving average today. For a moment, late in the day, it seemed as though it was making a stab at closing at or above it, but that is when the selling really picked up....This evening the 50 day MA on the Dow stands at 9007.06. The last time the Dow crossed the 50 day MA was on January 28th, 1998 when it opened at 7815.08, closed at 7915.47 (3 points below the high of the day)...that was right around the time that the newsletter was suggesting that a heck of a rally was just around the corner.
Since then, the Dow has not even touched (tested) the 50 day MA until
today...and today's test failed miserably....it only provided support for a few hours and was resistance on the last hour rally. But that was today.
What about the rest of the week?
Tonight, CNBC was making light of today's selloff because it occurred on low volume (only 540 million shares on the NYSE)...I can't say that I agree. If the "rallies" of the past few weeks were occurring on much heavier volume , then I would say that today's selloff was suspect, but over the past few weeks, 550 million +/- shares / day was the norm. Today's volume was not out of the norm. Actually, it now seems that some sort of selling climax may be in the cards, where volume expands on a very negative day, possibly followed by a high volume snap back....
If you are in some index puts, look at what happens if the dow approaches its 50 day MA of 9007 +/-. If it seems that there is strength at that level and it continues to climb through it, then take your profits. However, if that area is met with resistance, then use your best judgement. If the latter happens, there may be a good chance at testing the 100 day MA, which is at 8584.13. If this happens, then we reevaluate and see if that is it or if indeed a check of the 200 day MA will happen (8213.11). If the 200 day
MA test occurs, it will probably be on a panic and the Dow would probably sell through it , hopefully not closing bleow it. If the 100day MA is all that is in the cards, it won't stay there very long.
Is this similar to last October?
Right now, no. The 50 day MA is still in an uptrend. last October it was flattening to lowering. This chart pattern is similar to last August, when the Dow closed below the 50 day MA, came close to the 100 day MA and then stayed in a trading range until September, when it made a weak attemp at rallying (by that time the 50 day MA was flat).
Lots of "what ifs"... but that's the way it is with kind of "stuff". If I had a crystal ball, we'd all be millionaires.
And just for kicks....
The new circuit breakers kick in at 10%, 20% and 30% declines base on the monthly average on the Dow at the end of each quarter. So for March, the dow averaged around 8600. (it went from around 8405 to 8800, so I'll pick something in the middle)....which means that the first NYSE circuit breaker kicks in at a decline of -860 points on the Dow...the next one at -1720...and the market closes if the dow drops -2580 points at any time during the day....
Remember, they are meant to curb market activity during drops of "historic proportions". The 350 point-550 point rule that controlled October 97 is not valid any more. If that were to happen tomorrow, it would be 8103, 7243, 6383...but don't count on it.
Just some thoughts...
Paulo
www3.edgenet.net |
