Jim: As I was saying Friday, I believe that this is a dangerous time to be in the long side. All my indicators are showing a down trend in the intermediate term. On top of that many indexes have penetrated the 55 day EMA and remained below it even on Friday at the close. Among those that are about to test the 55 day EMA to the upside this coming Tuesday are COMPX, NDX, OEX, SPX and SOX. A failure here will be very interesting.
I don't believe that we will sell off in a big time immediately if the indexes fail to go bag up above the 55 day EMA. As a matter of fact I think that they may even penetrate their respective 55 day EMA's. But because the Indexes are were so oversold in this latest sell off, I think they may consolidate here for a week or two. Therefore forming a stair step before resuming it's downtrend.
From looking closely at the intraday action last Friday, I observed that it appeared as though the NDX was being shorted. The reason I said that is that I saw that the ask price was often below fair market value for the QQQ. (NDX/20) I believe traders will try to use the impending resistance point near the 55 day EMA to short this stock. With the believe that it will bounce downwards when it touches it. It could well be the case that it will bounce down from there, but with the index recovering from extreme oversold conditions, I would think that if it does, it will ricochet of the last bottom again, forming a tide trading range. Once it has spent a couple of week in this range, then a new overbought condition will emerge when the index is at the top of this tide range. Then I believe that the sell off could resume.
The above is a scenario that I borrowed off of last years sell off in late August. It may not happen in the exact same way, but I think there will be some resemblance to that. And I am opting for a bearish scenario because the price-volume action is not indicative of an intermediate term bottom yet. At least I don't recognize it as one.
Regards,
Jaime
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