...borrowed from Latifs thread..
Updated Monday, 12/18 for Tuesday's Market
Key DOW Levels for 12/19
UP Through 10,675
DN Through 10,600
Back to 10,650
Expanding triangle resolved to the upside. Now
consolidating at the center of the action, 10,650.
Watching for the break tomorrow.
From yesterday's commentary, "... We have an expanding
triangle in the 15 Minute Chart, so I'd watch to trade a
continuing range, up and down, and then trade the break out
of the pattern, up or down as well. That means going Short
more if we drop through 10,450 and that we cover and go
Long on a crossing of 10,500...."
The short term played out well under this scenario. The
10,500 level was quickly crossed, leading to a rally of 175
points before cresting and pulling back into a
consolidation. So, for the Short term, today was a great
trading day, with Longs working out well into the late
afternoon.
As far as the medium term goes, the market rallied through
10,550, at which point we covered our Shorts, awaiting a
strong push through 10,650. While we did crest through this
level today, we quickly retreated back at about 10,675.
So, we are essentially out of the market at this point and
waiting for the next move.
Look at the 60 Minute Chart for a second. You can see the
vulnerability in this pattern. Tomorrow should be fairly
easy to guage. If we break 10,675 I am suggesting going
Long with stops at 10,650 - a short fuse to be sure, but I
think if we do get a rally it should maintain momentum if
it is going to hold. On the other side of the fence, a
push down through 10,600 should be shorted with 10,650 as
the cover level. So, 10,650 forms a fulcrum for tomorrow,
as 10,500 did today - Long above, Short below.
The Weekly Chart is still forming a Diamond. This
slow-moving pattern is just something you want to be aware
of, and it is the main reason I am trading defensively,
with tight stops and so on. If we drop through key support
and head towards 10,000 you certainly don't want to be
Long.
Can the Dow really drop to 7,800? Did anyone expect the
market to react negatively to the election outcome?
Anything is possible. I don't try to rationalize the
market, but rather to use solid technical patterns and do
what they say. In my heart of hearts I don't think it's
going to 7,800 either, but I won't be totally surprised if
it happens, based on the existence of this pattern. For
now, a move above 10,675 would disarm it, in my opinion.
Short Term Dow
The short term should, again, be easy to read tomorrow.
Essentially, we are forming a tight consolidaiton in the 15
Minute Chart from 10,600 to 10,675. Seventy five points in
this market is nothing. Whichever way it breaks, go with
the flow and watch for the first trendline crossing the
other way in the 5 minute chart. That should give you a
reasonable profit right out of the gate tomorrow. My best
guess is that the Dow is going to break to the upside, and
the NASDAQ and OEX follow its lead. But don't anticipate!
Wait for the break.
Medium Term Dow
In the medium term, we are out, having bagged a meager 50
points on the prior move, as we covered shorts at 10,550.
This is to be expected, though, in a trendless market that
is trying to figure out if it likes the economic prospects
for the medium term. I think we have a great case here for
a "line in the sand" as I like to call them - 10,650 should
be the steady equalibrium point above which we want to be
Long, and below which we want to be Short. So, tomorrow
could be an important decision point in the markets. Look
at the Daily Chart. This level is right, smack in the
middle of all the action. It HAS to break one way or the
other. My "best guess" is "up" - but you should go with
the flow, whichever way it is.
Why do I think the market will swing to the plus side?
Because of all the pessimism out there, primarily related
to earnings warnings. When folks think the market is going
to drop, it will rally. Why? Because the common opinion
tells you where the positions are. If everyone thinks the
market is going down, that means none of them are Long. If
that is true, the only logical direction from there is "up"
because there are no more sellers! We will see. As I say,
trade the break, even if it's down.
NASDAQ & OEX
Saturday, we said, "The NASDAQ shows some potential for a
rebound, and we are watching the trendline at 2,725. If
the NASDAQ rallies through this level, I am advising
"cautious longs" with a mental stop at the same level. We
are currently Short from 2,850 and will cover at 2,725."
Amazingly, the index rallied just barely to 2,725 before
turning back down! The power of the gap is something to
behold. Now, it has pulled back down to support at 2,600
and is holding just above it. ** For tomorrow, watch
2,600 down and 2,725 up.
We indicated we would not go Long the OEX until 710 was
crossed. We didn't even come close today, forming a
triangle consolidation instead. And, we know what that
means. Again, watching the outcome of this pattern is
going to tell us which way the index is going to break.
It's an important juncture. I'm holding our Long entry at
700, Short at 685.
In Summary:
The Dow appears poised to rally, and the critical points on
the NASDAQ and OEX are now just below us. I think taking
positions on the NASDAQ and OEX in the face of a rallying
Dow could be prudent tomorrow. But, you will have to hold
tight stops at support in each case - 2,600 on the NASDAQ
and 685 on the OEX. It's a good bet here -- you won't
lose much if they fail, but stand to gain a great deal if
they hold. If we do drop through these levels with any
force, going Short is the only logical answer, holding
stops at the same levels or just above them.
Thanks for listening, and good luck in your trading!
Ed Downs
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* Short term vs. medium term. We define short term as 1-4
days, and medium term as 1-4 weeks. This column is designed
for both types of trading/ investing.
** We are now publishing charts on the NASDAQ and OEX (SP
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----------
"What to Trade?"
I received a very nice email from Mr. Walsh asking what
symbol to trade to mirror the movements we discuss on this
page. What I would suggest is, that you look for
individual issues which are poised to gain the most from a
break of one of our levels. I know this is a bit more
work, but you will often get a nice "spring" effect and
also reduce your risk.
As an example, the weekend of October 28, we speculated
that a rally was likely in store on the NASDAQ, and
mentioned MUEI. It jumped off the launch pad Tuesday, and
has been carried up by the initial momentum.
You can certainly trade the indexes directly (DIA, QQQ,
etc.) but I think your results will be better if you focus
on the issues which will move the most on any given
incentive. Good question - thank you, Mr. Walsh.
Thanks.. Ed Downs
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