FROM SIGNAL WATCH: At Critical Support
Got the upside break. Now, will it hold? Lowering medium term stops to 10,775
From yesterday's commentary, "...If we start up, through about 10,810 or so, go Long with stops at 10,795 (the approximate low). If we start down, wait for the prior low to be crossed at 10,775 - and go short there... In the medium term, we will go Long (again) on a crossing of 10,850."
Well, today was pretty easy on the Long side. There was a lot of evidence from yesterday that the market was going to rally, and it did. We plowed through 10,810 right away, and ended up broaching the important 10,900 level by day's end. We had one retracement which we caught in our Intraday Alerts section, and then turned back up above 10,850 to close near the 10,900 level.
If you look at the 15 Minute Chart, you can see that we are consolidating in the 10,875 to 10,900 range, which is a good sign. For tomorrow, we will be watching to see if 10,910 can be broken early. If it is, I would expect the market to continue on up to that heady 11,000 level. Why? The consolidation is at 10,900 and the recent low at 10,800. The difference is 100 points, so we should move to 10,900 + 100 = 11,000.
What if we don't? Well, if the market sells off, I would look to take advantage of short term shorts at 10,880, but we will not exit our medium term Longs this time until 10,775 is crossed (which is also our short entry point, in the medium term). From everything I can see, the market is in a good position to go ahead back up to 11,000 and break the line. But, we must always be prepared, just in case.
Short Term Dow
Again, because we formed such a nice range in the 15 Minute chart, I think tomorrow is going to be a nice, trading day, Short at 10,880 and Long at 10,910. If you do go Short, watch 10,850 on the downside. If we don't break it, go short more. On the upside, a break of 10,910 should carry us to 11,000 if my calculations are right.
Medium Term Dow
Well, we are back on board at 10,850. This will be our 2nd attempt at a rally back to the high. Will it "take" this time? Can't say. But, I think we have a very good chance. Clearly, this is not the best market for the medium term. We have been in the 10,800 to 11,000 trading range for two weeks, watching for the ultimate break. Because the market is so orderly, I feel it is a good idea to be Long above 10,850 to take advantage of the last swing to the high. Conversely, if we drop through 10,775 we should short for the likely ride down to the support level at 10,600. As I've said previously, if you are unable to watch during the day, I suggest staying away until we break the upper or lower boundary (11,000 or 10,775). If you ARE able to watch, I think looking for medium term entries above 10,850 or going Short below 10,775 is prudent.
NASDAQ and OEX
We did break 2,500 on the NASDAQ to form a very nice gap. That's good. We went Long at 2,550 for the medium term, and will hold our mental stop at the lower boundary, 2,500. We could see a retracement tomorrow, but the "way to bet" is that the NASDAQ is going higher, simply because it has gapped through an important trend line off the lows. ** The OEX did turn through 685, and held its ground. So we should be good to go there too. We are going to watch the two important lines in the intraday charts - one at 685 (down) and the other at 693 (up).
In Summary:
Nice sign of an up market today. We will see if it holds. The rally off 10,800 was likely, and we got it. A break of 2,500 was also a good possibility on the NASDAQ, and we got that too. The OEX is consolidating in a wide range at the high point of its move. These are all good signs. However, we are clearly in a trading range from 10,800 to 11,000 on the Dow, so anything can happen. We will continue playing the swings in our Intraday Alerts section, waiting for the market to make up its mind. I could see this thing going sideways for quite a while, wearing everyone out in the process.
Many forces are being exerted on the markets in here including poor earnings reports, coupled with a bargain basement market, working against each other to produce schizophrenia. It's great for the day traders, not so great for the medium term folks. In a market like this, I would try to buy into the industry group rotations (see our Industry Rotation pages) buying into groups that are rallying. Likewise, you want to be short groups that are going out of favor. The market is mushy as a whole, but certain sectors will move in concert as money managers create their own herd mentality as they scramble to make money for their funds.
Thanks for listening, and good luck in your trading!
Ed Downs
edowns@nirvsys.com
Definitions:
Short vs. Medium Term: The short term is defined as 1-4 days. Most short term commentary is relevant to day traders for the following session. The medium term is 1-4 weeks.
Fulcrums: A fulcrum is essentially a "line in the sand" or "demilitarized zone" in the battle between bulls and bears. These lines, identified by experience, are equilibrium points between buyers and sellers, and are usually found in the centers of consolidations (trading ranges). When price moves away from a fulcrum, it usually moves quickly and a great distance |
