Signal Watch:
Steady Slide..
The Dow and other indexes continue to trade sideways to down. Watching key levels for signs of life.
From yesterday's commentary, "...If we break through 10,820, I would go with the flow in the short term and hold mental stops there. If we start down, you could short and watch for a bottom to form at 10,725 - If we drop through that level, short more... Since we came back to touch 10,850 and are trading below it, there are good odds of a continued decline.."
Today I came up with a good analogy for the market. It has the flu. You know, it's still chugging along, but it just doesn't feel very good right now. And, as with most flus, there is really no vaccine - we just have to wait it out (although a healthy dose of rate-cutting would certainly pep it up!)
The fact that we are in a sideways-to-down range means there are some stocks that are going up, and of course, there are plenty of candidates going down. That would be fine for trading, except that the trend is not clear. This means that those of us trading for days or weeks are getting knocked around in the ranges as the market waffles with gaps in both directions.
Let's try to make sense out of all this, starting with the Daily Chart. You can see the very clear-cut resistance line at 11,000. And, you can see the Dow repelling off this line, heading back towards our previous "fulcrum" at 10,600. Clearly, the posture is negative, and the odds of going back to the low of this channel at 10,300 are high. If you look at the 60 Minute Chart, you can clearly see the downward trend. How can we trade this kind of market?
Assuming you can watch the market in some fashion, I would suggest looking for good Long candidates and holding back until we get a medium term "signal" to go Long. For the Dow, that would come in the form of a solid break of 11,000. You could begin accumulating at the lower line, about 10,775 - but that would be an early entry (on the Long side). We are currently short below 10,775 and expecting the market to draft on down to 10,600.
Short Term Dow
In the very short term, you can see the long trend down in the 15 Minute Chart from our 10,900 high. Since we did consolidate at 10,800 mid-day, I am expecting a strong upside move Wednesday, and if that happens go with it, expecting a reversal at 10,825 or 10,900 (and exit if that happens). If we start down, short with 10,750 as your mental stop.
Medium Term Dow
We are now using 10,750 as our fulcrum. This level has a lot of chart activity, and I firmly believe that the market will pull away from it (although we could see another whipsaw first). The biggest evidence I have for this being a good resistance level is the consolidation you can see in the 15 Minute Chart from 10,750 to 10,900. The lower boundary of the consolidation (at 10,750) forms a good resistance level, coming up from underneath.
We can use this consolidation (from 10,750 to 10,900) to calculate a target in the medium term timeframe. The recent high is 11,000. Taking the distance from the top of the range to the high (100 points) implies a continuation move down to 10,750 - 100 = 10,650, about 80 points further down. As I indicated above, we are already at our short term target, so this indicates a reaction rally, followed by a further drop to 10,600 or 10,650 is likely over the next few days.
NASDAQ and OEX
Yesterday, we indicated we were "sitting just above our belwether short zone, at support of 2,400." and, "If we break it, I think we are going Lower. The OEX clearly dropped through 685, making us short intraday at the Open. On that index, we are going to use 678 as our new resistance, or fulcrum level."
Well, we did break 2,400 and headed lower - in fact, nearly 100 points lower. Now, we are watching the last support level at 2,250 and hoping it holds. Good chance it will. The OEX rose to touch 678, but then retreated, so holding our fulcrum there was a good idea.
In Summary:
Well, to echo my comments from above, the market is definitely a bit ill right now. But that's O.K. - we want to watch for signs of a recovery and trade it. From day to day, we are going to get reaction rallies in the downtrend, and a final push that breaks resistance and begins a new climb. When will this happen? It's really impossible to say.
Everything in the charts points to lower levels in the medium term, although the short term outlook for Wednesday is positive (since we are at a consolidation target and support level in the intraday charts at 10,725). So short term, we are watching for a rally Wednesday. Medium to Long term, it's a holding pattern with a negative bias until 10,900 is broken, or 10,775 for "early" Longs.
Thanks for listening, and good luck in your trading!
Ed Downs
edowns@nirvsys.com |
