Dow diamond. 7800 ??
FWIW I have been following this free website for years. this guy is usually right on.
Fed News Reaction
The markets turned on a dime as the Fed announced the expected 50 basis point reduction. Consolidation failures abounded, telling us to get out of this market, at 2pm Eastern.
From yesterday's commentary, "My best advice for our medium term investors is to wait this out for a few days, and see if we can form a true, basing pattern. The last thing you want is to buy in a reaction rally and then see the market fail through the bottom. We are still vulnerable..."
Yep. Still vulnerable all right. We all had high hopes today that the morning consolidation would culminate in an upside move, but the Fed news was not what the market wanted to hear, and we quickly pushed back down through our downside point of 9,875 and headed lower - a lot lower. We had clear warning to get out of its way, and did, plus we went short on the break through 9,875 which puts us in a profitable position on the Short side.
Now, we are below the lowest low at 9,800 and falling. Looking at the Weekly Chart, we can see that the Diamond Pattern may, indeed, culminate in a failure. For those who have not read this page before, diamonds are rare patterns, and imply moves down a distance equal to their height. Since this one is about 2,000 points in size, and the low is around 9,800 we have a case for a market moving down to about 7,800. That's a lot.
Will this happen? Hard to say. All we know is the market is very weak right now, and the patterns suggest continued downside movement to the ultimate low. What we will be doing on this page is watching for a reversal and a higher low to form (as we have before) and then gingerly enter Longs with tight stops. Needless to say, the markets are still in trouble, and we have to respect the trend.
Short Term Dow
You can see the sharp trend in the 15 Minute Chart, and I would use this for short term moves tomorrow. Up through about 9,750 and I would be a short term buyer, down through the low at 9,700 and I would sell - BUT beware of the "tail fake" phenomena, a sudden gap at the Open. Give it at least 20 minutes before entering. I would expect for waves to set up here - for example, up 75, down 150 or down 100, up 50. Be ready to trade the trendline reversals in the 15 Minute Charts.
Medium Term Dow
In the medium term, we exited our Long from 9,825 at 9,900 for a meager 75 point gain, and are now Short. This thing could get really going and head on down to our target of 7,800. Can't predict that - it's a long ways down there. But, we are going to hold short on the assumption that the trend is down, until 9,800 is crossed and a higher low forms (holding our stop at 9,900). If we continue down, we will look to take Short profits in 9,500 zone.
NASDAQ and OEX
We were concerned about going Long the NASDAQ, and that concern bore fruit today. A consolidation failure right after the fed news told us we were in big trouble, and in our Intraday Alerts we posted a "short stance" at 1,950 as the market dropped through. We continued 100 points down, below the lowest low. We have similar trendline potential in the short term, and even better opportunities to trade the moves on the OEX over the next few days. **
In Summary:
Yesterday, we indicated that we were "well aware that we have a large Diamond in the Weekly Chart, which appears to be failing. We still need to be careful." That was a good idea today. Is the market going through the floor? Yes. Is it going to stop any time soon? Too hard to say, though the technical evidence in each index points to another 10% to 15% or so of downside before a true bottom can form. Our strategy will be to watch for signs of a bottom and take cautious Longs, as we did on the last upside break. As long as we hold fairly tight stops, we should not lose money doing this, but will be "in" for the actual recovery, whenever it comes. It's just a matter of time.
Thanks for listening, and good luck in your trading!
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