Saturday, January 22, 2005
to catch a bounce
Far from it being my place to emulate Francis Seow's "To Catch a Tartar", I would like to stick my own neck forward and suggest that we may try to catch a bounce.
Here is the situation: The intermediate term indicators are still stuck in a firm bearish downtrend with no sign of respite, although they are far less overbought than they were at the start of January. However the short term indicators have bounced off previously very oversold levels and are now making positive divergences against the price action, meaning that the price level has recorded a lower low (as of Friday's close) but the indicators are recording higher lows. On the sentiment front, folks are getting more bearish but NOT to the stage that would suggest a meaningful trading rally. For example, while the VIX has gotten a little more jumpy over the past couple of days, it is still at a very low level.
The DJIA has broken the 10420-10450 initial support zone that I mentioned just two days ago, and is now poised to test 10280-10350. My take is that some folks capituated on Friday. This is a good sign. It means we are near a bounce. I suggest that any test of Dow 10350 would be a good buying opportunity of timeframe three days.
Here is the situation: The intermediate term indicators are still stuck in a firm bearish downtrend with no sign of respite, although they are far less overbought than they were at the start of January. However the short term indicators have bounced off previously very oversold levels and are now making positive divergences against the price action, meaning that the price level has recorded a lower low (as of Friday's close) but the indicators are recording higher lows. On the sentiment front, folks are getting more bearish but NOT to the stage that would suggest a meaningful trading rally. For example, while the VIX has gotten a little more jumpy over the past couple of days, it is still at a very low level.
The DJIA has broken the 10420-10450 initial support zone that I mentioned just two days ago, and is now poised to test 10280-10350. My take is that some folks capituated on Friday. This is a good sign. It means we are near a bounce. I suggest that any test of Dow 10350 would be a good buying opportunity of timeframe three days.
Thursday, January 20, 2005
downside targets
I told you this was just an oversold rally, and that any strength SHOULD be sold, right?
Well, US markets were up on Tuesday, and the S&P was within a whisker of 1200. Then on Wednesday night, despite a bevy of good news before the open, markets opened flat and continued lower throughout the whole day, finally culminating in a depressing slide in the last hour to close at the day's lows.
Still, I do not think the oversold rally is finished yet. There should be some upside left in the market before the next leg lower. Besides the oversold condition as present in the oscillator, the 10-day average of new highs minus new lows has also picked up meaningfully since last week. This suggests that there may be some fight left in the market.
However the intermediate trend is definitely DOWN. On the DJIA for instance, my first downside target is the 10420-10450 zone which coincides with the June04 interim highs, the Nov04 consolidation zone, and the 38.2% retracement of the Oct04 low to the Dec04 high. But this should be easily broken in the weeks ahead, minor technical rebounds notwithstanding. More important is my next downside target which is the 10280-10350 zone which coincides with the Sept04 interim highs and the 50% retracement of the Oct04 low to the Dec04 high. I fully expect this zone to be tested repeatedly before the intermediate term decline is over.
On Wed night, the S&P still managed to close above our old friend 1183. A break of 1175 should now spell an eventual slide to 1150, with weak support at 1168. The price 1183 now simply appears to be the midpoint in price of a depressing 1Q consolidation.
Well, US markets were up on Tuesday, and the S&P was within a whisker of 1200. Then on Wednesday night, despite a bevy of good news before the open, markets opened flat and continued lower throughout the whole day, finally culminating in a depressing slide in the last hour to close at the day's lows.
Still, I do not think the oversold rally is finished yet. There should be some upside left in the market before the next leg lower. Besides the oversold condition as present in the oscillator, the 10-day average of new highs minus new lows has also picked up meaningfully since last week. This suggests that there may be some fight left in the market.
However the intermediate trend is definitely DOWN. On the DJIA for instance, my first downside target is the 10420-10450 zone which coincides with the June04 interim highs, the Nov04 consolidation zone, and the 38.2% retracement of the Oct04 low to the Dec04 high. But this should be easily broken in the weeks ahead, minor technical rebounds notwithstanding. More important is my next downside target which is the 10280-10350 zone which coincides with the Sept04 interim highs and the 50% retracement of the Oct04 low to the Dec04 high. I fully expect this zone to be tested repeatedly before the intermediate term decline is over.
On Wed night, the S&P still managed to close above our old friend 1183. A break of 1175 should now spell an eventual slide to 1150, with weak support at 1168. The price 1183 now simply appears to be the midpoint in price of a depressing 1Q consolidation.
Tuesday, January 18, 2005
an oversold rally unfolds
US markets are deeply oversold going by technical indicators such as the 10-day MA of the A/D line. The McClellan Oscillators have already embarked on a rebound from similarly oversold levels and are poised to gain further ground this week.
Intermediate-term indicators however, are still in a downtrend and the severe loss of momentum in the major indices is readily apparent from indicators such as the McClellan Summation Index based on NYSE breadth or NASDAQ volume. The 30-day MA of the A/D line may rise a little in the coming days, but it is likely to resume its decline next week. Also, the 30-day MA of upside volume minus downside volume on the NYSE is not yet at levels that suggest a good trading rally.
We still have not gotten that sentiment turn --- folks have not thrown in the towel on the bull thesis. The put/call ratio is not showing much signs of fear, and the VIX has hardly budged despite the two week decline.
The S&P has regained the important 1183 technical level (which is 90 degrees down from the 3rd Jan intraday high of 1217/18) and closed at 1184.52 last week. Many winners last year that took a hefty beating the past two weeks have also stabilized and may be poised for some further upside. A test of S&P 1200 is still possible. However we are going to need more price action to provide further information as to what the market is thinking. Barring any unusual moves, I feel this is still just an oversold rally that begs to be faded. A decisive break of last week's intraday lows of 1175/76 on a closing basis could spell a full 180 degree downmove from 1217/18, which means a downside target of S&P 1150.
S&P 1250 is now beginning to look like a much more difficult technical target than I previously thought, especially after the two piggyback Real Distribution Days the previous week and the severe loss of momentum. Sell strength.
Intermediate-term indicators however, are still in a downtrend and the severe loss of momentum in the major indices is readily apparent from indicators such as the McClellan Summation Index based on NYSE breadth or NASDAQ volume. The 30-day MA of the A/D line may rise a little in the coming days, but it is likely to resume its decline next week. Also, the 30-day MA of upside volume minus downside volume on the NYSE is not yet at levels that suggest a good trading rally.
We still have not gotten that sentiment turn --- folks have not thrown in the towel on the bull thesis. The put/call ratio is not showing much signs of fear, and the VIX has hardly budged despite the two week decline.
The S&P has regained the important 1183 technical level (which is 90 degrees down from the 3rd Jan intraday high of 1217/18) and closed at 1184.52 last week. Many winners last year that took a hefty beating the past two weeks have also stabilized and may be poised for some further upside. A test of S&P 1200 is still possible. However we are going to need more price action to provide further information as to what the market is thinking. Barring any unusual moves, I feel this is still just an oversold rally that begs to be faded. A decisive break of last week's intraday lows of 1175/76 on a closing basis could spell a full 180 degree downmove from 1217/18, which means a downside target of S&P 1150.
S&P 1250 is now beginning to look like a much more difficult technical target than I previously thought, especially after the two piggyback Real Distribution Days the previous week and the severe loss of momentum. Sell strength.
