Here is the Deal:
Slam the open and Slam the close, with selling
that is. That’s what we have seen for the past two days with
only halfhearted rally attempts in the middle of the day. The
sustained internal weakness is reason for concern. After a
rough start Monday was looking OK until the final half hour of
trading when the sellers came in hard again. If the market
wasn’t sold out on Friday, well, we are one step closer to a
rally effort of some sort.
From a pattern stand point a formation is
starting to take shape. If we consider this a five wave move
lower then Tuesday’s low would be the end of wave 3 with a very
brief 4 on Wednesday. The action on Thursday through today
makes up the bulk of wave 5 and takes the shape of an ending
diagonal. This is a waning momentum formation and fits well
with the character of the action. The setup for Tuesday is a
thrust below 12,000 which should be quickly recovered. While
not required, it will make the whole thing look, text book.
Our upside rally targets are: 12,340 and
12,520. Trend line resistance is 12,100 give or take a little
over the course of the day. The last hourly high is 12,158 and
going above there give us the first hourly buy signal since the
23rd, a constructive development. And, that will
also put the Dow above a near-term downtrend line. Once the
recovery is on, we should see a sharp effort to push prices
higher on a temporary basis.
Q4 Productivity before the open (8:30) and
then January Factory orders at 10:00 AM: That’s the bulk of the
day’s economic data. Good, but Wednesday’s Beige book call
should get some attention. And, with the sub-prime lending
situation, the Mortgage Application index on Wednesday could
also get some serious attention.
This slam the market before the open
thing is getting old. The market is as oversold as it gets on a
near-term basis. It should take at least one to three days for
the excesses currently built into the system to work them
selves out. The PHD Rocket scientists have had enough time to
sort out their mechanical problems and should have already
taken steps to “fix” whatever it is they never planned on going
wrong in the first place. In short, I’m calling for a rally.
Note: the futures are down hard in after hours trading, again.
Here’s why:
When I first saw the Dow futures early in the
morning they were down 110. They had come back to about down 40
shortly before the open, better but still really weak. The Dow
fell 75 points, virtually on the open, to reach its low for the
day and a new low for the move at 12,039.11. That brings the
total peak to low correction to about 5.9%. The Dow rallied an
impressive 149 points to its high of 12,188.84 when it was up
almost 75 points before the selling crept back in. In the final
hour, the selling accelerated and drove the Dow down near its
low. It closed at 12,050.41 down 63.69 points. That is 138
points off its high of the day and only 11 above the low of the
day. The late day weakness remains a negative as it shows a
lack of forward looking confidence.
The SPX made new lows for the move on
Monday and closed at its lowest level of the day. Late day
liquidation has become a fad with both Friday and Monday
showing a lot of late day weakness. Seeing the low of the day
on the close remains a negative development, but 1372, one of
our Fibonacci target levels is just below the close. That is
our near-term target for now and should be reached on Tuesday.
Like the S&P, the NASD is now just a couple of
points from its 38% retracement level, 2335. It too closed at
its lows of the day. 2335 should be reached, and now the
question is whether or not the averages can manage a bounce
from Fibonacci support or not.
There were no changes in the trend table. Now
to put this move in perspective, I also track an hourly trend
chart, which works the same as the daily and weekly trends. The
last hourly buy signals were given on February 23rd.
Recent hourly highs are 12,158 Dow, 1388 SPX (~1390 March
futures.)
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was -4051 and again that is a
total wipeout reading. Since 1993 that is one of the 25 worst
internal readings on record, and we saw the sixth worst last
week. What is notable is that despite the terrible breadth
reading the Dow was not down that much, though there was broad
market damage. Typically such bad days see multi percentage
declines. Don’t get me wrong, it was a bad day, but it could
have been significantly worse. From a breadth stand point, we
still have a waning momentum situation in that we saw the worst
single day readings last week.
With Monday’s negativity, we are now seeing
the 10-day metrics reach the serious oversold levels. NYSE
5-day down volume is now higher than at any point during the
May – June 06 correction and that is excessive. NYSE 10-day
down volume is approaching its May 06 peak. NYSE 8-day selling
pressure is 86.6%. There are only 8 readings equal or greater
than the current reading since 1993. The selling is as intense
as it ever gets.
With another negative day, a second “Rare Buy”
signal has been given. The first signal runs through this
Thursday and the signal given today will run through March 14.
The first signal was given at SPX 1399 and the second at 1374.
While the current emotional state seems somewhat desperate,
that is what it takes to produce these signals. The message
remains consistent, look for some sort of counter-trend move to
begin now. The potential for a Turnaround Tuesday is as good as
it gets.
The speed of the current correction is
unfortunately, magnificent. The nature of the action is similar
to that seen just after the May 2006 highs where peak selling
momentum was seen in the first stage of the move lower. The 06
correction lasted a couple of months and this one should be no
different. That means the next really important low is still a
number of week away. That said, there should be some powerful
near-term opportunities as counter trend bounces, once they
gain traction, are quite spectacular. And, with the current
oversold condition, we are “due for” some kind of bounce.
Key levels to watch, Dow 12,158, SPX above
1388, NASD above 2365; Recovering these levels will be the
first signs of real improvement since February 23.
Jim Patterson
Most Obvious chart resistance levels:
(Bold = 62% retracements)
Dow 12,175, 12,350, 12,545,
12,600, 12,780 to 12,800, 12,863
SPX 1388, 1400, 1415, 1430,
1438, 1458, 1463, 1480-1489
NASD 2370, 2400, 2430, 2468,
2510, 2538, 2570
NDX 1775, 1800,
1825, 1841, 1847 (high), 1877 (minor Fib), 1910 (Major Fib
Level)
NYSE 9000, 9170, 9260,
9400, 9503
Most obvious Chart Support levels:
Dow 12,080, 12,000 (35% retrace,) 11,890, 11653
SPX 1372 (Fibonacci 38%) , 1362, 1340 (50% retracement)
NASD 2335 (Fibonacci), 2316 (early November lows) 2275 (50%
retracement,) 2225
NDX 1695 (Fibonacci 38% & Nov 06 lows,) 1650 (50% retracement,)
1465
NYSE 8960, 8800, 8690, 8575
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
If there were ever a setup for a turnaround
Tuesday, this is it. If we see opening weakness, look to go
long after the first hour of trading has sorted it’s self out
and use the first hour low as a failsafe warning level. The
only problem is we are not the only ones with this line of
thinking. Then again, with the 5-day Put/Call ratio up to 1.33,
there are plenty of folks expecting the worst.
S&P 500 (SPX) Trading
There was a chance to buy early weakness, but
it faded. Actually, it vaporized. It’s the same as the NASD.
The 38% retracement levels are just below the closing levels. I
am looking for them to be reached, but that should be it on a
very short-term basis. If you go long, use the first hour lows
as a signal post.
ICLR rec Long 01/24 @ 39.53 stop 34
close, Target >46, closed at 40.35
LOGI rec Long 02/06 @ 28.96, stop 26 close, Target >35,
closed at 25.82
DAKT rec Long 02/06 @ 36.69, stop 28 close, Target >44,
closed at 24.42
CBEY rec Long 02/20 @ 31.31, stop 28 close, Target >38,
closed at 29.62
LNUX rec Long 02/20 @ 5.35, stop 4.60 close, Target>
6.50, closed at 4.21
New Long:
AVCI rec Long 3/5 @ 8.31, stop 7.65 close, target > 9, closed
at 8.31
It either holds the
gap or it doesn’t. If the market comes back to life AVCI should
quickly rebound to the $9 area.
**
PRS Open Actives making noise:
The PRS System is a long only strategy and there just isn’t
much to talk about here.
Jim Patterson
Editor
Tactical Trading Outlook
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