Copyright ©2007
Patterson Relative Strength,
All rights reserved
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Tactical Trading Outlook
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Written by Jim Patterson
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Monday, 19 March 2007 |
Here is the Deal:
With a minor rate hike in China and strength
overseas, we saw a huge jump higher on the open. However, it is
important to note the bulk (two thirds) of the day’s gains were
realized by 9:40 AM. Even though it was a Monday, volume was
light on the rally day. It was a big up day, but in the last
hour of trading I could hear the cry…don’t let the SPX fall
below 1400!!! It miraculously held at 1400 despite
significant internal deterioration over the last several hours
of trading. It was an up day, but the action after the opening
gap higher was not remarkably impressive.
Coming into Monday we knew of the potential
for a pop to a slight new high, above the mid-week highs. The
high of 12,234 makes the move up from Friday’s low equal to
68.2% of the rally from Wednesday’s low. This is a common
Fibonacci relationship. In addition, the 12,255 level is the
76% retracement level of the entire move. With the flat pattern
over the balance of Monday, odds favor a very slight poke
higher. For the near-term bearish case the Dow needs to hold
below resistance at 12,235 to 12,255. Seeing the Dow slide
below 12,180 will be the first sign of real trouble for the
Bulls while 12,205 was vigorously defended on Monday.
Seeing the Dow above 12,255 should be
worrisome for the bears on a very short-term basis. Seeing the
Dow below 12,180 is problematic for the Bulls. With the market
now extremely overbought, odds of a significant push higher
from current levels appear remote.
Tuesday we get housing starts and building
permits. Needless to say, these reports will get a lot of
attention. It is also FOMC day 1 and they tend to be quieter
type days.
Here’s why:
The Dow was never down on the day. It was up
124.26 at its high of 12,234.67. It closed at 12,226.17 up 115
and just 8.5 points off its high of the day. From a price stand
point it was an impressive day. From an internal stand point,
the overall action weakened from about 11:30 AM on. The effort
was to keep the S&P 500 above 1400 and the Dow above 12,200,
but there was no effort to defend the NASD and NDX at a
particular level.
As strong as the day was, I find it
interesting that the SOX finished lower on the day.
The S&P 500 regained 1400 and once it
did, 1400 was a key focal point. The bears tried to break it
back below 1400 but failed on two, actually three, attempts.
Another really strong rally day may force us to alter our
near-term expectations. For now, the pattern retains its
corrective A B C look and the internals are remarkably
overbought. Monday’s action helped to solidify where we are
within the corrective pattern. The current move higher is a C
wave. Once complete it should be followed by an aggressive move
lower that fully retraces the entire rally.
The 38% retracement level on the NASD is 2413
and the NASD remains short of the common retracement level. The
38% retracement level on the NDX is 1764.62. Monday the NDX
reached a high of 1764.37, a few cents short, but close enough.
That leaves the NASD as the only index not to reach its 38%
retracement level of the entire decline. Overall the NASD and
NDX have moved in a sideways formation and are now near the top
of their short-term price structures, and the market has become
overbought.
Tuesday March 20 is a longer-term cycle turn
date. Technically it is a low. The next longer-term cycle turn
date is not until April 20th.
The NYSE was the only index that did not give
a daily buy signal on Monday. This is mainly because it never
turned its daily trend down last week like all the other
indices did. The NDX also managed to turn its weekly trend up
by moving above 1763; however, despite the Dow’s strong close
the NDX was unable to hold up near the higher turn point.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was +2675 on Monday. That is a
solid reading, but it is worth noting that the lowest reading
(after the open) was seen at 3:30 PM, and if not for a lot of
buy on close orders, breadth would likely have finished at its
lowest level since the open. This is less than ideal behavior
for the sort of gap higher we saw on Monday. In short, while
the market moved higher from 9:40 to the close, the internals
weakened from 9:40 to the close.
With another powerful advance the market is
now overbought. The NYSE 10-day AD line is in even with its
most recent major spike highs reached on 2/8/07, 10/16/06, and
8/4/06. All three of those dates were followed by at least a
couple of days of weakness. Amazingly, the current 10-day
reading contains the massively negative reading from Tuesday,
one week ago; however, it will drop the massive positive from
two weeks ago on Tuesday.
Typically very high readings of this nature
coincide with a very short-term market high. The exceptions are
most often when the market has recently broken out of a base
formation. At present the indices are in line with the top of
their near-term trading ranges and have not broken out yet.
NYSE 10-day advancing volume is at its highest
level since June 2, 2006. That’s the day the 2006 counter-trend
move ended. While 10-day advancing volume is very high on a
real basis, relative buying peaked in mid-January and the 8-day
relative buying metrics continues to trace out a pattern of
lower highs. We are seeing record buying but it doesn’t feel
like we are seeing record buying.
Total Volume on Monday was anemic at 2.3
billion shares. Aside from big moving Mondays, that is in line
with recent Mondays. The problem is Monday is viewed as a big
rally day that happened on low volume.
Beware of Tuesday: Tuesday 2/27, SPX down 50;
Tuesday 3/6 SPX up 21, after a disastrous Monday (read:
potentially opposite of now); Tuesday 3/13, SPX down 28. The
point being that since this decline started on Tuesday the 27th,
Tuesday’s have seen significant market moves.
If we are in a counter-trend move, whether
from the 3/5 low or the 3/14 low, at this point the market has
become very overbought while the indices have reached common
retracement levels. We have an FOMC meeting over the next two
days and some key economic data (housing starts & building
permits) on Tuesday before the open. In short, the stage is set
for a resumption of the move lower that started in late
February. From a pattern stand point, one minor final high,
above Monday’s highs, on Tuesday will leave a remarkably
complete pattern in place.
Jim Patterson
Most Obvious chart resistance levels:
(Bold = 62% retracement)
Dow 12,260, 12,347, 12,420,
12,532, 12,600, 12,780 to 12,800, 12,863
SPX 1407, 1415-18, 1428,
1438, 1458, 1463, 1480-1489
NASD 2413, 2430-36,
2459, 2510, 2538, 2570
NDX 1766, 1800,
1825, 1841, 1847 (high), 1877 (minor Fib)
NYSE 9152, 9225,
9400, 9503
Most obvious Chart Support levels:
Dow 12,180, 12,080,
12,000 (38% retrace,) 11,890, 11653
SPX 1398, 1373 (Fibonacci
38%) 1362, 1340 (50% retracement)
NASD 2380, 2335 (Fibonacci), 2316 (November lows) 2275
(50% retracement,)
NDX 1738, 1710, 1695 (Fibonacci 38% & Nov 06 lows,) 1650
(50% retracement,) 1465
NYSE 8980, 8850, 8690, 8575
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
The NDX gave us a chance to get short above
1755 and finally reached the 38% retracement of 1764. If you
are short, stick with it as the next move of significance
should be lower. And, with a solid overbought condition, the
indices should struggle to advance from current levels if not
simply turn lower. Moving below 1745 will be a very healthy
indication for the bears.
S&P 500 (SPX) Trading
>> 3-16-07: With strength on the open
it made sense to hold off on the SDS purchase for an hour or
so. The SDS bottomed at 60.55, well below the 60.80 I am using
as an entry price. We have a full position in the SDS with
an entry of 60.80.
>>> If the S&P 500 rallies to 1407.5 then add
another 50% position to the SDS.
The SPX came close to 1407.5. If reached we
will add another 50% to the SDS position under the assumption
that our expectations for lower prices will be fulfilled once
the counter-trend move has fully run its course.
ICLR rec Long 01/24 @ 39.53 stop 34
close, Target >46, closed at 41.83
CBEY rec Long 02/20 @ 31.31, stop 28 close, Target >38,
closed at 29.82
**
PRS Open Actives making noise:
MVL put on a good show thrusting above 28.20 on solid
volume and closing at 28.29. (I hear the movie is really good.)
Other stocks pushing their short-term down
trend channels (all on substandard volume): ANST 30.80 closed
at 31.49; ACGY 19.05 closed at 19.40; AMX 45.05 closed at
45.81; ARD 45.31 closed at 46.20; PCU 69.42 closed at 70.03.
ARD and ACGY look the most like meaningful
upside breakouts.
In a healthy bull market I would expect all of
these stocks to continue their breakout like moves had they
traded greater volume.
Jim Patterson
Editor
Tactical Trading Outlook
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Written by Jim Patterson
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Sunday, 18 March 2007 |
Here is the Deal:
Options expiration Friday the market was more
or less stuck in the snow. It didn’t make much progress up or
down, but being stuck in the snow is an overall negative thing.
At the end of the day the bias was negative. It was an outside
day with a negative close but it wasn’t an outside down day.
The bulls tried to get things going in the morning but it
stalled. The bears tried to break it down, but it came back in
the afternoon. Overall the near-term action at best is still
weak. The rally that began on Wednesday may pop to a slight new
short-term high, but from a big picture stand point, pop or no
pop, the overall downtrend not likely to bottom until late
March or more likely into the middle of April.
12,180 – 12,200 remains the primary resistance
level and the Dow bounced off it hard on Friday. The 50%
retracement line is 12,150 and seeing the Dow recover that will
be the first indication this counter-trend rebound is not
complete. Fibonacci levels: 38%=12,096, 50%= 12,144, 62% =
12,192. The current range,
With prices bouncing off the Fibonacci levels
I am inclined to say the first one that breaks will win, but
that is on a very near-term basis. There are few indications to
believe the overall decline has completely run its course. The
12,050 – 12,080 level remains a focal point. Once broken last
week we saw a rash of selling as they “ran the stops.” For now
it is still a pattern of lower highs and lower lows.
Monday is Post Options Expiration, a day that
is notoriously weak by historical standards. But when it comes
to tracking historical trends, the composition of options
expiration has evolved such that that the historical influences
are dissimilar to current conditions. That said, the day after
March options expiration is down over 60% of the time while
Mondays not after expiration are up 52% of the time. That is a
big difference so we will see.
There is no meaningful economic data until
Tuesday when we get Housing Starts.
Here’s why:
The Dow was up 30.68 points at its early high
of 12,190.36. It then turned lower and fell 108.23 points
reaching a low of 12,082.13 at 2:40 PM. As is often the case,
the move lower stalled between 2:30 and 3:00 PM and prices
managed to rally. But, again we saw price weakness in the final
half hour of trading. The left the Dow down 49 points at
12,110, only 28 points off the day’s low.
Looking at the intra-day action, there was one
major attempt to jam the market higher as prices were on the
verge of breaking lower at about 13:20. The program buy easily
pushed the market higher, but the negative hangover was how
fast it caved in once the program had run its course. The
middle of the day volume spikes are highly indicative of
program related activity. Note the absence of a volume spike at
the 2:30 PM low.
The character of the 1:30 rally and subsequent
turn lower suggests there is not much “big money” interest in
buying stocks and pushing them higher at this time. In other
words, aside from short covering and “programmed buying”
related activities, there isn’t much buying going on. Bottom
line, the market needs real buying interest to go higher
and Friday it clearly was not there.
The S&P 500 also traced out an outside
day as did the NASD. I am sticking with my earlier
interpretation. The market is ready to breakdown, but on
Wednesday the indices were getting a little too far from the
expiration related “expected price range.” Throw in a couple of
heavy buy programs and prices snap back to a reasonable level
for expiration. With expiration prices locked in, the decline
is set to resume. Seeing more than one solid up day at this
point will argue against this line of thinking.
While the NASD presents a more solid looking
low in the form of a double bottom, it looks more like a
sideways move to me. That means once the sideways move is
complete we will see another step lower. 2400 is resistance
while a close below 2350 should be more then the bulls can
handle.
All but the NYSE turned their daily trends
turned back down after pointing higher for just one day. That
development made sure the 3-day trends would finish the week
pointing down. Normally when the 3-day trends turn down on
Friday you can expect some additional price weakness over the
first half of the week. The resilience of the NYSE is somewhat
surprising considering oil prices were down.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was -1476. The important thing
is the morning low reading was -1100. The 11:30 low reading was
-1600, and the afternoon low at about 3 PM was -1962. As the
indices weakened and worked to lower lows, total breadth also
made a series of lower lows. This confirms the truly weak
nature of Friday’s action.
Total volume was big at 3.2 Billion shares,
but we know much of it was expiration related. However, it was
still solid to the downside on a directional basis. 8-day
buying and selling are about balanced, but considering the
market is up five of the past eight days, one would think
buying pressure would be greater than selling pressure, but
that’s not the case.
The CLX reading on the S&P 500 has made a
series of higher lows since the 2-27 sell off. One thing I
remain convinced of is this decline has already seen its peak
downside momentum, much like was the case in the May – June 06
decline. While a lower low is still expected, the -355 CLX
reading seen on 2-27 is unlikely to be seen again.
From a pattern stand point there are a number
of interpretations. Some call for a couple more days of rally
while others call for downside acceleration now. What almost
all of them have in common is they call for lower prices, if
not sooner then later. One thing is clear, the 1405 to 1410 are
on the S&P 500 is a major overhead resistance level. It will
take a solid close above 1410 for me to question the
expectation of lower prices to come. For now the trend is
lower.
Jim Patterson
Most Obvious chart resistance levels:
(Bold = 62% retracements)
Dow 12,180, 12,260, 12,347,
12,420, 12,532, 12,600,
12,780 to 12,800, 12,863
SPX 1398, 1407, 1415-18,
1428, 1438, 1458, 1463,
1480-1489
NASD 2380, 2413, 2430-36,
2459, 2510, 2538, 2570
NDX 1745, 1766, 1800,
1825, 1841, 1847 (high), 1877 (minor Fib)
NYSE 9060, 9152, 9225,
9400, 9503
Most obvious Chart Support levels:
Dow 12,080, 12,000 (38% retrace,)
11,890, 11653
SPX 1373 (Fibonacci 38%) 1362, 1340 (50%
retracement)
NASD 2335 (Fibonacci), 2316 (November lows) 2275 (50%
retracement,)
NDX 1710, 1695 (Fibonacci 38% & Nov 06 lows,) 1650 (50%
retracement,) 1465
NYSE 8850, 8690, 8575
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
Thursday evening I said sell short above 1755.
The NDX only managed 1750.39. Bottom line, the path of lease
resistance appears lower. If we see a healthy start to the
week, take a shot above 1750 – 1755 if given the chance.
S&P 500 (SPX) Trading
>> 3-16-07: With strength on the open
it made sense to hold off on the SDS purchase for an hour or
so. The SDS bottomed at 60.55, well below the 60.80 I am using
as an entry price. We have a full position in the SDS with
an entry of 60.80.
>>> If the S&P 500 rallies to 1407.5 then add
another 50% position to the SDS.
Still looking for lower prices.
ICLR rec Long 01/24 @ 39.53 stop 34
close, Target >46, closed at 41.24
CBEY rec Long 02/20 @ 31.31, stop 28 close, Target >38,
closed at 29.18
**
PRS Open Actives making noise:
GRMN looks good above $54, but it can’t hold that price level.
Stocks reaching the PRS Entry Criteria Friday:
BA & FSYS
Jim Patterson
Editor
Tactical Trading Outlook
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Last Updated ( Sunday, 18 March 2007 )
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Written by Jim Patterson
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Friday, 16 March 2007 |
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Hang in there baby! That's what the bulls are saying as the
indices bounce around / off Thursday's lows. This is a precarious position on a day that has not seen much volatility on a relative basis.
The Dow, NASD, and NDX have broken Thursday's lows turning
their daily trends down and their 3-day trends are now pointing
down. Their 3-day trends can not turn up until next week. As I
type, the S&P 500 remains above 1385.16. Sustained price action
below 1385 = bad for the bulls, good for the bears. An upcoming
S&P 500 re-balancing may be a factor, and the S&P remains the
performance leader being down less than the other indices.
Internally, volume is huge on expiration Friday. With the new
11:30 AM price lows, total breadth reached -1500, well below
the morning low of -1100. The rest of the internals fell off
with the second hour market sell off. The accompanying internal
weakness tells us the weakness is not simply index price
weakness or issue specific.
So far the Dow has traced out an outside day. A close below
12,100 will leave an outside down day.
Generally speaking, the big index options related issues are
behind us as the opening price is the key.
>>> With some strength on the open we established
the SDS position at 60.80. If the SPX rallies on up to 1410
we will go to a 150% position on the trade.
Looking forward, breaking the day's established lows, which
are inline with Thursday's mid-day lows, Key prices to watch,
12,110, 1385, 2370, and about 1740 on the NDX. Seeing prices
below these levels for more than a brief moment (about 10 min)
should lead to additional downside acceleration.
In light of the weak internal condition, odds favor a
breakdown, if not over the balance of Friday, then early next
week with a post expiration move.
The weekend report will go out on Sunday morning
Enjoy the weather, if you can
Jim Patterson
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More...
-
TTO Daily Update 03-15-07
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TTO Daily Update 03-14-07, Prepared before the market close
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TTO Mid-day Comment 03-14-07, Now that's a recovery!
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TTO Daily Update 03-13-07, Ouch!
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TTO Daily Update 03-12-07
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TTO Weekend Update 03-11-07
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TTO Friday Intraday 03-09-07
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TTO Daily Update 03-08-07, advancing the hard way
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TTO Daily Update 03-07-07
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TTO Daily Update 03-06-07, Now that's a rally!
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