Here’s The Support I’m Watchiing

  • November 30, 2004
  • Mark Melin


Monday Recap: 
The
market acted erratically today, starting out gap higher.  However, when
resistance above 10550 on the cash Dow and 1185 on the S+P couldn’t break and
hold, sellers took control of the market, pushing tests of support.  Things were
looking a little shaky during this test, with intraday breaks of support at
10425 on the Dow.  But support ultimately held and the market then took off to
the upside.  At this point the market had given every sign of a strong intraday
reversal, but that was short lived.  Late in the trading day sellers took the
market’s measure to close at 10475, down some 46 points on the day. 
Interestingly, after the close of the cash market the basis took even a nastier
tone, with the Dow futures closing under the cash.   



 


What
could be driving yesterday’s slide was Interest rates.  Below I’ve posted the
exact chart we posted
Friday, November 12, with only the addition of recent price action.  You
will recall at that time, with the 10-year note trading near 112, I said it
would likely test the A level just under 113.  After we hit the A level I said
the note would then move lower and ultimately bust important support at the B
level.  Well, as you can see that’s exactly what happened.  What’s interesting
is that as bonds dropped in price, raising rates, as the holiday retail picture
actually was looking kind of weak, with Wal-mart reporting weaker than expected
weekend sales.  The major retail stock then proceeded to shatter important chart
and moving average support and looks weak.  Normally such signs of weakness in
the economy would push rates lower, but that wasn’t the case on Monday.  






Prediction for Tuesday:  The next few days could be interesting, defining the
near-term trend of the market.  On Tuesday we could once again test support.  On
the cash Dow I’m going to watch chart support at the 10425 level.  If this
breaks I’ll then watch the rising 20-day exponential moving average currently
located near 10400.  If this breaks and holds we could see some major moves to
downside consolidation and near-term trend change.  Ultimately I think this
consolidation would present a buying opportunity.  However, if support holds we
could then trend higher.  If this happens, which could be the less likely of the
possible outcomes, I would then watch resistance near 10550-60, then again
important resistance at 10600. 





Portfolio
Strategy:  Yesterday’s late afternoon price action was a little discouraging. 
We might get delta negative if support breaks and even get close to delta
neutral if price action this morning does not improve. 

Mark Melin