Credible Base, New Challenges
Record-breaking volume, surging VIX and
historically deep, negative NYSE TICK readings leading up to the July 24
reversal day have produced what I believe is a credible, intermediate-term
base. While breadth and volume have not been spectacular since the low, price
momentum has been constructive. Thus, I am becoming more and more convinced that
we have established a significant trading low in the market, one that could
retrace 50% of the March-July sell off in the broad indexes.Â
Balancing my enthusiasm is the realization that a re-test of the July lows in
the weeks ahead would fit the precedent set in other bottoming examples of the
past 50 years. In addition, I remain somewhat cautious on the longer-term
outlook, as my analysis of the Dow stocks (and other large caps) suggests
multi-month topping patterns in many of these charts have not fulfilled their
downside targets. Â
Wednesday we were stopped out of a long Telecom HOLDR
(
TTH |
Quote |
Chart |
News |
PowerRating) trade in
my nightly service for an 85-cent loss, and we entered a new long trade in
the Biotech HOLDR
(
BBH |
Quote |
Chart |
News |
PowerRating) at 82.20. BBH
closed at 83.15. Biotech continues to provide the upside leadership in the
Nasdaq. Also encouraging is the relative out performance in the
Financial SPDRs
(
XLF |
Quote |
Chart |
News |
PowerRating), another important
leadership sector, which have gained 18% from its July 24 low.
While it appears the stock market has
established a trading low for now, with a possible re-test looming in the weeks
ahead, the next challenge is taking out resistance (a.k.a. “overhead
supply”). The most significant pockets of resistance for the indexes include the
down-sloping trend line of the last three months, the most recent swing highs of
July-30/31, and the 50-day simple moving averages. Nearby support levels in the
broad indexes includes the August 5 low, and the July 25 low. (See charts
below.)Â Note how the Biotech HOLDRs have already overcome its down trend line,
as well as its 50-day moving average.
Finally, switching market gears for a
moment, your author wishes to inform you that: “Commodities are in the early
stages of a long bull trend. There will be significant money to be made from the
long side in grains, energies, softs and metals over the next one to three
years. I am particularly bullish on the grains.”
Good luck with your trading,