Resistance: Vanishing

Monday the market closed up,
continuing the move from last week. More
importantly, all three major indexes closed above their 50-day averages. This was one of the three key resistance levels I had been following,
in addition to the downtrend line of the past three months and the July 30/31
swing high. The market has now
managed to take out all three of these significant short-term resistance
levels. I believe this tells us
that we are seeing more than just temporary blip in a bear market, and I want
to use weakness as an opportunity to buy. Buying should be done primarily in the tech areas, as the Nasdaq is
once again starting to strengthen relative to the broader SP500 (see ratio
chart).

However, let me repeat the
title of my Friday column: “Market
Happy, Overbought
” — in other words, while the market is putting up
good numbers, we should not become complacent. Indeed, I am bracing myself for a retest of the July lows which could
arrive any time between now and the next 30-60 days. 

In individual sectors, we are
starting to see the emergence of the Internet and Telecom stocks again. I’ll be keeping a close watch on these areas for long setups over the
coming weeks. Biotech and
Pharmaceutical are also still very strong (see PPH chart). We are long the U.K. iShares from 12.80 in my nightly service.

In the commodity markets,
December Cotton volatility has contracted, and the market is poised for a
significant directional move. My
guess is that the next major move in Cotton will be to the upside (see chart).

Happy trading.

Dan