Spike Reversal? Maybe…
What we’ve seen thus far may be the impetus for a spike reversal and rally. Typically, you will not see this happen until the selling exhausts itself, which may occur after the first 90 minutes of trading.
We have seen many instances of one stock leading the market lower. Typically, the market will turn around and close near unchanged. But the key word is “typically.” There are some fundamental factors that could make the scenario implausible.
The key thing to watch will NOT be Intel
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PowerRating). These stocks are all called to open a few dollars to $5 lower. If they can withstand the selling pressure early and turnaround, that would be the key for the spike reversal.
This morning, INTC was called to open 15 lower. In addition, there was coordinated G-7 intervention at about 6:25 a.m. Central on behalf of the euro currency, which is trading about 3.5 cts higher. On that news, S&Ps on Globex rallied from 1448 to 1454.50. Since then, however, we have sold off down to 1442, which places us 2700 points lower. The volume has been large — nearly 10,000 contracts on Globex, with a low of 1437.
For S&Ps, 1450.50 is the weekly low, and the 1449-1451 zone should be critical. Above this zone, 1455-1458 comes into play. But if we do get up here, especially in the afternoon, it begins to look like the selling would be over and could lead us back to the 1470 area. On the way down, the limit today is at 1434.50. That obviously will be the first downside target.
1433.20 is a 75% retracement of the up move from 1392.10 on April 14 to the September 1 high of 1556.50. Look for that to trade if we get down to the limit. Under the limit, 1429.50 to 1425 is support. If we go lower, the market momentum will swallow any numbers out there and our targets aren’t going to matter.
What will matter will be major previous lows and highs: 1413.30 is the May 24 low. That’s been our low for nearly the last five months. Also, 1394.60 is the low settlement for the contract on February 25. On April 14, we made the 1392.10 intraday low. If all hell were to break loose and the world was coming to an end, 1385.60 is THE contract low set on February 28.
NASDAQ is limit down. Based on where the top five stocks are called to open, the cash could open as much as 200 points lower. In other words, it would not surprise us to see a double limit-down open, so keep in mind that we’d be halted for 12 minutes. Then they will take indication for the next move. If they double lock, that would be at 184 handles lower, which comes in at 3581.
So essentially, if we get down to 3581, 3530 is a 61.8 retracement of the move from 3109.50 to 4210. The month low is 3600. It’s going to be wild and very thin, and it’s going to be very choppy.
If you’re going to trade the NASDAQ futues today, and you’re going to place stops, I would highly recommend using 50 to 75 handles for your stops. With that kind of volatility, it’s worth cutting your position size. I would expect the market to be 20 handles wide at all times — meaning 3600 bid at 3620 offer. I would also expect the fast market sign to be on for the majority of the day.
The Dow is going to open lower because of INTC. We mentioned yesterday we thought we could get up to 10,800. We got to 10,783. I would expect a down open around 150 Dow points in the cash. If that’s the case, it’s going to get us to 10,510, which will be a hair below our low of the week.
That wouldn’t be a spot for a fresh shorts to enter the market. There are still defensive issues in the Dow that will perform well today. The Dow may be the best buy today.