Under Fair Value
S&Ps are at 1386.50, down 450 points, and about 1500 points under fair value, as this market was hammered on the close yesterday.
The areas we will discuss are going to get extremely big because the market has covered so much ground recently. We have resistance between 1389 and 1392.50. Above 1392.50 look for the market to try to retrace yesterday’s last 15-minutes of trading, which was a freefall. That should lead us back towards 1400. We have resistance between 1399 and 1403.
Above 1403, things begin to look a little bit better and should provide a spurt towards 1407-1410. Unless we get above 1410, the downside is still viable. Above 1410, we could spark a very aggressive short-covering rally, which would put us toward 1430.
On the downside, support is between 1485.50 and 1380. Under this, we are targeting a move to 1370. If we break 1370, we have crucial support between 1367 and 1364. If we break this, limit down would come into play at 1356.
The key thing in the market is the cash. We have crucial support in the cash between 1370 and 1360, which are the May lows. Any close below this targets a move to the February and yearly lows of 1325.
The NASDAQ was trading down 52 handles at 3108 on large volume of 1300 contracts. Nearly traded limit down on Globex overnight. Yahoo!
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PowerRating) is today’s culprit, called to open down $11 on earnings. The NASDAQ Composite is trading more than 16% below its 200-moving average. This is our third-greatest deviation in the last 10 years. Secondly, the NASDAQ 100 cash posted its fifth-lowest close of the year yesterday.
The NASDAQ Comp is roughly 5% away from having a 50% retracement on the year, high to low. In other words, it is ugly out there. Expect massive swings, and if yesterday’s market is any indication, the pit will be bid/offer 1000 points difference, i.e. 3100 bid at 3110.
For today, we see support at 3096 to 3085, then 3073 to limit down at 3065. Off the limit, support is between 3020 and 2980. Resistance is at 3140 up to 3155, then 3180 to 3200. If we get above 3200, we are expecting a move to 3280. Along the way, 3250 to 3262 will be resistance. Above 3280, there could be massive short covering and fresh buying. Where will it stop? We suspect around 3360.
This market is flat-out over sold. What we’ve seen when we reverse out of these situations is a strong sell-off in the morning, followed by a massive rally on huge volume in the afternoon. Is today going to be that day? We have no idea. But there is no question that if you are short, it is certainly time to begin looking at taking some of it off the table. Historically, when we are this far from our moving averages, it has been a tremendous buying opportunity. Remember — HISTORICALLY.
As for the Dow, expect more flight to quality, which will limit the losses. If the overall market is going to break hard, the Dow will also fall, and it will be a “sell everything” mode, in which you would see the Dow drop 200-300 points.