The Bias is Up: Be Aggressive
The S&P 500 cash got to where it wanted to go by 10:40 a.m. ET Tuesday,
as it was down 18 points by then and stayed negative the entire day, finishing
the session down 16 points. Dr. Strange Market gave us ample warning on Monday
as the major averages held on, but market internals were very negative (see the
Nov. 23 commentary). Tuesday we had 1289 more declines over advances on the
NYSE. But more significantly, the upvolume-to-downvolume ratio increased to a
minus 355 million vs. minus 202 million Monday. The declining volume of
618 million was the most since Oct. 13. But the difference is that that was when
the market was approaching a bottom on Oct. 18 at 1233.65. This is after a new
high and a close below the last four closings and also below the low of the high
day. The VIX also closed above the high of its low day. So it’s in synch for
more downside action.
“The
Generals can easily run the averages up today and Friday”
The S&P 500 is still within the range of the wide-bar breakout on Nov. 16
as it has been the past five days. That means either an open or close, or both,
is within the daily range of the Nov. 16 daily bar. Monday and Tuesday’s action
point to more weakness and a beginning of some retracement of the rally from the
Oct. 18 low of 1233.65. This could be delayed until after the holidays because
the Generals can easily run the averages up today and Friday. And Friday the
market closes at 1:00 p.m. ET. It will be very, very light. There won’t be much
liquidity today and Friday, and the futures and program gangs are free
sailing.
You should save these reference levels from the current 1425 high:
First reference point: 1350-1355, a 38% retracement of the rally and
it’s also right at the 50-day exponential moving average which is 1351. You like
to see convergences. If this rally is that strong, that could be very well where
it ends.
Second reference point: 1330-1335, a 50% retracement of the rally and
it’s where we broke the major downtrend line to the upside.
Third reference point: 1305-1310, a 62% retracement of the rally. It
just happens to be at the 200-day exponential moving average which is 1304 —
another strong convergence.
Also, the 78% retracement is at the 1275 level. This is a stretch because
it’s also below the 200-day moving average. If we go below there, we’re going to
new lows all the way down. I don’t think we’ll get there.
The question is: What do you do at the reference points? You look for good
position entry for a ride on the Generals’ back as they attempt to get the
S&P 500 above 20% for the year. We’re not looking for daytrades at those
levels. We’re looking to take position entries. The entry can be as simple as a
close above the high of the low day which should have finished in the top 30% of
its daily range. Or it could be a simple 3-bar reversal or close above the past
three days highs. It can also be on the VIX indicators: Take a look at the CVR
1-6 as they’re posted everyday on our Market Bias Indicators page. Be aggressive
on your entries when you get them because the bias is up and the Generals need
it up to sell you on next year.
For Wednesday, if we head south, the shorts can be taken on the QQQ’s below
Monday’s low of 149.50 and again below Tuesday’s low of 148.50 with very tight
stops because the futures gang has lots of room to play games the next two days.
The golds were very active Tuesday as five of the top percentage gainers in the
S&P 500 were from this group. If they go again Wednesday, the best setups
are Newmont Mining [NEM>NEM] and American Barrick [ABX>ABX], which are the
Generals’ gold babies.
Program Trading NumbersBuySellFair Value5.753.454.60
Pattern Setups On the long side, if by surprise they decide to run
them, focus on Network Solutions [NSOL>NSOL], DoubleClick [DCLK>DCLK] for
the wild ride it’s been on, Tandy [TAN>TAN], PSINet [PSIX>PSIX], Sun Micro
[SUNW>SUNW], Vignette [VIGN>VIGN], and American Express [AXP>AXP] going
above Monday’s high. Also, focus on Home Depot [HD>HD] on the retail side.