Two Scenarios For The Near Term
Friday
was certainly a pause day, as
the SPX
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PowerRating) and Dow
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day, while the NDX
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+0.2%. The SOX
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with the RLX -3.5%. NYSE volume was 1.1 billion, volume ratio neutral at 48, and
breadth +264.
Buy programs were few and
the range narrowed, as Friday’s
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PowerRating) daily range was only .89 vs. the
five-day range of 1.62. There was an initial Trap Door in the SPY with entry
above the signal bar’s high of 90.85. Entry was on the 9:55 a.m. ET bar. The
trade carried to 91.39 before falling off and going sideways until you got an
RST buy entry just after 3:00 p.m. that carried .64 into the close. The
(
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PowerRating)s gave you basically the same kind of a trade. The Trap Door didn’t
carry very far, and the RST entry was at the same time as the SPYs.
It was a marginal trading
day with only two defined entry points, but that happens on narrow-range days. I
say only two because the Slim Jim patterns you saw were at the midpoint of the
range for both the SPYs and QQQs. Nothing wrong with taking them, especially if
you like to scalp, but over time, Slim Jims taken near the highs and lows of the
day will be more profitable.
The dynamics were never
great on Friday, as the TRIN spent the entire day above 1.0. Regardless of the
noise, the 965 August top has to be taken out before many of the money managers
reach their choke level of greed about missing the train. The 954 top was right
at the longer-term head-and-shoulder neckline you saw on Friday’s chart, and it
is also the .236 retracement to the 1553 all-time top. This also occurred on a
Fib sequence date. 963 is the 12-month EMA. Mutual fund market timers will get
antsy about missing the market if that gets taken out.
The other scenario is
that this move carries into the Jan.13 -18 time period and forms a 1,2,3 lower
top, which would result in the SPX and Dow trading down to at least their .50
retracement levels of 861.50 and 8120, respectively. 869.45 is the SPX
retracement low so far, while the Dow hit 8243. The rally into the Aug. 22 top
was vertical, but so was the decline into the Oct. 10 low. This current rally
has also been vertical, but the retracement from the 9043 top has been more
sideways than down on lighter volume. That is a positive.
If we get a bullish
resolution with continuation above 965, there could be a 10% run to the 1050 –
1070 level. 1068 is the .38 retracement to the 1553 all-time high, and 1055 is
where leg “AB” would equal “CD”, “AB” being 769 – 954 and leg “C” starting from
869.45 if it plays out. Using the SPY as an example because the SPX is where the
new allocation buy programs are focused, you frame the recent 87.11 low to the
96.05 Dec. 2 high. The .50 retracement is 91.58, the .618 is 92.63, the .707 is
93.43, and .786 94.13. Next I look at the 60-minute chart and see that the Fib
extensions of the 90.61 – 87.11 last leg down are: 1.27 is 91.56, 1.414 is
92.06, 1.618 is 92.77, and 2.0 is 94.11. You can see the confluence. The
60-minute RSI is now over 70, and the SPY is +5.0% since the Dec. 31 87.11 low.
This puts you on alert for a potential 1,2,3 lower top setup.
President Bush is going
to discuss some economic initiatives this week which could create the media spin
for higher prices into the following week key time period.
On the intraday charts,
we leave last week with a nine-bar Slim Jim on the 60-minute chart for the SPX
between 911 and 903, and it’s also above all of its EMAs. Nothing bad can happen
until that changes.
My overall longer-term
position strategy hasn’t changed. I sold off 40% of the position into the 940
resistance zone on the first rally, fully hedged out the remaining 60%, while
continuing to short the TLTs on any strength above 88 and taking some back on
declines like Friday when they hit an 85.83 intraday low. I will think of
starting to unwind the short side of the hedge after the shooting starts and the
spike down, and then short the TLT bond proxies on the so-called flight to
quality.
Have a good trading day.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS