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Technicals come into play

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My trading station was blinking with alerts this morning, so fast in fact, I just couldn't keep up with things. It's days like today that a trader had better have a detailed trading plan in place or they'll end up feeling the stress by day's end.

Several key technical levels of support have found stocks recovering from early morning lows and traders need to be sharp here. Current analysis is that some rather large short positions have covered at some key technical levels triggered from the major averages.

One that looks to have come into play on a short-term basis is today's "test" and brief violation of the 200-day moving average in the Dow Industrials (INDU) 9,987 -0.42% at the 9,935 level. The Dow Industrials (INDU) did dip to the 9,926 level for a brief moment, but it looks like some computer programs kicked in as if the 200-day was a target to buy (short covering, bull longs).

Dow Industrials Chart - Daily Interval

There were undoubtedly some computer buy programs and traders watching/trading the 200-day MA as a level of near-term support. In past commentary when the Dow Industrials were showing weakness, we actually pointed out that bulls were assessing risk to this level and bears would be targeting it. I feel this came into play earlier this morning and would expect the level to be tested again.

The NASDAQ Composite (COMPX) 1,710 -0.15% also came within fractions of technical support at the February 22nd relative low of 1,696.55, when the COMPX traded the 1,697.27 early session low this morning.

Both major market averages in the Dow Industrials and NASDAQ Composite bounced at similar times, thus my analysis that there were some large computer generated buy programs at those levels and not necessarily a "human" event based on exceptional valuations.

Treasury YIELDS have bounce from their session low YIELDS, but remain below upward trend that was violated yesterday. I will be using the 10-year YIELD to give me direction as to the MARKETS perception of risk right now.

The bond market action in the 10-year YIELD does not give me the observation that traders are "flushing" bonds to buy stocks right now and that the bounce in stocks from this morning is more likely due to some computer programs instituting some account/risk management from the bears (profit taking) than it was a broader move from the market that stocks were at a level of exceptional buying opportunities.

Jeff Bailey
Senior Market Technician
Option Investor

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