The Bulls Are Not Convincing Us
We'd be a lot more convinced that any bear-market rallies these days might actually last awhile if they just didn't collapse so quickly. Trying to trade the upside for any distance or duration seems to be an effort in futility.
Fundamentalists point to a hundred different reasons why markets plunged this afternoon and a few of them may be right. It's important for some people to try and rationalize why the markets do whatever it is they do. I suppose this gives some level of emotional comfort inside, as if understanding what did happen can help make money with what's going to happen next. I've never been smart enough to figure all that stuff out nor do I possess an attention span broad enough to do so.
Suffice it to say that indexes pushed toward resistance early in the session, met repeated rejection there and futures traders over at the CME began selling the market and cash indices followed suit. Those who think the retail trader puttering around in Nasdaq Comp has anything to do with broad market action are sadly mistaken. That ceased to exist about three trillion lost dollars ago. Equity markets are once again controlled by program buying or selling in the index futures pits and this afternoon's vertical slide was living proof of that.
So all we need to know is where the points of reference are everyone else is watching, and trade reversals at those pivots or to a much lesser extent, breakouts when they appear to succeed.
(Weekly/Daily Charts: SPX)
This weekly chart of the pro's index shows firm support near 1087 and similar resistance near 1132. But don't let those numbers fool you: plenty of shorts in the pits will whack the 1125 area every time it's tested until bulls prove they mean business. That wasn't today.
Speaking of which, this is the second day in a row we've seen markets post a rather large range doji session the Japanese refer to as spiders and various other fancy names. Regardless, it tells us that indecision still reigns.
Stochastic values are trying to do something in the weekly chart while rapidly reaching overbought in the daily chart. Not a sign of sustained underlying price strength by any means.
(Weekly/Daily Charts: NDX)
The NDX is weaker looking by relative comparison. Still trapped in a defined channel and yet to break higher. Sitting near 25% off the low range of year 2001's price span, it just fell and hasn't gotten up. Personally I'd look for tech to under-perform the general market for years and would only consider buying CSCO in my Roth when it hits $5.00 a share, but that's just a personal opinion.
(Weekly/Daily Charts: Dow)
The Dow is currently fighting against a collision of two moving averages and major Fib retracement value in the weekly chart. It may very well break higher and test its 10,300 and 10,500 areas soon but that's not looking like a high-odds probability to stick & stay. Trust me when I tell you that shorts will step on the old index in a monstrous way if/when it fights up to those measures. Whether bulls or bears prevail from there will remain to be seen.
(Weekly/Daily Charts: DTX)
Plenty of excitement about Dow Transports breaking out. I see this all over the web at numerous sites, and the DTX was even charted on CNBC these past few days in between Enron scum and Greenspan testimony! Can you believe that? Nary once did we see this index on CNBC in 1999 or 2000 that I can recall.
And it is on a nice, strong run. Successful breakout of its wedge pattern and stochastic values are pointing straight up. I sure as heck would not even dream of shorting this puppy right now, but it could be getting a bit toppy these days. Strongest sector I've seen in my nightly scan of numerous charts, but the prime entry points for longs is now below us at support.
(One Minute Chart: S&P 500)
Much as I can live without the adrenaline rush, scalping works best for me these days. This hyper-quick action is not for everyone and I'd safely say it's not for most traders. But those who find a directional move like we saw the last two hours of today can make a week's (or month's) wages in quick fashion. If they don't lose the same first!
Today at 1:44pm in the Market Monitor we warned that indexes were breaking down. All intraday chart signals were in classic bearish reversal fashion and the SPX broke 1119, a near-term channel line of support depicted in last night's (and tonight's) Swing Trade Gameplan. Soon as traders saw that break, hit the "short" button on trade window parked open and waiting. Keep shorting every pop all the way down to session lows near 3:00pm for possible 18 index points of profit.
At 3:00pm we saw sell programs driving price action down but immediately stop on 1102, a measure of support from Monday still drawn on our chart. What next? All intraday chart signals are buried in oversold extreme. Let's see if the next test of that low breaks or holds. If it breaks, we watch it fall to further lows. If it holds, let's test the upside for a real quickie.
Higher low holds, we get in around 1104 and exit near 1108 or hold into the bell for double that distance by 4:15pm. This is fast action scalping at it's best... quick, small gains and few/no losing trades done right. Done wrong one can expect to take a string of losses and get carved to pieces. Looks real easy profiled here tonight, but when those flags are still forming and price action whirs by it's a whole 'nother story. I much, much prefer buy & hold trading and long for those days to return but they are not with us here right now.
Trade Carefully Either Way,