Keene Little : 6/22/2008 10:09:25 PM
Monday's pivot tables: Link
The big news about what the DOW did on Friday was that it dropped below a very long and significant uptrend line--the one from 1974. This trend line, through the October 2002 low, is where the declines in January and March stopped but Friday it smashed right down through it. Weekly chart: Link
Using that long-term uptrend line and attaching a parallel line to the February 1st high created a shallow up-channel from January. The daily chart shows that the DOW also dropped right through the bottom of this up-channel: Link
. It's only a 1-day break of both of these trend lines so a quick recovery back above them (needs to get back above 12100) would be just a throw-under which we could attribute to final opex activities on Friday.
But Friday's late-day bounce does not look like the start of a more serious rally attempt and therefore we could see a continuation lower (perhaps after a small morning bounce). If the bulls can drive the market back above the mid-day high (DOW 11960) then it would negate the more immediately bearish wave pattern in which case I would get defensive if playing the short side.
One reason to be cautious is the fact that SPX stopped right at the bottom of its down-channel from May (daily chart): Link
. Whether we'll see a bounce off the bottom is the question. Watch SPX 1331 area for resistance if it gets up there. That's also the mid-day high on Friday so any higher would negate the more immediately bearish pattern as well. A continuation lower, and dropping out the bottom of the channel, would clearly be more bearish.
We could see a bit of volatility and stair-stepping lower, as depicted on the 60-min chart, as it finishes a 5-wave move down from June 17th: Link
. It's also possible we'll see the market get slammed to the downside with nary a bounce. The market is oversold but hard selloffs come out of oversold not out of overbought. Monday could be a difficult day to trade.