Wednesday, June 21, 2006

Right & Wrong

You could say the market is at a crossroads. But every day is a crossroad with the market. Because each day tells a story.

What's key now to those of you who may just happen to be bears is that the market is relatively beaten down based on the trading history of the past year. The easy, obvious thing for the market to do would be to shake off its worries and move higher.

It would take some serious selling to push the market lower at these levels. But it absolutely could happen. Here's what I suggest are the prices that, if crossed, indicate bearish or bullish short-term movements for a few key indices.

Dow: Bearish crossing below 10,907 (REALLY bearish crossing below 10,698)
Dow: Bullish crossing above 11,058 (and I'll be really cringing if it goes above 11,286)

Transports: Bearish crossing below 4,410
Transports: Bullish crossing above 4,790

S&P 500: Bearish crossing below 1,219
S&P 500: Bullish crossing below 1,259 (and we're in real trouble if it goes above 1,291)

Looking at the chart of the Dow 30, the fact that we've got a nice clean head and shoulders (albeit a smallish one) and have absolutely broken below a three-year old ascending trendline both speak well to the bearish cause.

12 comments:

PB said...

Yes, we all know that the market can do whatever it likes, BUT, we must work with probabilities. Therefore, looking at the charts, and the DOW's failed record attempt, the probabilities are on the low side that the DOW will push much higher from 11,000+ I am personally hoping that the bulls are stupid enough to push this market higher, so that I can start shorting in earnest. In all likelihood we will be stuck between 10,700 - 11,100 until late July. Just my two cents!

Anonymous said...

I agree. If the bulls can somehow push the indices up over their "rational" levels, then it should present fantastic shorting opportunities on overextended equities throughout July/August, just in time for the Fed to raise the rates once again.

I hate to keep sitting on my hands and wait for the market to make up its mind, but there doesn't seem to be an overly compelling case for either buying OR selling at the moment. Fear and uncertainty are the bears' best friends right now, while strong earnings reports recently have been the bulls' catalyst.

Tim, keep up the great work. A lot of your numbers match up with mine, so it's always nice to get confirmation on the various targets. Please keep the posts coming regularly and thanks for your efforts.

Super Bull said...

The market is rallying which is good for GOOG long but I am holding on to my DIA put nervously. I have a feeling that I will be forced to cover my DIA put and then the market rolls over. It always happens like that. It ain't easy to make money.

Anonymous said...

I'm getting nervous, too. I'm leaning towards a bearish bias, but the market is rallying nicely right now. Which makes me very uneasy, because I'm not inclined to go long right now on pretty much anything in the market.

Can't make money short here, and it's risky to go long. Very strange predicament.

Mike Stone said...

http://stockcharts.com/h-sc/ui?s=$NAA50R&p=D&st=2002-01-01&id=p54397542855&a=79215480

Whenever $NYAA50R falls below 20 you can guranty that a rally (anywhere from 2-3 weeks on up) is about to come. It sometimes doesn't work too well during the presidential cycle but it's a very reliable indicator.

Anyway, whatever "snap back" rally we have has to be on heavy volume and really turn around the detoriation in market breadth before we can call an end to the bear.

The bear is here - it's going to shake you out. If you bought DIA puts that expire in the next few weeks you're still better off holding them.

Myself - I buy 2-3 months out generally.

stockshaker said...

Up, Down, Right, or Wrong - does all this market action, a fast start, slow finish (ie bears coming in at end of day), remind you of some similar price movements, before the markets started to plunge?

Maybe its my biased opinion, but to me, if I were a bull, I would see all this volatility as a little unnerving, because you want to see markets pull away from craziness, not go through the day, all happy, to find it lose 30-40 per cent of its rally in the last hour.

Dow up, are we to worry yet? I doubt it, and it seems that you can't base anything concrete until the last minute of the stock trading day comes to an end.

Because it can change ... that ... quickly.

Sanjay Sola said...

investors are short sighted when they see the fantastic earnings of this quarter or next. But the market looks to the future and not the past or present. Everything is perfectly in play for the bears, IMO.

market is at the end of a 4 year cycle, we have increased volatility, reduced global liquidity through rate hikes, very sharp bounces on low volume: bear style, lots of overhead resistance ahead, and uncertain market leadership with charts that are broken.

if you are looking at 2007 there are a lot of question marks. especially global markets. will the market go straight down, of course not. so expect some bounces but don't forget to look at the volumes.

Anonymous said...

The volume is really anemic here. The volume doesn't support such a move....

But the markets are oversold....

The next week will be interesting

PB said...

So here we are at 11,103 ... stuupid bulls have more money than brains!!! SELL, SELL, SELL

Anonymous said...

How can one say the volume is low and this is not confirmation of the last week's low? The day is far from over but if we do close anywhere around this level, I would say this is a confirmation day and that we have put in a solid bottom. In that case I would say we shoud rally from here for the next 6-8 weeks or so.

Anonymous said...

I'm getting ready to enter new shorts tomorrow.

The only thing that is going to change my mind is if we manage to stay positive on high volume by the end of the day tomorrow.

Anonymous said...

I agree with that comment. You are right.... it is early in the day buy I am looking at a variety of charts right now...and they are telling me that we aren't on the path to average volume..... I mean dow up 150 NAZ up 40...you would expect volume to go on a tear...

If we get heavy volume this afternoon that will be bad for the bears....