Tuesday, December 30, 2008

End of Day 12/30

For the day, the DOW added 184 points (2.2%), the S&P added 2.4%, the NDX added 2.4%, and the RUT seems to lead no matter what direction (more volatile) and finished up nearly 3.6%.

I’ve been covering the fundamentals with my articles all day, and we know how that’s looking, so let’s talk technicals… I wish I had a lot to contribute here, but the truth is that we are still very much in the range we’ve been in. If this is wave ‘c’ up of wave ‘B’ up/sideways, then it will produce the final leg up before the next series of declines. To prove that we’re looking at wave ‘c’, it must break the S&P 920 area, which is another 30 points or so higher and has been very heavy overhead resistance. If it breaks 920, then we can talk about targets higher, but until then, we’re still just in a range.

In the short term, the 60, 30, and 10 minute stochastic indicators are overbought, meaning that we could see some decline in the next day or so. There’s still a little more upside room on the slow indicators, but all the fasts are there.

Let’s take a look at the one month daily SPX chart below. That’s a pretty healthy looking candlestick that lends credence to this being the start of wave ‘c’ up. You can see that it completely engulfed all of last week’s action and most importantly, it regained the 50 day moving average… barely. You can see that the 920 area has stopped all the prior advances on this chart and that now there’s a declining trendline and the upper Bollinger to contend with. Also note on this chart where the two light blue lines cross – the 29th! That’s the exact turn date, and that was a bear wedge that I drew over a month ago – technical analysis is funny when you begin to “see” the correlations.

Next chart is a one month DOW. It, too, managed to close above the 50dma. Note the low but still increasing volume and how the fast stochastic has turned up off the oversold line (still on a weekly buy signal with lots of room).

The NDX and RUT also managed to close over the 50dma – bullish.

It would appear to me that a re-test of the 920 area is the next order of business. Can it do it on low volume? Perhaps, but I’m in the “prove it to me” mode. I’m inclined to do nothing until later in the week… if this is wave ‘c’ up, I’ll want to start positioning short as it runs out of steam. I think the 920 area is probably a good spot at a short attempt, but with the low volume fun and games, I’m sure there will be sucker moves galore. I’m looking to enter into a “swing” trade, one that can last for a while on the short side, and that may not come until the S&P is over 1,000. If we break 920 on the upside, that’s probably a great place to get long if you haven’t already, as long as you’re willing to use 920 as a stop. That would be a very short term trade, in my opinion.

One last note, the DOW, S&P, and Wilshire 5,000 Point & Figure charts all did a flip-flop breaking out higher and producing new upside targets. Notice how this sideways action whipsaws these computer generated charts? Don’t let it do that to your trading, it’s expensive, I know!

S&P 500