Tuesday, December 16, 2008


The DOW is currently up about 70 points.

Note on this 10 minute SPX chart that the fast stochastic is already overbought. On the 20 minute it is just entering overbought, but the slow is still in the lower half working its way up.

Overhead resistance seems to have contained the upward movement for now. I view this largely as people trying to get ahead of the FOMC rate cut decision. It seems likely to me that prices will hover in this range but may work higher as their announcement gets close, and then will likely spike on the news momentarily, especially if they cut .75%. I don’t think that’s likely, I think they cut .5%.

Following the announcement and as people digest the accompanying language, the market will bounce around looking for direction. By then the stochastic will be pretty much overbought. Remember that the first move is usually a head fake, thus it is best to practice a little patience afterwards and let it settle into a direction. That said, if it makes a run higher on the announcement I’ll be looking to maybe take a small short. BUT, if we break over 900 on the S&P, then I would be cautious.

The VIX came down a little this morning but has so far stayed inside that triangle. Below is a 20 minute chart showing both the upper and lower boundaries. This is a critical measurement for me. I just can’t get long unless we break beneath that border. Note that it’s a raising trendline. Triangles force eventual resolution. This triangle was entered from the bottom and thus it is expected to break up from a technical perspective. A break below this boundary would be wrong way and would be bullish were it to occur. There are a lot of people who think we’ve bottomed or who think we’ve bottomed in the medium term. That’s actually bearish from my perspective, but we’ll see. Perhaps the boundary breaks on the FOMC announcement?