Monday, December 22, 2008

Update

The DOW is currently down 82, the SPX is down 1.8%, the NDX is down 2.4%, and the RUT is leading this morning’s decline, down 2.6%.

The most technical damage so far is on the NDX which just broke the blue uptrend line that you can see on this 30 minute, 30 day chart:



Note that the 30 minute stochastic is oversold, so are the 60 and 10 minute time frames. Very little impulse behind the decline and the volume is pretty low so far. The same trendline on the other indices remains in tack. Also note that the NDX made a lower high just prior to this decline – the other indices did not.

The VIX is down which makes options difficult to use here as the declining intrinsic value offsets any gain from a puts’ rise in value due to underlying price decline.

TLT is now well off its highs, but again, playing with options is difficult here. In addition to falling IV, the spreads on puts are astronomical, especially anything beyond the front month.

I view this decline as most likely corrective, that is I don’t believe it is likely to produce a new low. That’s what the VIX and price action look like so far, of course that can change, but I doubt it on such low volume.

The other thing to watch here is the XLF (financials). Their price action has created a triangle that looks like it should break down, but it may just bleed out sideways.

Again, the NDX and RUT are weak looking, but I don’t see any sign of imminent breakdown barring breaking news.