Wednesday, January 14, 2009

Update Going Into the Close…

We created a bear flag with today’s action which is led once again by weak financials and in particular Citi which is down 23% currently. Below is a 20 day, 30 minute chart of the SPX. That 840 level was important… you can see that we made a lower low despite being oversold. I do see a slight positive divergence on the RSI… however, the flag did break the lower boundary:

Unless we move back up into it, the target on the latest flag is ugly. It’s worth about 38 handles, so it would target the 800 SPX area, and on the DOW it would target about 7,850. That’s a big if, we’re still oversold and have been oversold on the 60 minute timeframe for the past 4 days without a significant bounce.

All the daily index charts ran into their lower Bollinger bands and are turning them lower. If you’re short and we regain the 840 area, I wouldn’t stick around as I also see what could be a very clean 5 waves down on the RUT. Difficult to trade unless you got short a while ago and held firm.

Since I copied that chart, we’ve bounced back up to taste the flag bottom again… stay sharp and good luck.