Tuesday, February 3, 2009

DoctorMad Update – Looking at the Bigger Battlefield

The trenchlines are getting tight as the bulls advance has the our bear troops a little nervous. Both the Doctor and I see the NDX as a potential key for tomorrow. I think that hammer says they’re spent, but a surprise crossing into enemy lines would cause a quick retreat. Yes, it would probably be a headfake, but a good General sets his lines and doesn't risk loosing too many troops…
For tonight's charts I am going to zoom out and focus on the medium term outlook by examining how the battle looks on different fronts (sectors and stocks).

First take another look at the SPX chart 1 year. Notice the triangle and the potential wave 5 channel I have for the latest move down off the Jan 6 high. Now take a look at how the same lines and triangles are shaping up on the NDX and RUT. As you can see the RUT is in a much steeper channel and the outperforming NDX is in a much shallower channel and in fact the bull troops are threatening to break the top of their triangle. The top of the line is around 1230 NDX. Pay close attention to that level on any further rally. If the bulls manage to route the bears out of their triangle trench there then it is far more likely they will be able to do so on the other indices.

Next, take a look at how the latest move is setting up on the IYR (commercial real estate), SOX, Nikkei, and XOM (Exxon Mobile). XOM being 5.5% of the SPX is a key stock to watch, a lot of troops are positioned in this single battlefield and how it unfolds is going to have a big impact on the overall war. In general, watching how the trenchlines are shaping up in other leading sectors and stocks can shed a lot of light on how the pattern is going to play out on the Grand Daddy SPX.

Good luck to your troops. I'm still holding position shorts and will wait until we break my potential wave 5 channels before issuing retreat orders to my bear troops. I added a little AMZN short at the end of day also. This trade is an example of playing an over-extended route of the bears. After that earnings report the bears got destroyed and all about capitulated. The bulls have chased the bears down for 3 day's now building on those gains shooting the retreating bears in the back and now I think their supply lines might be getting over-extended (they need to at least consolidate). My stop on this new position is a break of 65 or really any up action at all tomorrow.

The NDX is really the thing to watch. If it breaks it's triangle to the upside that would be a major victory for the bulls.