Monday, February 2, 2009

DoctorMad Update… “Maintain the Momentum, Troops!”

The Doctor’s been calling the battles pretty well, eh? His channel techniques let us know where the key battles are being fought and where the troops may be dug into their trenchlines…

For today's battle field report I am going to focus exclusively on stocks. Bonds caught a nice bounce today and are in the no man's land between moves where the channels don't have a lot to say. Stocks on the other hand look to be on the precipice of a major move here in the next few days.

SHORT TERM battlefield conditions. I'm including 3 charts here…

First on the 20 day ES you can see that despite the rally off the lows today, the bears are still firmly in control of the short-term momentum with the action still contained to the new pink bear channel off last Weds highs. The 55 hour average (white squiggly line) is now following the top line of the channel down as it commonly does giving you further confirmation the bears are still in charge. Now, what is interesting is if you look at where we caught support today it was at the bottom of the yellow channel I have marking the wave 2 of the move off the Jan 6 highs. That bottom yellow channel line and the all-important 800 trenchline is going to come to a point with the new bear channel shortly after the close tomorrow around 805. Something is going to give soon. Either the bulls maintain their medium term momentum of having held 800 or the bears hold their short-term momentum and the pink channel drills right through.

I'm also including a chart of the SPX showing how the budding new down channel looks by the cash markets measure. It sure looks like a 1 down 2 up today. Comparing and contrasting how the trenchlines appear by different measures of the market is a great way to double check your work. In this case I'm getting the same general picture on both the 24 hour ES and the 7 hours a day SPX cash market.

Also note that the VIX gapped up big today to the upper half of their new channel before falling off all day to close again at the bottom of the channel. The important thing to note is that the bears still held their momentum of a higher VIX. I consider VIX to sort of be the moral measure of the troops. Right now the bears are becoming a little more emboldened and the bulls a little more cautious that 800 might not hold. The longer we hang around 800, the more likely a breakdown becomes and the VIX started to reflect that today.

- DoctorMad
Great update, "General," agree with everything said – best of luck to you and your “troops!”

- Nate