NDX Fall

The NDX fell close to 40 points today, and to continue on yesterday's topic, the 4 major sectors that make up the NDX gave us a road map up to this resistance as 3 of them all hit resistance areas at the same time.

By watching these sector charts everyday you'll be able to start to understand the power they have when they all move in sync, especially when they bounce together off of support or resistance.

The Software, Internet and Biotech Sectors all smacked up against resistance all within a 2 day period. The Semi-conductor sector is still languishing at lows so it also weighs on the the NDX.

The lesson here is to keep on the right side of the trend and trade reversals when the stars align.

Here are the charts:

NDX Daily Chart:




Semi-conductor Index Chart:




Software Index Chart:




Internet Sector Index Chart:




Biotech Index Chart:

Transports Sector

I check 16 different industry sector charts on a daily basis to see how the components of the broader market are trading. More specifically I look for areas of potential support and resistance. I do this because it gives me an edge over those who are just trading based on the technicals of the broader markets.

Yesterday was an excellent example of this edge. On Tuesday I noticed that the Transports Sector was slamming into resistance. This meant that on Wednesday it would either find strength and break through OR as it has done in the past it would fall back and prices in the transports would go lower. There was some bad economic data pre-market on Wednesday so the probability at that point would be that Transports would be weak. Since trading is all about probabilities, I'm just trying to get the probabilities on my side -- I am not trying to make predictions.

So what do I do with this information to make money?

Since Airlines are one of the weakest component of transports, they are an easy target to trade to the downside. An early entry (based on some sort of entry rules) on Wednesday morning to an Airline like UAUA would have been a nice intraday trade. For those with rules that support it, the trade may also become more profitable if held overnight.

On Tuesday there were 3 industry sectors that were all hitting resistance:
- Transports
- Homebuilders
- Software

As mentioned, with the bad economic data, (including bad housing numbers) the 3 sectors slide along with the rest of the market and resistance held.

ORCL reported after the bell today and although profits were up, they missed revenue targets and the stock slide 7% in after-hours trading. It's likely that this news will continue to weigh on the software sector so keep you're eyes open for other opportunities in that sector.

What else do I see?

Biotech has been extremely strong lately, but it is also getting close to resistance. If Biotech continues to move up it will likely hit that resistance in the next few days. It will then either break through or fall down so be prepared for both.

As Biotech gets closer to resistance (on daily charts) keep your eyes on the sector charts for Internet, Software and Semiconductors. These 4 sectors are heavily weighted in the NDX and if all 4 are weak or strong it will generally been seen in the NDX movement. The NDX has seen some strength recently as the Biotechs, Software and Internet have all been moving up in the last few days. If Software and Biotechs weaken it will likely have a negative effect on the Nasdaq. The wild card is the Semi-conductors, but there are languishing at 5 year lows and with the current weak economics they may hang out there for a while.

That being said, the market is great at defying logic, so watch for the Semi-conductors to rally when you least expect it. This could create a spark
for the Nasdaq too.

I also watch Cisco CSCO as a good barometer of what the market thinks about "Business Spending." The rational there is that if business is good they are buying more equipment and if not they're keeping the cash in their wallets. CSCO trades in penny increments even on single Calls and Puts, so it's a very efficient market to trade.

Transportation Sector:

QQQQ Fib Pull Back Targets

Below are 2 charts with 2 examples of how fibs can be used to target areas for upwards moves and pull back moves.

The first chart shows possible support for tomorrow if the QQQQ should pull back ("if" it decides to pull back).

The jury is out on whether the move up will continue on Wednesday. Here are the arguements for and against.

There is some evidence that this move up is weakening:

1) MACD Divergence, while the price is moving up the MACD levels are weakening
2) The QQQQ has made it up to the 423% fib level as projected 5 days
3) Well off of it's 100MA on the 15m chart, will likely retest soon
4) Lower volume on the move up in the last 3 days

However, a strong case can also be made that the move up should continue:

1) Higher highs and higher lows on the 15m chart
2) Daily Chart Slow stochastics still moving up
3) Daily Chart MACD still moving up
4) 3 Green Arrows :)

QQQQ Daily Chart with Fib Levels as possible support areas:

QQQQ Fib Level Targets Hit

Looking at a 6 day chart on the QQQQ (Nasdaq 100 ETF), it's easy in hindsight to see how easily the index climbed up to the 423% Fib level.

Now what?

QQQQ Daily Chart with Fibs:

NDX 5 Year Weekly

NDX 5 Year Weekly Chart:

NDX Levels

The NDX that originally lead last years bull rally continues to consolidate in the 0.0% to 23.6 fib range but has had some incredibly large intraday moves over the past 2 months. However, you'll notice on the charts that the index itself has slowing continued a grind down.

While many are calling for a bottom to the market, I'd like to discuss the all the possibilities on the call tonight.

Are we getting a rounded bottom on the NDX daily chart?

NDX Daily Chart:

RUT Fib Levels

I color coded the Russell 2000 Fibonacci levels to highlight some potential targets for the RUT over the next 4 weeks if the market decides to get a bounce here.

The trend is still down, but with the extended move down over the last few months and the last last 3 weeks of consolidation, the market is starting to feel like it's "antsy" for another relief bounce. Whether that bounce happens we don't know, but if it does here are some levels that the price my find some resistance and areas of for some range bound chopping.

The next level to crack is 690, so keep your eyes on that level as the next target after that would be 723. Note that the 723 area was tested unsuccessfully 5 times in February.

RUT Daily Chart:

DOW Daily Chart

The DOW gained 2.16% today, and in similar fashion to the SPX, it's threatening to move higher again. Above the DOW has resistance at 12,750 (which also intersects with the 50% fib level), but so far the DOW has a 9 day uptrend with higher highs and higher lows. The short term bias is up, but keep you're eyes open as the bears are still there as we experienced yesterday and they may be just around the corner.

DOW Daily Chart:

SPX Daily Chart

The SPX did an "about face" today and took back most of the yesterday's move down.

If you're getting dizzy you're not alone.

The SPX has spent the last 14 trading days with closes completely contained within the 0.0% and 23.6% Fib retracement area. It's found resistance at the 1342 level twice and it's getting closer to the secondary downtrend line so a test of that trendline is probable in the next few days.

The big question next week will be to see if the SPX continues to head up, and if it can move up and hold in the next fib area between 23.6% and 38.2%.

The price action is still extremely volatile and it continues to keep fooling everyone, so keep your mind fresh and watch the price movement closely.

SPX Daily Chart:

SPY: Bearish Engulfing Pattern

I'm not sure how well this pattern will work in choppy sideways action, but we'll find out in the next few days...

SPY Daily Chart:

SPX: Resistance Worked

Yesterday I mentioned that there was some overhead resistance, but the breadth of the buying would maybe be so strong that it could break through the resistance today.

Instead, resistance worked like it usually does with the SPX coming within .56 cents of the 23.8% Fib line on the daily chart. The whole day trended lower, and with the 3 day weekend approaching tomorrow may be a real wild card. It will be interesting to watch and see the sentiment going in to the weekend.

The primary trend remains down and recent attempts to even test the secondary downward trendline have met with selling prior to those levels. The SPX is still chopping in this 1270 - 1340 range, so until it solidly breaks to one side or another I remain neutral on the short term direction.


SPX Daily Chart:

I SPY Resistance Ahead

As usual, everyone knew the rate cut probabilities, but NO ONE ever knows how the market is going to react to it. That is why I don't have any rules to trade around this event. The moves are quick, big and generally provide no areas for a low risk entry.

Of note, both the RUT and DOW pulled back after the announcement from their highs back down to the R1 Pivot Level and bounced back up to new highs for the day. (Pivot Points can be found under Studies on the TOS and Prophet platforms).

The NDX and SPX pulled back too, but not all the way to R1 for the bounce.

The S&P is now approaching some overhead resistance. A pull back is in order, but with the VISA IPO tomorrow and some new found bullish sentiment the market may stage a short term rally that cracks right through the resistance.

SPX Daily Chart:

SPX - New Intraday Low

Sorry folks, but there hasn't been a lot to say the last few weeks as the price action just continues to head lower. With the global credit issues coming to a head, the fear and jitters are likely to hang around for awhile. I'm not sure what the catalyst would be to turn the market back up, but it sure will be interesting to watch when it happens.

The trend is down and the price action continues to follow the trend.

This is a very easy business if you have a system and follow rules.

Rule # 1 - Trade with the trend.

Yes, there is volatility and the possibility of a relief rally, but just watch the charts and if you're a directional trader be patient for those low risk entries.

If you're a premium seller, sell away and enjoy the high VIX.

Fed tomorrow, but thus far the Fed cuts have not even put a dent in the downtrend.

Follow the price action, not the news.

SPX Daily Chart (new 52week intraday low today)

VIX - Highest Close in 5 Years

Needless to say, "There is some fear out there." With the VIX closing at a 5 year the market has seen this kind of volatility since the tail end of the dot-com burst.

Bear Stearns gone? That's not going to be good for business.

A short term miracle will need to appear in the next few hours to save the market from a capitulation Monday morning... (Posting at 11:03pm PT Sunday Night)

Look for a VIX of 35-37.5 if the selling gets ugly on Monday.

Stay Safe.

VIX 5 Year Chart:

SPX / Bullish Divergence

A wacky week so far, and Friday looks like it's going to be another roller coaster ride as well as we move into the weekend ahead of next Tuesday's Fed announcement.

Two things I wanted to point out on the charts (one for the bulls and one for the bears)

For the bulls, there is some bullish divergence on the MACD as indicated on the charts. This hints that the momentum of the move down is weakening.

For the bears, any bounce up will likely find resistance at the 50MA (the SPX has not been above the 50MA since Since December). Prior to getting past the 50MA it still has the 30MA to hurdle first. It's only spent 4 days in 2008 above the 30MA.

All in all this just shows more evidence of chop and consolidation in this range.

Keep an eye on the Fib levels too as you can see from the green circles that those levels have consistently resisted for the past few months.

The bias continues to be neutral until it cracks below 1275 or above 1390.

SPX Daily Chart:

DOW Weekly Cracked

The DOW started the week by cracking BELOW the 5yr uptrend line, the key will be to watch the next 4 days of action to see if it closes above or below the weekly trendline.

DOW 5 Year Chart:

IWM Unbalanced Condor Revisited

Back in January we looked at the possibility of creating an unbalanced iron condor in these bearish conditions to limit our downside risk.

This trade was shown for educational purposes only.

We showed an example of a March IWM 74/76/70/69 Iron Condor were we received a credit of $1.00. The idea was that since our top strikes were 2 dollars wide and our bottoms were only one dollar wide we had no downside risk.

The real magic of this trade is exemplified on a big down day like today where the bottom strikes get completely run though. With just over 10 days left before expiration, we can pull the trade off and still make a small profit.

To buy back the bottoms at todays close would have cost .78
To buy back the tops at todays close would have cost .03
Total cost to buy back is .82 ($82) + $12 in commissions.

Received $100 credit less $84 to buy back plus all commissions. $6 profit.

To pull off the entire trade you would still make 6% after commissions.

The Original Chart:

RUT 5 Year Weekly Chart

The RUT 5 Year Weekly Chart shows that Russell 2000 is getting close to a retest of the 650 January intraday lows. The RUT closed today at 26 Month Low. With the current momentum, don't be surprised if we see a retest of 600 in the next couple months.

RUT 5 Year / Weekly Chart:

NDX 2 Year Chart

The NDX closed at a 14 month low today and is poised to possibly fall to the next fib level of $1618 -- that may take some time, but that would be my next intermediate target.

NDX 2 Year Chart:

DOW 2 Year Chart

The Dow is still holding above the recent lows, but getting very close. Note also the 2 Year Uptrend Channel that is close to being tested.

DOW 2 Year Chart:

SPX 2 Year Chart

The 2 Year Chart on the SPX shows we have closed today at a 17 month low. Note also the resistance found at the fibonacci levels.

SPX 2 Year / Daily Chart: