SPX Trading Levels: Rising Wedge Doesn't Disappoint

The rising wedge pattern is playing out perfectly. Not much more to say.

We are in an intermediate downtrend, and in a downtrend the market moves further down. It has done that.
Now we just wait to see when we start to see some reversal candles on the daily charts. So far nothing of the sorts and the 100% fib level looks probable to be the next downside target.

SPX Daily Chart:

VIX Levels: Interesting

The SPX sold off hard today and gave up 38 points, but what is very interesting to me is that the VIX didn't move up proportionately to the move down. At first glance that tells me that although the price tanked the FEAR didn't match the price movement and might mean a hard reversal to the upside tomorrow. .... OR, the market tanks tomorrow AND the VIX shoots back up to 30 and people really do start to worry hard.

We'll just have to see how it plays out, but it's something to keep your eye on as the VIX can often be our first sign as to which way the price is going to move. We saw the VIX gives us some great clues earlier this week on the intraday charts.

VIX Daily Chart:

DOW Levels:

The DOW looked like it was going to fall of a cliff and it didn't disappoint.

If the fear and capitulation continues then 11,250 would be my first downside target and below that it would be 10,853 (the 161.8% retracement).

Today the DOW confirmed that it is clearly still in an intermediate downtrend by putting in a definitive lower low. A relief bounce would certainly be in order within the next few days, but then it's completely up to the market to show the next move.

The pop over the downward trendline in May was a great head fake to the upside.

We always need to remember that downtrends have rallies and that these are often the best opportunities to take advantage of low risk short trades.

DOW 2 Year / Daily Chart: Ugly to say the least

Today's Conference Call: Good News, Bad News

It's Thursday afternoon 3:10pm Hawaiian time and I'm posting from the Billabong House on the North Shore of Oahu.

The good news is that I'm posting from the sunny North Shore, the bad news is that the cel phone reception here is spotty at best. The wifi is working great, but I didn't bring a USB headphone to take advantage of Skype for the phone service so I may not be able to participate verbally on the call tonight.

Billabong House, North Shore, Oahu: Nice (Even on a day that saw the DOW down over 350 points)

RUT: Uh Oh!

The bulltards of the RUT have retreated. (At least for the day)

It never made sense when the RUT went to 800 in December and it didn't make sense when it went up to 764 2 weeks ago. Add a head and shoulders pattern and look out below.

The neckline has been broken and what can often happen on this pattern in a relief bounce that jumps up and over the neckline. If it does, we need to watch it very carefully to gain clues to whether it's actually holding or if it's just creating a bear flag.

This is trading at it's best -- enjoy.

RUT Daily Chart:

SPX Trading Levels

The SPX formed a spinning top today on the daily charts and is still BELOW the 61.8% retracement of the move up from the March low to the May high. Once the price surpasses the 61.8% level the bias is stronger for a 100% retracement which would put the SPX in the 1260 area for a retest. This would also make technical sense to see the completion of the rising wedge with the SPX moving all the way to the bottom of the base of that pattern.

Intermediate downtrend is still intact. Short term also has a lower high and lower low. We could certainly get a relief bounce, but price action at this point is not showing us any hints of a short term reversal.

SPX Daily Chart:

RUT: Head and Shoulders Forming

The RUT is forming a Head and Shoulders pattern with the price now toying with the neckline at the 720 area. This is a bearish pattern that if completed would send the RUT down the 670 area. The last rising wedge pattern on SPX hit it's downward target, we'll see if the RUT will follow. The RUT and NDX may be joining the "Bear Party" later then the SPX and DOW. We'll have to watch to price action the next few weeks to see if it pans out.

RUT Daily Chart: (Head and Shoulders pattern has formed)

DOW: Retesting the Lows

The DOW did crack down on Friday, and at the time of this post it was cracking down a little further. Seems likely to retest the lows, but we'll see.

DOW Daily Chart: (Snapshot Monday 11:33am ET)

DOW: Hanging by a Thread

The DOW is looking so tired on the daily charts. It looks like it wants to fall down and capitulate doesn't it?

I really don't have a bias one way or the other as I think it's going to be the news of the day that decides tomorrow.

I've heard talk of a double bottom, but didn't we already get that from the Jan and March lows??? Triple bottom or do we rip even lower. Keep your eyes peeled and have our plans ready for either direction as it's likely to move quick in either direction.

DOW Daily Chart:

VIX: What's in Store?

The VIX daily chart is showing us a higher high and with today's trading action confirmed a higher low. Since this is a contrarian indicator this is showing us to be aware that the markets could head lower.

The VIX closed today at 22.24 today and upside resistance seems to be in the 24.50 area which was hit last week. If it continues moving up the next level of resistance would be around 26.50. If we hit 26.50 it would mean the market is likely retesting the March lows.

Looking at the charts that seems to be the bias unless the bulls can pull out a miracle in the next few weeks.

VIX Daily Charts:

SPX Trading Levels

The SPX lost 13.12 points today to close JUST under the upward trendline on the daily charts. However, a break is a break and unless something spectacular happens tomorrow the momentum is definitely with the bears.

If it falls, it looks like 1325 might be the area to expect a bounce.

SPX Daily Chart:

DOW: Bears Have Control

The Chart tells it all. Yesterdays bottoming tail violated and another trend break to the downside.

Now we wait to see where it wants to put in a short term bottom.

DOW Daily Chart:

RUT JUN Paper Trade Update 3

All Trades Discussed on this Blog and Conference Call are for Educational Purposes Only and are NOT recommendations.

Per our rules, we closed out the last 5 contracts of our RUT JUN Paper Trade today. With the early trading looking bullish we took the risk off the table on the first pull back and were able to lock in some nice profits before the RUT moved higher today.

They were bought back at an average of $6.59 (We originally sold them for $8.57)

($8.57 - $6.59 = $1.98) Our total risk per contract was $1.43.

For these 5 we received an ROI of 138% (1.98 / 1.43 = 138%)

The first batch we closed out for an average of $7.00 per contract

($8.57 - $7.00 = $1.57)

For the first 5 we recieved an ROI of 109% (1.57 / 1.43 = 109%)

Cost of commissions based on $1.50 per contract (In $60 / Out $60 = $120)

Total Return $1775
Less Commission - $120
Net Return $1655
Total Risk $1430
Net ROI = 115%

To learn more about why we put this Paper Trade on click here.

In Summary:
Market Bias: Neutral
Trade Duration: 4 weeks
Profit Objective: 50% to 100% ROI

Goal Achieved, now we start to look for our July setup.

NDX: Still Bullish?

The NDX put in another gain today and broke up and held above 1975. It found resistance at the 30MA on the daily so I'd like to watch this for a few more days to see if it can hold this level. It's formed a lower low, and if it doesn't keep heading straight up and over 2060 it will put in a lower high giving us a low risk entry for a downside move.

The upward trend IS broken so it's anyone's game right now. So far the lower low gives it to the bears.

No bias, still need to see price action over the next few days. Notice too that the trading action is happening above the downward trend, but below the upward trend -- limbo land.

NDX Daily Chart:

RUT: Fib Levels on the 15m Charts

The RUT is in the process of retracing the downward move that started at the 763 high on June 5th. Today it started near the 23.6% level, but made it's way all the way up to the 50% retracement level. A bullish day tomorrow we would look for an intraday upside target of $745.75 which is the 61.8%. Note that there were no significant pull backs today so be on the look out for some tomorrow.

I would look for 735 (38.2) level to support, then 731, 728 and 725.

Above 745 the next fib level is at $753 (78.6)

Looking at the chart I'm going to watch the backside of the upward trendline very carefully as it could easily resist there and create a low risk entry for a short.

RUT 15 Minute Chart with Fibs:

RUT Trading Levels

The RUT has shown some amazing resilience in the last 2 days and tacked on a surprising 7.13 points today despite a weak SPX and DOW. BEWARE: Last time the RUT decided to get really bullish it got a 37 point smack down.

Technically this relief bounce makes sense, and at this point it could easily head up to 745 tomorrow to retest the 200MA which also intersects with the backside of the uptrend line it broke last week. If it can't hold there then it could easily fall back down hard. Above 745, the 750 area should resist, but remember the RUT can get uber-bullish for no good reason and blast right through it so be prepared for anything.

RUT Daily Chart:

SPX: Trading Levels

The SPX put in an uninspiring .11 gain today and closed under the 100MA on the daily charts.

First target above if it moves up tomorrow is 1370, if it cracks lower you might look for support on the green uptrend line. A break below that and 1327 may support.


SPX Daily Chart:

Traders Expo Ontario, CA June 18-21, 2008

Traders Expo is FREE and well worth your time to check out.

For more information click HERE.

$VIX: Yep

We've been watching the VIX for months now and our patience has been paying off. Last call we talked about the extremely low levels and cited that their days we likely numbered, especially with the reality of $4.00 gas.

Now that the VIX is getting close to 25 we may look for some capitulation in the markets to spike a bit higher, or a bounce in the markets that would send the VIX a bit lower for a while.

If you were buying Calendars in a low VIX environment, your positions are being rewarded this week with long Vega.

$VIX Daily Chart:

RUT: Heading South for the Summer?

The RUT tried to weasel itself up and above 750 while no one was looking, but got slapped back to reality the following day and has continued to get punished with strong selling.

If the RUT follows suit like the DOW and SPX then a retest of the downward trendline would be in order meaning that some lower lows could be put in within the next couple of weeks. This would be contingent on RUT breaking below 715 and the 100MA which is sitting now at 708. The momentum is down so it wouldn't take much.

Other then that, I thought the rejection at 750 was very convincing and could see that resisting in July as well. An estimated range for July might be 700 to 750 based on what the charts are currently showing.

RUT Daily Chart:

SPX: Lots Going on with the Daily Chart

The SPX daily chart is packed full of info this week, so let me run down what I see from my perspective and see if you "concur."

First is that the SPX is trading back under the intermediate downward line that started with it's top Oct 07, so the intermediate downtrend is STILL intact.

On the the short term horizon it put in a lower high and has now formed a lower low, this is short term bearish so now the short term and intermediate trend are DOWN.

A rising wedge pattern formed and broke with a conservative downward target of 1330 and an aggressive target of 1280.

The price today closed between the 50% and 61.8% fib levels which is a limbo land of sorts. If it can stay above 1296 (61.8%) there is more of a chance of a bounce back to the upside. If it breaks below 1296 then the probabilities start to shift to a 100% retracement which would carry it down to 1260.

Today it formed an inverted hammer candle / harami which could signal the start of a short term reversal tomorrow. However, the harami is very weak as today's bar closed in the lower 1/3 of yesterday's candle so the bulls weren't very convincing.

I drew one last upward trendline today (Green) to give the SPX one last chance to stay above it and get bullish. We'll see if it has the mojo.

SPX Daily Chart: (with lots of lines)

NDX: Missed it by "That" Much

The NDX closed down today -.07 and almost managed to have a positive day. On the daily chart it formed a fairly long spinning top which is indicative of indecision, but on the bullish side it bounced off the 38.2% fib and formed a bit of a tail. However, I still see a lot of room to move down like a test of the 100MA, (its now under the 30 and 200MA - bearish).

I have no bias until it breaks and closes above the 23.6% or breaks and closes below the 38.2% (1965 and 1908)

NDX Daily Chart:

DOW: Bullish Harami (but a weak one)

The DOW closed up for the day and formed a Bullish Harami candle pattern on the daily chart, but the pattern is very weak because the white body is very small and it closed down in the lower 1/3 of the previous days body. This is usually a sign of reversal, but it must be confirmed with a higher close the following day. We'll have to see how tomorrow plays out.

DOW Daily Chart:

RUT JUN Paper Trade Update 2

All trade ideas on this blog are for Educational Purposes Only and are not recommendations.

We're going to close out half our JUN RUT paper-trade position tomorrow because we are within 10-4 days from expiration AND we have reached our top goal of a 100% return. (Or plan was to close the trade once we had reached a profit target of between 50% to 100% ROI and since we are at the top of that range we are going to bank the profits on this first half and watch the other have VERY carefully so we can lock in profit there too)

We will let the other 1/2 run until Monday or until we feel the risk exceeds holding out for more profit.

We originally sold the JUN Tight Iron Condor 730/740/720/710 for $8.57 making our risk on the trade $1.43 per contract (we sold 10 contracts).

We have an order in to buy back 5 IC's at $7.10 for a profit of $1.47 or $735. If we get filled at $7.10 or better we will have reached our goal of 100% ROI and will have achieved this in a little over 3 weeks using very little of our own capital and with a max risk of $1.43 per contract. Our max exposure for 10 contracts was $1430 + commissions. We will post our total return and give the last update once we have completely closed out the position.

For more details about this trade click here.

RUT JUN Paper Trade on Analyze Tab:
The white curve is the profit curve as of today and the red vertical bars define our break even areas of 689 on the bottom and 757 on the top. These areas will move closer together over the next week as we get closer to expiry and gamma risk kicks in.

RUT: Late Comer to the Bear Party

The fact that the RUT had a bulltard run up to 764 didn't surprise me because I saw the same bullish non-sense in December and knew it's days we're numbered. Yes, the market can do anything it wants, but one also has to factor in the common sense of what $4 gas is going to mean to the bottomline of domestic small cap companies looking forward.

In summary, this move up to 750 was expected and resistance at 750 was also expected. The move down also expected. I mention this because it's following basic technical analysis (support and resistance) and these levels allow us to plan our trades accordingly. I like the RUT because it generally plays by technical rules pretty well most of the time.

What's next? If it can hold 720 on Thursday maybe it can stop the bleeding for a few days. If it heads lower on Thursday the support I'm looking at is the 100MA 708.22 and the 50% fib level at $702.81

IF the RUT gets down to $702.81 tomorrow that means that the bears took down 7 weeks of upward price action (April 16th to June 5th) in 5 days -- Wow, that's efficiency!


RUT Daily Chart:

NDX: Straight Shot to 1875

Why is it that most trendbreaks work?

I don't know, but most of them do so it's important to see them coming and to react according once they do. Lots of opportunity of late!

Looking at the daily the NDX now has a straight shot (very little support) between 1925 where it sits right now and 1875. A little bad news and it could be there in one session.

The NDX is great at trending, and once it sets course it can cover a lot of ground very quickly -- just look at the chart.

NDX Daily Chart:

DOW: One Good Trendbreak Leads to Another

I gave the DOW the benefit of the doubt yesterday and remained bullish since it managed to stay above the 2 day uptrend line, but my hopes were dashed today with the trend break.

At this point, the momentum may carry it down to the March lows. I would not be long here at all until the dust settles.


DOW Daily Chart:

SPX: Beware of the Doji

Make that 9 out of 9. See yesterday's post on RED BAR and doji.

SPX Daily Chart:

RUT: Break of 730

The RUT broke below the 730 Support this morning and collapsed in during the morning session. We'll see if the bulls can pull it back up to retest 730 in the afternoon.

RUT Intraday Wednesday:

RUT: Doji Day after 730 Supports

The RUT intraday trading action was a daytraders dream today with numerous support to resistance runs with pretty good entry and exit signals. However, at the end of the day it was just a great theta burn day for the RUT as it closed down 2.63 points to 732.62

Support at 730 today was tested FOUR TIMES today with each test resulting in at least a 4 point bounce off that support. That's pretty significant as the price is really being rejected sub-730 so far. That give me a bullish bias for tomorrows action unless the news trumps it.

The RUT broke the upward trend on Monday, and it is highly likely to retest that trendline even if the short term prognosis is down. Based on the aggressive buying I saw all day today I would not be surprised at all if the RUT broke out and quickly retraced to 740 and then it may exhaust itself by moving up to 742 to test both the trendline and the 38.2% retracement. If the bulls are really game it could even go higher. The price action I saw today showed the bulls being very resilient. I'm looking forward to see what tomorrow actually brings.

The key to RUT this week is 730. If it can hold above then the bulls still have control.

RUT 20 Day 60Min Chart:

DOW: Stays out Trouble Today

The DOW did nothing but dance around like a wild child today. Short term, with it staying above the trendline, my bias is still bullish based on the trend. I'll keep watching the magical green line to see if my bias changes.

DOW Daily Chart:

SPX: Big Red Candles and Dojis

What do you get when you mix big red candles on the SPX with dojis the next day?

Check out the chart and see for yourself.

On the chart posted, without exception a doji following a red candle has seen lower prices within the next few days of the doji. This doesn't mean it will happen, but the probabilities are high based on past SPX price action.

The SPX put in another doji today which makes it two in a row -- lots of indecision.

I'm more bearish then bullish, but with the price action stalled today the probabilities for a relief rally to at least 1370 certainly seems in order. What it does after that will depend on if it can close above 1370 or not.

SPX Daily Chart -- RED BARS w/ Dojis the day after

NDX: Trend Break / Under 30 MA

The NDX showed some more weakness today and closed under the upward trendline for the first time since the line was formed Apr 15th. This shows that it's cooling off and even if it doesn't completely crack down it may spend some time consolidating at these levels for awhile.

1950 was a good support level yesterday and that will be a key area to watch over the next few days. If it can hold then it will still look good for the bulls, a crack below and it could fall for awhile -- it has a pretty clear shot down to 1860.

NDX Daily Chart:

NDX: Still Bullish After 2 Down Days

The chart still looks good despite 2 down days. The only negative is that the NDX closed below the 30MA for the first time since March. On the bullish side, it's holding the uptrend and put in a nice looking bottoming tail today.

A likely short term upside target would be 2015 for starters which is the 61.8% fib.

NDX Daily Chart:

DOW: A Second Chance

The DOW hung tight today and tacked on 70 points to form a small but solid white candle on the daily charts. This allowed us to draw a new upward trendline so we can give the DOW a second chance at a short term bullish life.

The Green line is the line to watch. If it can stay above the magical green line it means it's either moving up or moving sideways. A break of that trendline and the bears get to have their chance.

My short term bias is up based on the start of this retracement. My first target above is the 23.6% fib at 12,420.

DOW Daily Chart:

RUT: Rising Wedge Trend Break Confirmed

The RUT traded down 5.11 to close at 735.26, but more importantly on the daily charts it broke the upward trendline of the rising wedge confirming the start of a potential breakdown as indicated by this pattern. The 2-3 month target would be 685 for me, but I'd first look for 720 to support in the near term. A break below 715 and it's a pretty clear shot to 685.

It put in a bottoming tail on the daily today, but in a downtrending market I have seen many RUT bottoming tails fail on the daily charts. I'm a big fan of trading bottoming tails and this may actually work, but in markets like this it may be best to wait for confirmation.

RUT Daily Chart:

SPX: Doji

The SPX finished slightly up over Friday's ugly day and formed a doji on the daily charts right on the 100MA. The index price action is still under the intermediate downtrend line.

This type of candle shows lots of indicision and gives us very little data on what to expect tomorrow. We'll just have to wait and see.

SPX Daily Chart:

RUT Rising Wedge Pattern

The RUT is forming a rising wedge pattern similar to the confirmed SPX rising wedge which broke it's trendline on May 21st. Note too that the SPX price action was very similar to the RUT the days proceeding the trendline break to the downside. The SPX got uber-bullish to 1440 (an extreme) and has rapidly fallen since.

Yesterday's similar move higher to 760 (an extreme) may be the last breadth of the bulls for a while. Watch carefully to see if the RUT can hold the trendline or not.

RUT Daily Chart with Rising Wedge (Bearish):

NDX Weekly Chart

The NDX Weekly is showing some consolidation after the 375 point move up from March's lows. It could easily go either way at this point. It's currently below the 61.8% fib level from the October highs, and it would need to hold above 2025 for a couple weeks in a row for me to get excited about the long side. A weekly close below 1950 would likely change my bias to the downside.


NDX Weekly Chart:

SPX Trading Levels

The SPX chart is getting really interesting. The rising wedge is playing out just as they usually do... by going down once the line is broken. The issue with this pattern (and all patterns for that matter) is that they take time to work and often there are landmines between you and your target. My target for this pattern was the base of the wedge at 1330, and after yesterday's uber-bullish action it was beginning to look like the pattern might fail in the short term. What a difference a day makes.

The SPX is now sitting on it's 100MA (1360) on the daily which could easily act as strong support. If it doesn't then I'd look at 1350 (50% fib level) and then 1330 to support. A drop below 1330 and the market is in big trouble.

Note too that the SPX closed firmly below the intermediate downtrend line again which is pretty darn bearish until it can break above again.

SPX Daily Chart:

DOW Go Boom!

Up 200 down 400... all in a weeks work. The DOW took a beating on Friday, but is now sitting in a fairly good support area. The chart looks terrible, but it is often these areas where it starts to look really vicious that it gets another bounce. It got a pretty nice bounce on Thursday after the doji, and with a 400 point day down it may be ripe for a relief bounce on Monday.

I'm not convinced we go down again on Monday. It may all depend on the news Monday morning. Any news construed as good could rocket futures up again. Remember that this market is very edgy right now but too both sides. You saw how bullish those bulls where last week with the NDX and RUT. They may have their tails between their legs this weekend, but they could easily be back next week.

If the DOW bounces on Monday, look for 12,418 as the first target which is a 23.8% retracement from the May 19th High to today's close. The key will be to see if it can hold above that level. If it can't then sideways to down would be the bias. If the DOW is week on Monday I'd see 12,028 as a support area (78% fib)

DOW Daily Chart: (Sorry for all the lines and fibs, but they're important)

RUT Weekly

Some interesting trading action these last two days... the outcome shows up best on the weekly charts. We have been talking about 750 as being a resistance area and even though the bulltards took it up yesterday, the reality is that it was not able to hold it above on the weekly charts.

Next week will be very important, and the key level to watch will be 750. If it can close above 750 then the bulls have a chance in the short term. A close below would signal sideways to down.

The market can counter reality for a while, but sooner or later $4.00+ gas is going to show up on the equity charts negatively.

RUT Weekly Chart:

NDX: Strength

Not sure where it's coming from (doesn't matter), but the NDX continues to move up (180 degrees opposite the DOW and SPX) and the daily chart continues to look bullish.

Yesterday there was an intraday bounce off the 30MA on the daily and today's 24 point gain posted another white bar on the daily chart.

The NDX is still above the 30,100 and 200 Moving average on the daily and continues to hold the uptrend. A close above 2033 would give this rally a new high and some more potential juice to send it higher.

Summary: Looks Bullish despite the DOW and SPX falling apart

NDX Daily Chart:

DOW Doji

The DOW closed at 12,390 and created a doji on the daily chart today.

This could be signaling that a base is forming, but to confirm another potential move up we would like to see a close above today's doji which would mean a close above 12,500.

The DOW short term trend is still down with lower highs and lower lows and still remains below the 30,100 and 200 moving averages.

DOW Daily Chart:

RUT JUN Paper Trade Update

We put this PAPER TRADE on (for educational purposes only) back on May 15th with the intention of holding it until about a 4-5 days before June expiration which is June 20th. (Last day to exit this position prior to expire is Thursday June 19th). Ideally we would like to exit on Monday June 13th to allow maximum time decay before the gamma risk really starts to kick in.

RUT Iron Condor > Sell 10 contracts 740/730/720/710 for credit of $8.57 / max risk $1.43 (Credit: $8570 / Max Risk: $1430)

We entered this trade because we had a bias that the RUT would trade in the area between 710 and 740 5 to 10 days before June expiry. We entered this "tight" Iron Condor because we were able to receive a large credit to enter which limited our total risk on the trade to just $1.43 per contract. This also gives us a much larger profit potential then a traditional Iron Condor. Although the short strikes are only 10 points wide (720 and 730), we will get paid if the price is anywhere from 696 to 749 the Monday before expiry (with the current Implied Volatility) -- this is the advantage of a wide break-even area.

The other advantage to this position is that it requires less margin against your real cash which allows you to use it for other trades. Still another advantage to this trade is the extremely wide break-even area that you're able to enjoy throughout the life of the position. Because the break-even area is so wide it does not require any management throughout the trade. If the price action were to completely leave this area with little hope of returning we would just close out the position for a small loss.

With the current RUT price action and resistance still holding at 750, we are still very comfortable with position and are in a very good position to take advantage of any further moves down.

Our current P/L is up $379 or 21% ROI based on our risk capital of $1430

Below is a screenshot of the Analyze tab showing the profit curves and our breakeven levels.

RUT JUN Analyze Tab
Note the current break-even levels of 680 to 748 as indicated by the vertical red dashes on the white line.



Looking forward to the Monday before expiry, here's a screenshot of the analyze tab showing the new break-even/profit area between 695 and 750.

RUT JUN Paper Trade Idea simulated P/L curve as of Monday June 16th




Here's how the P/L will look on Monday June 16th at the current Implied Volatility levels if the price is at the strike prices below (ROI also shown):


700 - $670 / 46%
710 - $2101 / 146%
720 - $2917 / 203%
730 - $2580 / 180%
740 - $1327 / 92%
750 - (-$16) / -1%
760 - (-$908) / -63%
770 - (-$1288) / -90%

Ideally we would like to see the price settle between 710 and 730 on Monday June 16th. We would then buy back the entire IC for 100%+ profit. If the rally continues we will likely still hold on to the position. If the price pulls back in to the profit zone we will profit, if it stays above 750 we will take a small loss. The important thing is that we understand fully our risks and potential rewards with this trade. We can not lose more then $1430 + commissions/assignment cost on this position. We will avoid the assignment risk by exiting this position prior to expiry.

NDX: A Check on the Four Horsemen

I'm a simpleton, and when I can make things simple for myself I do it.

The Four Horsemen (GOOG, AMZN, AAPL and RIMM) have all put in lower highs on the daily charts this past week. The NDX has put in an equal high. If the four horsemen are the directional indicator (I use that term loosely) for the NDX then I need to sway my bias a little more to the bearish side given the double top and weaker horsemen. I will not trade based on that assumption, but it does give me a little more data for my short term bias.

Now we need to watch to see how the weak DOW and SPX affects the stronger NDX and RUT or vice versa.

NDX is still looking strong from an intermediate perspective and is still hold up nicely above 10,30,100 and 200 moving averages on the daily charts. 1950 will be an important support level as any close above that area will create a higher low.

NDX Daily Chart:

SPX: Trading Levels

The SPX has completed about 98% of a mini head and shoulders pattern on the daily charts. Now we just watch to see if it breaks the neckline which is conveniently the intermediate downward trendline. The SPX has put in a lower high and lower low like the DOW, so the broad market is definitely showing some weakness.

We are still watching to see if the weakness continues which will further complete the move anticipated when the SPX broke down from the rising wedge on May 21st. This is a bearish pattern and price action can be aggressive to the downside once they confirm. A target for this pattern for the SPX would be near the base of the wedge which would be about 1330.

SPX Daily Chart:

DOW: Ugly

Not much to say about the DOW other then the chart is really ugly with a lower low and the price action is now back under the downward trendline and the important moving averages.

It could certainly get a nice relief bounce, but with more weakness it will likely retest the 61.8% fib at the 1263 area. It should have some good support there.

To the upside if the bulltards step back in this week, a retest of 12,750 after all this selling would be a likely target. Everyone seems to be over-buying and over-selling the latest news so a 300 up day for the DOW is entirely possible.

DOW Daily Chart:

RUT: Aggressive Intraday Retracements

The RUT continues to fight the bears with 2 straight days of of afternoon retracements back up to counter the morning drops. Yesterday's trading saw a bounce back up to the 61.8% fib and today raced back up for a 50% retracement.

Buyers are stepping back in and the RUT chart is actually looking very strong with the one exception being that the RUT is very close to the 750 resistance area. From a pure technical perspective it has higher highs and higher lows on the daily, as long as it holds the price action should be bullish. For the RUT to keep the higher low the daily candles will need to continue to close above 724 -- a close below 724 will remove the bullish bias and put the index back into a neutral bias.

RUT Daily Chart:

NDX: Double Top?

The NDX which has really lead the rally over the past few months is showing some potential signs of weakness and with today's trading action has started to form a double top.

Note the continued weakness after the last double top on December.

NDX Daily Chart: