THE DOT - if this turns orange or red be alert

Monday, July 28, 2008

technical outlook for aug. - rollercoaster

As expected markets are weakening towards the new moon and this time a factor will be the Tech sector but more so by mid August (starting around the 6th). Also the Financials will stay under considerable stress going forward for another 2-3 weeks thereby around new moon 1. Aug. expect a sharp move up for a few days. This market will be whipsawing until most people lose the nerve to trade either direction - in order to make a powerful rally thereafter, with almost no participants. Thats the typical way for the market to set it self up in such a situation - still we need a higher VIX , which needs to go to high 20 or rather 30 again for the real deal. That 30 level should likely show up by 2nd-3rd August week.

Plus we have a lot of manipulation in single stocks going on right now but that will increase towards end Aug. with the 3rd Q. for Broker's ending creating the urge to 'create' results. They will be under big pressure to show good results ( not likely though) and need higher stock prices for another round of financing since even the IMF said not the slightest chance of an end for a dropping housing market, definetly more write offs are due in their mortgage related books. Going forward their earnings potential is on a weak basis. Now with thedeveloping oil correction it will be even tougher to raise maoney ( some sovereign funds will not feel as deep pocketed anymore). As hedgefunds do not make money these days the prop.- desks and trading operations will have a hard time delievering positive results. Broker /Bank stocks will be in big time trouble for the next earnings season.

Thats another time and a different outlook to take care off - for now we can expect the test of the 1760 level for the NDX with a minimum requirement of 1800 for this week.

In a bigger weekly perspective we entered wave 5 down and a retest of the March low at 1670 should be due - could happen by mid August but lets first see how the 1760 test will play out. Going forward, since the SOX sector will soon switch to the positive side after a sharp sell off, we entered the final stage of the wave 5 - which should bottom in the 305-20 area soon.

Finally at some point XBD is still due for a test of 110 respectively making new lows but that can also happen in Q.4. Its hard to say since Mr Paulson has now the license to manipulate the markets ( he does anyway the famous PPT reports to him) by the new bill through Fannie and Freddie. For this week the 137 (61,2%) retracement in the XBD could hold but the counter-wave after an impulse wave can go back to 0 (120) even. The risk is that at some point we even will make new lows but the probability it happens in this quarter is 33% since the inflation effect will help them temporarily. We said earlier that one component of the rally would be falling oil respectively commodities , hence it will look like inflation is under control for a few months (just an illusion) - keeps the bond curve favorable for now. That bond-bubble will burst in 2009 and trigger plenty of bankruptcies within 2-3 years.

Oil has finished wave A down and will be in a corrective upmove for a few days. From the 25 down move it should give back between 25 and 38% - thats 6 to 10 up 128 to 132.

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