THE DOT - if this turns orange or red be alert

Monday, September 8, 2008

update on technical outlook for this week

The NDX breakout on Thursday had a follow through today after opening higher initially. That's a very weak price action and hints for more downside, although we are at the 200 week MA. As stated last week, the overall price action of last week hints to a mid-term negative downside move momentum building up.

EEM (I-shares Emerging Markets) on the left hand side as the Chinese chart is pushing still lower and we need another 2 weekly closes at least to call it a bottom, which should be around 30. Slowly, the exit out of higher risk is coming to an end for this inning within the next 2-4 weeks. The problem is only if Fuld from Lehman tries to sell stakes at 2 times book value, if he thinks his bank is so undervalued, he should buy shares for himself, as many he can borrow for but he does not. What I am trying to say is that we are far away from any kind of capitulation and markets are basically sell rally events going forward. In any case, we had reversal day Sequential 13's for the SPX on Friday, which marks a short-term low and today's price action confirms it. I think these are the toughest trading markets, especially in this consolidation phase, where markets gap up and down all the time. FRE and FNM have been wiped out today, although Mr. Paulson said he wants them to stay that way - he is not doing a good job at all - no clue how he ran GS.

Amazing what happened in UAL stocks today because of (so they say) a false report of a bankruptcy. The stock lost 98% of its value intraday - weird stuff - I think slowly they are totally loosing the control.

I do not agree that the Treasury did the right thing - exactly the opposite in stretching the inevitable, they harmed the market place weeks ago when the limits of investments were taken down for FNM and FRE and stocks rallied to above 30's. It was wrong in the first place but that's another issue to discuss.

To sum up today's price action, the fact that the NDX closed the gap same day and even made new lows is negative but nevertheless the 200 weekly MA is a very strong support for now. Although they do not work on the point, we might trade below for a week but we should not close below it on a weekly closing basis. The SPX holds the gap /lap after testing it with strong financials, but so far the price action is just an 'inside' week and has no indication of true strength. We expected a brief rally anyway for 2 weeks and the test of the 1340 SPX level is still possible, but the odds are turning negative going forward. SPX should outperform within this brief rally since it's driven by short covering in financials mostly - but looking on XBD and BKX, I do not see much room to go on the upside. LEH coming with a closure this week might help to gain some momentum. Vix around 23/4 is not an urging force, actually for a low in the NDX, it's too low. A friend of mine put it in smart words today: to the upside the margin is low and the downside the government protects so far - but at the end gravity will find its way (that's what I say). Not a lot of ammunition left for Fed, Treasury and DC.

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