Home l Broadcast l Market Monitor l Top 10 l Storm Watch l Sitemap l About Us
|
|
|
Today's WrapUp by Ike Iossif 02.17.2004 Mon Tue Wed Thu Fri Archive |
"Weekly Charts"
Last week (2-6-04) I said: "We did get the additional 2% loss in NASDAQ, but the SP held above the critical 1122 level, while all indicators got near the bottom of their range. Last week's action was identical to the action that we have seen over and over since March of last year. We got a sharp internal correction, while giving up very little in terms of price, suggesting that the bull is alive and well. The only element of difference in this latest corrective episode was the total absence of concern, or bearishness on behalf of market participants, no increase in the assets of the Rydex Bear Index funds, no spike in the put/call ratios. Strictly speaking from a technical point of view, since the SP held above trend-line support at 1122, and given the strong breadth that accompanied Friday's rally (over 2000 net advancing issues), in combination with the rising Thrust Oscillators, the odds favoring continuation are better than even! Consequently, as I said last week, we ought to trade on the long side with a stop loss at the support levels indicated in the table below. We got two concerns going forward, one is the lack of total concern among market participants, the other is the fact that the McClellan Oscillator got to the -200 zone for the NYSE. Usually when it gets to that level, we get a rally up to the zero line, and then it turns back down again. In summary, the technicals and the price action are telling us to be bullish. At the same time, the action by the McClellan Oscillator, and the lack of bearishness on behalf of market participants also suggest that we need to keep trailing stops on long positions."
(Current for week of 2-17-04) The indices did rally as I had expected--even though NASDAQ lagged badly--and as soon as the McClellan Oscillators got back up to the zero line, the markets, and the Oscillators turned down. Does this action mean that the rally has failed, or does it mean that the indices are simply consolidating and they will continue higher? Given that all indicators are near their respective zero lines, it means that as of Friday's close the overall technical condition of the markets is NEUTRAL, and for the short term, the odds are almost even between a rally failure, and a continuation. So, what are the signs that will tell us which way the balance is shifting?
First of all, let's take a look at the hourly charts for NASDAQ, and the SP. Notice that both indices are still in rising channels, and neither has violated channel support. In fact, the SP can fall to 1139, and NASDAQ can fall to 2015 without violating channel support. Consequently, we have our first set of parameters for next week. As long as the SP and NASDAQ do not have a daily close below the levels we just mentioned, the trend is still positive, and the balance of power will shift in favor of a bullish resolution for the short-term.
We had a similar set up in late December of 2001. The chart patterns for the QQQ between then and now are almost identical. The price pattern of the last four weeks (lower chart) resembles very closely the price pattern during the month of December in 2001, which resulted in a three day rally and ultimately was proven to be the market's last gasp. Since this is the "weekly report" we are not too concerned with what may happen 2-3 weeks later; we are focused primarily on what we may expect next week. The charts below show very clearly that the current chart pattern could lead to a 3-4 day rally next week, and as long as NASDAQ and the SP don't violate channel support early on, the odds for a rally into options expiration will increase.
|
|
|
|
|
|
Second, I would like to examine the scenarios, that in my view, are the most likely to take place.
1. Keep in mind that NASDAQ, is still in a rising channel, and channel support has held five times the last five months.
2. If NASDAQ rallies on Tuesday, but it fails to close above 2100, watch out for a downside reversal on Wednesday, which could carry into Friday, and it could also result in violation of channel support. (If this scenario takes place, short the QQQ on Wednesday with a stop at 38.)
3. If NASDAQ rallies and by Tuesday or Wednesday it closes above 2100, then there is a good chance that the chart pattern will play out as it did in 2001, and thus, we will get a 3-4 day rally going into options expiration that will take NASDAQ near its previous highs around 2150. (If this scenario takes place, go long the QQQ on either Tuesday or Wednesday with a stop at 36.75.)
4. If NASDAQ falls early in the week but it manages to stay above channel support, and then it rallies, the odds should be better than even, that it will close above 2100 by Friday. (If this scenario takes place, go long the QQQ on either Tuesday or Wednesday with a stop at 36.25.)
In summary, investors/traders need to keep in mind that despite last week's price reversal, once the McClellan Oscillators rallied back up to the zero line, the market can still pull off a positive reversal like it did in December of 2001 and rally over the next few days. In my view, the best approach- -under the circumstances--is to enter the week with a NEUTRAL bias, be aware of the three most likely scenarios that can take place, know what you are going to do in each case, and as soon as it becomes clear which scenario is unfolding, implement the appropriate trade.
There is one last item, I want to discuss, which I believe investors/traders need to pay attention to, especially if the markets rally next week. In January's monthly report we pointed out that the NDX/VXN and OEX/VXO ratios had only been higher once in their entire history, and that was in September of 2000, which did not turn out to be a very rewarding time to be buying equities. Moreover, the last six years every time--with one exception--the ratios got to the level they were a couple of weeks ago, the markets pulled back, unable to make much progress. If the markets rally over the next 4-5 days, then these ratios will be back where they were 2 weeks ago, which means in all likelihood the markets will stall again. Therefore, do not get too enamored with long positions.
Ike Iossif
|
Copyright © 2004 All rights reserved. Ike Iossif
|
Home l Broadcast l Market Monitor l Storm Watch l Sitemap l About Us l Contact Us
