Click chart to enlarge The Dow didn't quite reach the bottom of the channel, but we did at least buy a small amount of SSO on the dip. We'll sell that same amount if the Dow reaches 7600 or so. The top of the channel is currently at about 7700/8000, depending on whether you view a log chart or arithmetic chart. Either way, the line parallels the moving averages, giving its slope further validity. This resistance line connects points from September, January, and February, which we believe makes it long enough to be showing up on screens on trading desks everywhere. In this range (7700-8000) is where we think the current Madoff rally will pause. We may have a retracement of some of the recent gains before making it to the top of the channel, but the odds do favor a return to upper 7000's.
From there, it's anyone's guess as to whether we break out and move higher, or retest the recent lows. The poll we have in the left sidebar of the blog suggests that investors remain bearish. Of course this is a small handful of voters, but the votes are more decisive than in previous polls. The majority of our readers believe we're ultimately headed for new lows. We hope this is the case, as we've been looking for a washout move significant enough to convince investors that we've hit a permanent bottom, giving them confidence to re-enter the market for the long term. We think that when the eventual recovery happens, both for the market and for the broader economy, that the snap back will be fast and steady. Everything today takes fractions of the time it took in the past. The market may collapse faster, but if our common sense is any guide, the speed of the recovery will be equally unexpected.
13 comments:
The problem with this exact 7600 number is we have strong resistances in front of us below 7600. For example the lows from November at ~7400. And of course the last consolidation between 7200 and 7400 from the end of February. So, if I were you I do think about when to sell, likely maybe below 7600 (for a small loss, because you averaged down, didn't you?).
Just a thought...
There is a hell of a battle going on in real estate. SRS has been bouncing around 60-66 the past couple days. I've been trading the heck out of SRS (and URE too) since IYR formed a new rsi resistance line. I'm still assuming IYR is going to break through the resistance eventually, but in the meantime this is providing yet another example of how rsi support and resistance lines create good trading opportunities.
Snot,
When do you think I can buy Apple for 14 cents as per your prediction.
I am still waiting for decent entry PPS.
Anon, your silly 14 cent remarks are junking up the blog.
"junking up the blog"? isn't that what the comments section is for??
just my $.14
(sorry. i just can't help myself)
but on a more serious note, the s&p just bounced off of 77x, i'm seeing little wedges all over the place (s&p, iyr). are we done popping already? icon, you still think we'll make it to the end of the week? snot, you still see 7700/8k? i'm not convinced.
Icon, what chart do you use to identify RSI support and resistance, daily chart, hourly chart, 5-min chart? Thanks.
Here is a link to the exact style of chart I used today at lunch to draw out an rsi resistance line that intersected XLF at 8.66:
http://stockcharts.com/h-sc/ui?s=XLF&p=D&yr=1&mn=0&dy=0&id=p31600454804
(Note that XLE produced a similar phenomenon today, and ERY would have been a good play too.) I chose FAZ because FAS just had a big run so I figured it would have the most violent snapback. I already dumped it though because I was up 14% so quickly. It didnt expect the snapback to be that big.
I am still of the opinion that the rally isnt done yet. If you look back on the runup in late nov, early dec, you can see that XLF pulled back and gave up half its gains on each rally, before failing its test of the 50dma. Right now we're testing it without even one pullback, which seems pretty bullish to me.
I want to see XLF actually touch the 50 dma. Maybe even flatten or reverse the direction of the 50dma. Financials havent spent a day above the 50dma since last what, september? lol. One would have to be a fool to think theyre gonna charge right through it now. I think XLF will break its 50 day, but it normally doesnt happen without some consolidation first. The process should take at least a month to play out, and it should look a lot like what we saw last august. Until that happens I expect financials to continue the 2-2.5 month collapse / consolidation pattern. We're in the consolidation phase, so XLF will likely trade around $7 for the next 2 months if it doesnt show considerable strength this week.
Sorry, not to be confusing, that is the right chart but it is the wrong symbol. I was looking at IYF. When IYF was at 32 today at lunchtime, I saw that it was sitting right on a potential rsi resistance line, and that was why it was having a hard time advancing past 32.
One could look at the hourly or 5 minute charts but I prefer just to use the same chart for everything. But minute charts annoy me with their useless clutterand noise. Ultimately it doesnt matter to me, I can and will use a weekly chart too. In fact I used it today to check on my 765 target for the end of this week. It still checks out. As long as we're above that, I'm short.
...and this is why I refuse to buy any GS, even knowing they have the inside track in this race. Sure, they'll best everybody else, but I don't believe they are playing fair. It's one thing to make money on competitive investing, another entirely to be first in line to the tax payer funded bailout. This is truly rarefied cronyism.
I'm getting a buy signal on one of Gary's picks... LPHI. Target price is 18.99.
I like this Iconoclast guy. What does SRS do from here...at a crossroads.
I bought back some SRS today at close, but I am expecting to be able to buy more at 58 tomorrow. I'm still waiting for it to be whipsawed down into the 40s, but SPX is facing major resistance at 790 and even more at 800. I can see IYR hitting its 50dma the same time SPX hits 790, and I'll be somewhere around 40% invested when those numbers hit. Note that the 50dma for IYR is falling very rapidly, and will continue to fall very rapidly for the next week. In just a few days IYR's 50dma will be at 28, which lines up with an rsi resistance line. What worries me is that there isnt much hype behind this rally. The "A Rally No One Believes In" meme seems to be pervasive. That could prove dangerous for shorts. So I expect to go underwater for awhile on SRS, and will be forced to hold back at least 60% of my cash for damage control.
One other thing... a dirty little secret: I confess, I've been buying LDK the last couple days. I've got one buy signal and will get another one if LDK closes above 4.65 tomorrow. My target is 5.75.
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