Market Commentary

The market fell on Friday after a strong rally the day before. Apparently, the barrage of negative news had crimped the bullish momentum. More negative news had been released on Monday in Asia. The rally will likely fail to have any follow-through anytime soon. It will really depend on the market performance when it opens for trading later.

Continue to monitor the support line. This is a critical point. If this is breached, it will be a sign for bearish momentum for the rest of the week. If you have a long position because of Thursday’s rally, I suggest the you cut your losses and go short immediately. This may be a chance to recover. If you have not taken any position, wait for the breakout of the support line, too. Short it when it occurs.

The market is very turbulent. It is hard to maintain any view at any time. One thing can be certain. Continue to short regardless of the market condition can be a valid strategy to rely on.

Good luck!

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MARKET COMMENTARY

I feel obliged to make some comment today. We are in a very uncertain time after the markets made a strong move on Thursday. There is question whether or not we have bottomed out. I see two equally strong arguments for either side. One camp, particularly from the fundamentalists or pessimists, is voicing for caution to believe the market has bottomed out. The other camp, which is equally represented by both the technical and fundamental theorists, said we have seen the bottom.

In my view, I believe the market has ceased to make huge drop, barring further unseen circumstances. We may see temporary stability for a while, perhaps until end of the year 2008. I wouldn’t dare say that it would not sink further but it is less likely for now and less drastic. This explains why I recommended some students to take Bull Put position yesterday should the market rally. My take is that the market will begin to drift sideways.

Remember, as technical trader, we don’t hold our opinion to death. We are opportunists and only act to profit from certain technical pattern. If the pattern changes, we change our views AND position as well. I deal with the present and do what is necessary to reflect the existing mood of the market. In order to make money, I need to assume a position, guided by the best information available to me at that time. If my projection is right, I make money; if I don’t, I lose money. That is as simple as that as a trader.

My current view is sideways. I am going to do what is needed to make money in this trend. I hope you do, too.

SPX Daily Chart

It is very obvious in the SPX chart that it bounced off the low of October. Volume was high and significant, making this rally solid and supported. It created a strong support line starting from the low of October. Based on the chart setup on Thursday, it may stop moving higher on Friday but it should not fall back below the support, at least for now. But then again, another day of rally is still possible. Nevertheless, the rally will be short-lived. Hence, trading in this turbulent time can be difficult. We will have a lot of uncertainty while the SPX is trading in range. All you need to remember is to watch the support and resistance lines and the RSI’s 40% and 60% lines.

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[Dear Readers: This will be my last blog update as I’ve figured that I was no longer serving any purpose in writing here. My original plan to attractive a pool of like-minded traders to exchange trading ideas is not forthcoming after almost 8 months blogging. If you wish to ask any question and share information privately, do send me an email to keong@celestialoptions.com. I shall reply. Thank you for putting up with me so far.]

MARKET COMMENTARY

The market has rebounded nicely. This can be an optimistic expectation of a further rally arising for the US election. The mood is quite good and less fear. Hence, you can see the rather orderly pattern in Monday’s trading.

Chart wise, the Dow has broken its 20-days moving average which I consider a healthy rebound. Due to the bearish sentiment earlier, I actually expected a reversal there. Now, it looks set to rise to 50-days moving average in just a few days ahead. I will expect a reverse from this rebound and a return to bearish trend. Anyway, don’t be surprised if the reversal occurs earlier than that.

Overall, the market is more calm and stabilized. This will dampen the volatility. I expect to see more dip in the volatility index ($VIX). Therefore, this will not be a good time to buy any options, be it call or put. I would prefer to wait for the turnaround later.

In the medium term, I would expect the market to drift sideways. This may last up to three months. We options traders will have good opportunity to gain from sideways strategies such as Iron Condors, Butterfly, etc. Make sure you mark your support and resistance wisely. Now, we have a great opportunity to sell Bear Calls on all indexes when the current rally ends. Take your pick.

DJIA Daily Chart

The Russell will fall short of making it to the 50-day moving average in this rally. It will stop at the high of last bullish wave. Furthermore, it has also ran up much faster than the Dow and S&P. It is only natural for it stop earlier.

RUT Daily Chart

The Nasdaq, too, will not rally very much higher comparing to the Dow. I have come up with the following support and resistance lines.

NDX Daily Chart

STOCKS TO WATCH:

NA

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MARKET COMMENTARY

Alright, we have a rebound. And I like the magnitude of the rise as it had reduced the tension built up over an extended period of bearish push. Given a number of potential positive news to be announced on Wednesday and on Thursday, we can expect another round of Bull Run. Be careful though, it will not be a smooth run. Many traders are looking for this opportunity to unload their stocks. Profit taking activities may create big whipsaws.

I have marked a resistance line in the Dow chart. Though this may not be a strong resistance, it presents an identifiable area of a possible reversal target. Depending on the sentiment, the 20-day moving average is also a resistance area. Just as happened before, the Dow may reverse right here after making a shot to get to the 9500 resistance line. If this happens on Wednesday, we will have seen the end of the bullish rebound and Thursday will be the day for the next bearish wave. I am going ahead of myself. Let’s watch what develops from here.

USO is weak. The breaking of the down trend is slim, it seems.

DJIA Daily Chart

The Russell’s momentum is lacking. It may not even be able to break the down trend line to reach the resistance line of 550. This index is more bearish than I thought.

RUT Daily Chart

The Nasdaq is looking at breaking both the down trend line and the 20-day moving average. If so, we may see the index to hit first resistance line at 1350. The next resistance line is around 1480.

NDX Daily Chart 

STOCKS TO WATCH:

NA

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MARKET COMMENTARY

Yesterday, I have indicated that the markets are in the diverging from the technical indicators. That would be sign for technical rebound. If the futures markets are any indication, we will see the much awaited rebound today. My hope is that the market will continue to rally for a couple more days. This is not because I would like to profit from the bullish move, but to give me a better entry point to sell short later. Don’t forget, we do not know how long is the rally going to last. It could surprise us with losses.

The Dow chart shows clear divergence between price and indicators. The rebound that is likely to occur on Tuesday should be strong. Do watch out for surprise reversal just as those happened in the last couple of weeks. An orderly rebound is healthy and allows us to take short position more easily later. If this is the case, watch for the reversal near 20-day moving average.

I think the bottom of United States Oil (USO) has been reached. This is a relatively strong support. Though it does not prevent the ETF from breaking it later, a rebound at this level is timely. But do not buy any call option yet. The ETF is still in a bearish trend.

DJIA Daily Chart

If anyone wants to go long or to buy call options hoping to catch rebound for a quick profit, RUT is a better index to bet on. It has sunk deeper than other indexes and is more volatile. Rebound can be strong. Think about it

RUT Daily Chart

The Unites States Oil chart, too, is poised for rebound. This chart is rather unique in that it has been very steadily declining. I am trying to catch the breakout of the trend line.

USO Daily Chart

STOCKS TO WATCH:

NA

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