MARKET COMMENTARY

Water is rising. Fishes are swimming. They are swimming your way! How glad it is for me to see the rebound while I am still shorting? No, I am not nuts. In fact the rebound is very healthy. It will give me the much bigger drop later when the rally fizzles. I often talk about the “right season” to fish as a figure of speech for getting into the right moment to trade the financial markets. That season is coming. Let’s wait for the fishes to come closer and become bigger before we drop our lines, hooks, and sinkers.

The rallies in Dow, Nasdaq and S&P will continue amidst some minor pullbacks. It will last for a few days, but may be shorter if it rallies hard and fast. The way to tell the end of this rebound is when the RSI hits the 50 line. Then, I will get ready to fire up my trading engines and strike as soon as I see an unusual, severe sell-off in one single day, say around 200 points of loss on the Dow.

We are in the bearish trend. And I believe we have more bearish moves to come. It may not be in strong, violent crashes that make news along the way. But it’s sure going to keep going until it finds a bottom. Till this time, it has still not been found. This sentiment of mine is echoed in one article at the CNBC.com called “The Market Now: A ‘Violent’ Quest for Bottom.” But what pleasantly surprised me is the fact that there are still people who think the bottom is near and are ready to unload their hoard of cash in the market any time now. I say pleasantly because what these people would have done is creating a false rally. The present abysmal economic conditions such as the higher unemployment rates and inflationary pressure have not been effectively dealt with. I suspect more companies have yet to announce their retrenchment as the country is slowly slipping into recession. So, how could these people reasonably believe that the market melt-down is over? Now, what does this mean to us as traders? BIG fishes!

I have marked the Dow and S&P charts with target resistance levels. I expect the rally to reach the orange-colored resistance line and, if it is broken, all the way to the blue-colored line. In my view, it is likely that the rally may not even make it to the first target resistance area. RSI 50 line is another point of interest. Watch it closely.

BRCM remains the stock to watch. There are more now but let’s do it one at a time.

DJIA Daily Chart

I have originally set 1350-60 as my resistance which is still valid especially if I have to sell a Bear Call. But we may expect the reversal to occur earlier and at a lower level. Continue to monitor it.

SPX Daily Chart

Rebound happened much earlier. That is fine. Now look for reversal near its 1950 level. This is a very prominent and strong resistance.

NDX Daily Chart

STOCKS TO WATCH:

BRCM - Bullish breakout

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