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!

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.

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

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

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

There was no reason for the severe market sell-off in Asian market on Friday. The Dow fell 500 points after market opened. In an oversold market, further drop may be limited. What we have experienced so far is unprecedented and considered an exception. Dealing with situation like this, we have to be extra careful.

More selling is possible as the way the Dow chart is telling us. The Dow is not in the oversold zone although the weekly says it is. I am not in favor of any further shorting (long of puts) at this time. In case you have taken some bearish position, you should consider closing the trades when the Dow’s RSI dips into the oversold zone; i.e. below the 30% line. Do note the falling volume which is a sign of cooling off. The breakout of support on Friday wasn’t enthusiastic enough to warrant meaningful extended selling in the next few days. The profit potential of further shorting can be limited.

The oil market continues to weaken. We are reaching a point where we may see bottom soon. If we look at the USO (United States Oil), we can see that the previous low prior to the infamous bullish run late last year till early this year is near.

DJIA Daily Chart

The Russell hit the lowest point so far and formed a Doji. It does look like a rebound in the market. Furthermore, we have a very clear RSI and price divergence. Stay off any short position. Watch the market development.

RUT Daily Chart

The Unites States Oil chart shows the support based on the last low prior to the Bull Run that surged to the peak of $147 on Crude futures. The support is seen at $45 on USO.

USO Weekly Chart

STOCKS TO WATCH:

NA

The bearish wave swept through the market again, renewed its vigor that had subsided last week. I believe the momentum will grow as the CBOE volatility gauge is pointing up again. This is despite some decent earnings from a couple of companies yesterday. Although the market was bearish, it was pretty steady and less whipsawed than those days that swung between 800 to 1,000 points in one day. This is very conducive to the short sellers.

The Dow broke the triangle chart pattern, so had the S&P 500 (SPX). Now I am looking at the last straw which is the common support from the last low to break the market once more. Once break, we are on the new wave of the bearish trend. Based on the futures market data and the higher volume from yesterday, it may just happen as soon as the market opens. This is time to take some positions, my friends.

While the Crude Oil stays steady since it made a new low at 66.58, the gold price crashed again. The futures market has seen the price broke even the last major low. There seems to be no support for the gold at this time.

DJIA Daily Chart

The Russell broke the triangle pattern but stayed above the new support line. But I expect to see that break when the market opens. You may consider buying some put options on this index.

RUT Daily Chart

The Nasdaq was surprisingly more resilient than other indexes. Nevertheless, I guess it still may not hold the line. A break can occur very soon.

NDX Daily Chart

STOCKS TO WATCH:

NA

The market continued to move in a more organized manner on Tuesday. This stability is reflected in the Volatility Index ($VIX) which showed only minor gain in a relatively strong falling market. The Dow had lost 231 points on Tuesday.

The Dow’s triangle pattern remains intact as of yesterday. I am still anxiously waiting for breakout to occur. At this juncture, it is still hard to tell which way it will break out to though there is a strong possibility of another bearish market on Wednesday. Anyway, do watch the 8,600 support for a breakout. When this happens, you can short the market (or long the put options).

Meanwhile, the Crude Oil price has dropped to the low of the pre-bullish run to the high of $147.27 per barrel. The OPEC is preparing to halt production when the member countries meet on next Monday. Looking at the momentum of the price movement, I think the Crude Oil will continue to fall for the next couple of days. A rebound should happen on Monday and the days after. We shall monitor this commodity as I see opportunity to take position to profit from this black gold.

Talking about gold, gold price too has dropped significantly. The talk about gold being a safe heaven for investors in the poor stock market condition has fizzled. I guess the chart is telling truth, not the market watchers. But do look out for a rebound soon. It looks like it is going to form a double bottom soon.

DJIA Daily Chart

Russell’s story is the same of the Dow. Watch for breakout if the market gets really bearish on Wednesday.

RUT Daily Chart

Although there is no triangle chart pattern formed in the Nasdaq chart, I feel that this index might break out sooner than other indexes. This might be a good choice for put options as early as the market opens.

NDX Daily Chart

STOCKS TO WATCH:

NA

For the first time in three weeks, the market was very orderly and unsurprising. It surged 400 points in neat pattern. Certainly, the market became less fearful. This should serve as good news to the value investors. But, there is no guarantee the bear market is over. On the contrary, I think it still has room for further drop. But it should not be as panicky as before. This calm sentiment is reflected in the VIX index ($VIX) which fell 24% in one day. This can be the start of market stability.

Anyway, the Dow’s chart did not suggest further bullish momentum for Tuesday. There are two reasons. First, the triangle chart pattern is still valid. Triangle is a trend continuation pattern. Hence, the bearish trend is not over yet. As I said before, there should be one more crash (which can be regarded as aftershock) before the bleeding stops. Second, the volume shrank in soaring price. This is not a sign of support for the bullish move.

Nevertheless, I am still unsure how the market will react in the next few days. I think we shall wait for it to present itself on Tuesday before making decision. The breakout of the triangle is the tell-tale sign of next price actions for next few days.

DJIA Daily Chart

The Russell index rose in tandem with the Dow. Watch the support or resistance breakout for entry point.

RUT Daily Chart

No much difference to mention for Nasdaq. Do the same as to the Russell above.

NDX Daily Chart

STOCKS TO WATCH:

NA