For Sunday, June 11, 2006
S&P 500 (SPX) & Nasdaq 100 (NDX) Timing
Aggressive - Both Bullish, Bearish & Cash Positions
For Sunday, June 11, 2006
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S&P 500 Index (SPX) Chart Analysis
Last week we wrote:
"...The sell-off experienced by the markets was incredibly fast and deep. It is hard to believe it will end with a whimper and, presto, we are in a new bull rally. Anything can happen, but that scenario is not very high on our list of expectations."
This week:
Last week we said "not" to expect a rally. Continued declines are exactly what we had this week. Possibly more than anyone expected and certainly investors and traders are becoming very uncomfortable if they are holding bullish positions.
However, we are now at levels where a bounce is not only likely, but we feel imminent. The below chart shows we are at strong support levels for the S&P. On Thursday we moved below the SPX 1247 support and rallied. Friday was less than stellar and actually was bearish considering the rally from triple digit declines the previous day. But these support levels will likely result in a bounce.
Overall though, the markets are starting to look like considerably lower lows are in the future. This correction may very well be the start of something bigger.
We have moved a long way down in a very short time. There are traders who will be looking to buy at what they feel are cheap prices, and short sellers who will cover their positions and be happy to let the buyers have their day.
We are looking for some rally days here, but when the buyers have their shopping baskets full, the real trend will reassert itself. Our expectation is, it will be to much lower lows than we are currently at.
Several reasons for our bearish outlook are;
The bullish wave scenario we have been watching was voided by this weeks trading. We had considered a bullish 5 Wave rally, but you cannot trade below any of the prior down waves if that bullish pattern is to continue.
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We traded below the Wave 2 low on Thursday and then closed below it on Friday.
Rallies are occurring on low volume and are overwhelmed by selling in due course. this is the reverse of a new bull market rally when buyers overwhelm any attempts at selling.
There has been a divergence between the SPX and a considerably weaker NDX for some time. That divergence has continued in this correction and divergences are usually bearish. We could be looking at considerably lower lows in coming weeks.
Resistance is now at SPX 1247 and then SPX 1228. As mentioned above, we are likely going to rally from these levels. But that would only be a corrective rally in a bearish trend. The downtrend would be expected to reassert itself before too long.
The trend for the S&P is bearish. We are in a BEARISH position in the Rydex Inverse S&P500 Fund (or other bearish S&P index fund).
S&P 500 Index (SPX) Daily Chart
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Nasdaq 100 Index (NDX) Chart Analysis
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Last week we wrote:
"...The NDX remains near its lows. The rallies have been on lower volume. We have been around long enough to know the markets can do just about anything, and usually when you least expect them to. But certainly, it means we must remain cautious here."
This week:
The Nasdaq 100 Index - NDX is, and has been from the start, leading this decline lower. From the moment the NDX closed below 1633 back in early May we were looking for trouble, and that is what we have.
With the exception of a small rally attempt two weeks ago, the NDX has been in steep decline since failing to achieve new highs in early April. There have been several closes below NDX 1577 which was support. We touched the next support, at NDX 1534, intra-day on thursday.
This may be the start of a bounce, though Friday's trading was bearish with another failed intra-day rally. These failed rallies are becoming a regular occurrence. Not a good sign.
We had a divergence between the SPX and NDX before the correction, and now it remains during the correction. The NDX is remarkably weaker than the SPX.
How far down can the NDX go? We are not ready to speculate on this yet. For now, we will say that the odds are good for a bounce from current levels. Too much selling and too quick a decline. We are also at strong support levels. Next week will likely see higher highs.
If the markets continue to decline next week we would be surprised. If it occurs, we would have to consider a crash or at least a severe high momentum sell-off. But this is an unlikely scenario.
After next week's expected buying the real trend will be back. At this point, we have to say it is likely to be to lower lows over the coming weeks and possibly months.
The trend for the NDX is DOWN based on our NDX trend indicators. We are in a BEARISH position in the Rydex Inverse OTC Fund (or other bearish OTC index fund).
Nasdaq 100 Index (NDX) Daily Chart
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.......................Spaf
