11/9/2008 8:15:33 PM
Welcome to the Advantage Report, this report summarizes the general market as well as the Nasdaq 100 and issues BUY or SELL signals when the conditions present themselves.
SPX Chart - Bigger Picture
In the bigger picture, not much has changed since last week, we still remain range bound between 850 and 1000. Again we need to see a decisive break above the 1000 level to see a nice rally to the 1090 - 1100 level. At this point, a nice base seems to be forming.
SPX Chart - Smaller Picture
In the shorter term, Tuesday closed just above the key 1000 level, making it look as though it was going to rocket higher but we got the inverse to what happened in the prior week and the market came back into the large trading range with a 10% drop in 2 days on Wednesday and Thursday.
On the surface, it may look negative that we had another big drop, but ironically this adds more strength to the bullish scenario going forward. The reason being that markets need to breathe, when they go too far in one direction, it's like an elastic band stretching, it inevitable snaps back. Retracements add to the stability and foundation of a trend.
Another key feature happened on Friday, the move higher in the face of worse than expected employment figures is a very positive development and it shows that the market is beginning to see a brighter picture ahead.
From a technical perspective, the 900 level is an important place to hold as it represent the 62% Fibonacci retracement level and is also looking like a head and shoulders bottom. The other interesting point is that if you look at the circled area where we are now, it looks very similar to where we were in the latter part of July. All of this points to a positive outcome in the near term. If we were to see a break down of the 900 level, then the pattern will change and negativity will set in again, but that's the less likely scenario from where we stand now.
For next week support on the SPX remains in the 850 - 900 range and resistance at 1000.
The VIX Picture
The VIX found support at the 50 DMA and rebounded, although it's still looking weaker, which bodes well for the overall market. If we were to break above the resistance level at 65, then weakness in the market will return.
NDX Chart - Smaller Picture
The Nasdaq is similar to the main market in that it has retraced around the 62% Fibonacci level also and has found support around the 1250 level.
There is a potential for an uptrend developing here, a close above 1400 will be the next positive sign.
Last week I mentioned that the 1280 - 1300 region was an important level to hold. We went lower than that but it is still within tolerances and the picture remains positive.
The system is on a full BUY signal now for both the general and the Nasdaq markets. If you have not gone long yet, it is still a good point to enter or even add to positions.
As discussed above, the market has had a healthy pull back now and has helped the participants to not get too complacent. If the lows hold here, then for the rest of the month and potentially into December, we'll see a healthier market.
As a side note on timing the market, while we'd all love to be able to enter the market at the absolute top (for a short) and bottom (for a long), in reality, that's speculation. No one knows with certainty when these points will occur, it's only ever in hindsight that we can know when the perfect time was.
A good timing system allows for the market to go through it's swings and enables sufficient time to pass so that the market forms either a solid top or a stable bottom so that a trade can be made from a firm foundation. As traders or investors, we are then able to capture the larger moves over a 6-week to 2-month period and not be bothered by the daily gyrations.
What his means is that you accept that you most likely won't get in at the perfect entry point but that the system will provide you with sufficient movement in the right direction to produce an overall reasonable profit. This is what we aim for in The Advantage Report.
Quote of the Week:
The quote this week is from Benjamin Franklin, one of the Founding Fathers of the United States. He is also known for his scientific inventions such as the lightning rod, bifocal glasses and glass harmonica. He's the face seen on the US$100 bill, "The possibilities are numerous once we decide to act and not react."
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