11/16/2008 4:00:31 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, we still seem to be in a general sideways pattern, even though we had a new intra-week low. 850 - 1000 remains the broad range, except that we now have some positive divergence happening in the RSI and MACD, which could bode well in the medium term.
A weekly close above the 1000 mark is the point that will confirm an end of the current trading range, which could still take a few weeks. In any event, the current picture is still consistent with a base-forming pattern.
SPX Chart - Smaller Picture
In the shorter term, the market seems hell bent on switching directions just when it looks like one direction is clear. Monday opened well but finished lower, Tuesday closed lower but just held on to the 900 level, Wednesday smashed through closing at around 850 and negated the pattern described last week about the similarities with July. By lunchtime on Thursday it looked like the market was going to crash again when we went below 820, but then in the last few hours of trade, the market added around 10%! Then on Friday it seemed we going to close relatively flat, but in the last hour it came down to finish the day almost 40 points down.
So where does all this chop leave us? Well on the surface, the inability to break higher is negative, however it seems there is another chance for anyone that hasn't yet gone long to do so. We now have a triple bottom (which doesn't happen very often) and we have the potential of a larger bullish wedge developing. Having said this, the potential for a visit to the 02/03 lows of 775 - 800 is also possible before we get the rally we've been looking for and with this week being options expiration, anything is possible.
For next week support on the SPX is 800 - 850 and resistance at 950 - 1000.
The VIX Picture
Interestingly this week, while the market made new lows, the VIX essentially went sideways between 55 and 65. This could mean one of two things, either a level of complacency is returning in the market, where participants feel that things won't get much worse (which isn't great for the market) or there is some underlying strength that will be reflected in prices shortly.
Next week should provide an answer as to which of these scenarios is correct.
NDX Chart - Smaller Picture
The Nasdaq is now in a very similar situation to the SPX in that both are displaying potential bullish wedges.
We'll need to see a break above 1300 to confirm the bullish scenario and at this point, we could still seem some base building happen before we get our break.
The system has issued a Preliminary SELL signal for both markets.
We seem to be getting close a sell signal but we're not there yet, Thursday's turnaround shows that there's a great capacity for a turn higher in the market, but we'll need to see some renewed enthusiasm to avoid going into a sell.
At the moment, the market is like riding one those wild rodeo horses and it's easy to get shaken off. At this point we're hanging on and we'll see what this week brings as to whether we stay in the rodeo.
As a side note, I mentioned a triple bottom above, bottoms (or tops for that matter) are not known until after the fact and we never know what type we're going to get. We'll often get a W bottom (a double bottom), sometimes we'll get a V bottom and other times we'll get a W + V bottom (WV), known as a triple bottom. We should know soon if we do in fact have this bottom.
Quote of the Week:
The quote this week is from Warren Buffett, "Chains of habit are too light to be felt until they are too heavy to be broken."
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