11/30/2008 6:06:32 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.
In the bigger picture, we're starting to see some nice divergence emerging. While we're still not out of the woods, the last time the picture was as positive as this was in March this year.
At that point we had a rally that lasted for around 3 months. If we are repeating this pattern, we could see a rally taking us to 1150 - 1200 by March or April next year.
In the shorter term, Monday's strong move, broke above the bullish wedge and even closed above the 850 resistance point. We continued higher for the rest of the week on lighter volume as a result of the holiday shortened trading week.
We are now at the next level of resistance at 900 and another downtrend line. For next week, we could break higher towards the next level of resistance at 950 or take a breather from the rise and retest the 840 - 850 level.
Having said that, the picture overall is looking positive as the daily divergences are also supporting the weekly divergences. A breather will occur at some point and most likely that will be the point to enter this market again. A close above 950 will be the signal that stability is returning.
For next week, support on the SPX is around the 850 area and resistance at 900 - 950.
The VIX Picture
Last week I spoke about the possibility that the VIX was making a double top formation, which would lead to a rally in the short term. That scenario certainly seems to be playing out now and we would need a close below 45 to confirm that stability is returning to the market. Most likely this will coincide with a break above 950 on the SPX, if it does happen.
The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place.
NDX Chart - Shorter Picture
As can be seen from the chart, we broke out from the bullish wedge and are now at the next resistance level at 1200. There's still some nice positive divergence on the chart and the Nasdaq and like the SPX, we'll need to see some confirmation of this strength when normal trading volumes return.
With the two markets confirming each other at this point, it adds another element of positiveness to the markets for entering a more sustained rally in the near term. The bigger test will be at 1300 as this level meets two resistance points, the 50 DMA and the downtrend line. A break above this 1300 level is what's required to put an end to the current downtrend.
For next week, support on the NDX is at 1100 and resistance is 1200 - 1300.
Both the SPX and NDX are now on a PRELIMINARY BUY signals
Last week we were stopped out on the SPY but we remain long on the QQQQ's, if the market internals continue to build we'll go back into full Buy signals during this week.
Overall, the market had a positive week but volumes were light due to the Thanksgiving holiday shortened week. If we can see some follow through under normal volume conditions, then that will certainly be a sign of strength and we'll most likely see 950 on the SPX and 1300 on the NDX before meeting some stiffer resistance.
On the other hand a slight pull back to 850 and 1100 respectively (and a holding of those levels) could provide an element of stability by allowing the market to take a breather and enable it to continue a new up trend.
Our internal system is showing that strength is returning in the market (characterized by the Preliminary Buy) but a little more work is required to have us go all in.
Each week is an unfolding that reveals a new piece of information that helps us to formulate a picture for the near term, a lot like an artwork piece constantly evolving. This is what excites me about the markets.
Quote of the Week:
There are two quotes I like for this Thanksgiving week, the first is from John Fitzgerald Kennedy, "As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them." The second is from Cicero, "A thankful heart is not only the greatest virtue, but the parent of all the other virtues."
Feel free to email me at firstname.lastname@example.org with any questions or comments.
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