12/7/2008 7:15:00 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, not a lot has changed from last week, except that we're getting closer to turning medium term positive as is seen by the circled area, also we still have the divergences discussed last week. Note, it could still take another couple weeks to have this picture turn bullish and the first sign will be when we get a break above the down trend line on a closing weekly basis. It's shaping up well so far.
In the shorter term, Monday's big reversal at resistance looked as though we were going to tank again, but we managed to consolidate for the rest of the week and we're now at resistance again. If we go higher this week, 940 - 950 will be the next big target (the circled area).
More weight for a turnaround is building as the market held up reasonably well in the face of negative news. If the market senses that things are going from bad to less bad, that's all it needs to initialize a rally and the technicals are supporting that scenario at this point.
For next week, support on the SPX remains around 825 - 850 and resistance at 900 - 950.
The VIX Picture
The VIX seems to be going sideways for now, a break above 65 will be negative for the market, while a break below 55, will likely have the market rally. If we go below 55, we'll probably see 45 fairly soon.
Looking further out, a close below 45 is needed for a confirmation that stability is returning to the market. That's likely to be the case when a break above 950 on the SPX happens.
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
The Nasdaq held support around the 1100 level this week and finished the week near the 1200 resistance level. Overall, things are shaping up nicely for the NDX also and a break above 1200 should take us to around the 1300 level (the circled area).
In the wider context, a break above the 1300 level is what's required to really put a positive spin on this market.
For next week, support on the NDX remains at 1100 and resistance is 1200 - 1280.
Both the SPX and NDX are now on a full BUY signal.
Last week we re-entered our long position on the SPY and we remain long on the QQQQ's.
The market had quite a good week in the face of a 9% plunge on Monday. Under the circumstances of the last few months we would have continued to slide in the face of the negativity but the fact that we were able to consolidate from the lows shows that we're starting to get to a point where the sellers are becoming exhausted. And we all know what happens when sellers dry up.
Having said that, we're not out of the woods yet, but the picture is beginning to look better that a sustained up move is imminent. Also the fact that our internal system is on a full buy signal now is encouraging. The ultimate sign of a turnaround though, is when we begin to see higher highs and higher lows, that will start when we go above 900.on the SPX and 1200 on the NDX, and that could happen this week.
Quote of the Week:
The quote this week is from the Dalai Lama, "I find hope in the darkest of days, and focus in the brightest. I do not judge the universe."
Feel free to email me at firstname.lastname@example.org with any questions or comments.
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