12/14/2008 6:32:19 AM
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 touched the top of the downtrend channel last week and finished the week with an indecisive candle. The momentum is still positive at this point but we seem to be in a period where the potential for another dip lower is possible.
We've been looking for a sustained rally for a while now, but at this point we're still forming a bottom. Watch for a cross of the MACD and a close above 900 for confirmation of a medium term rally.
In the shorter term, we raced away on Monday with a break above 900, making it seem as though we were going to break the 50 DMA, however the rise wasn't sustainable and we fell back below 900 the next day. The rest of the week was essentially back filling, although Friday's finish was encouraging.
Having said that, we now have a symmetrical triangle pattern on the above chart and this represent indecision. Generally what happens in these situations is that if we close below the uptrend line, then it's bearish and if we close above the downtrend line, it's bullish.
With some big news items expected this coming week, no doubt this pattern will be resolved. At this point it's unclear which direction will win.
For the week ahead, support on the SPX remains around 850 and resistance around 900.
The VIX Picture
The VIX is confirming the indecision of the main market by also being in a symmetrical triangle pattern. A break above 60 will be negative for the market in the short term, while a break below around 53, will likely have the market rally. If the 53 level breaks, the 45 level is likely to get tested.
Looking further out, we still need a close below 45 to confirm that stability is returning to the market and while the current climate continues, that's unlikely.
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
While the Nasdaq closed above 1200 for the week, it's still at a resistance point as the overhead downtrend line shows. Overall, the Nasdaq is in a symmetrical triangle pattern like the S&P and so the picture going forward is unclear.
A break higher from here should see us head for the 1300 level, while a break lower is likely to go back to 1100 at least.
For next week, initial support on the NDX is around 1160 and resistance is around 1240.
Both the SPX and NDX remain on a full BUY signal.
While our systems remains on buy signals, there is evidence of the internal indicators getting into over bought territory. Having said that, the short-term momentum is still up and we could simply consolidate a little more before continuing higher, but it's a tender time.
The week ahead is options expiration and when we combine the big news items expected with this, we could get quite a wild week. In addition, with the market in an indecisive stance, we could get an even bigger movement as the majority pile into the side that breaks.
We could be in for a very interesting week!
Quote of the Week:
The quote this week is from Pearl S. Buck (a Pulitzer-winning American writer), "The young do not know enough to be prudent, and therefore they attempt the impossible - and achieve it, generation after generation."
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