1/25/2009 9:02:55 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.
Both the SPX & NDX remains on a Preliminary SELL signal. We've now been long on the SPY since December 3 and the QQQQ since November 5.
Last week was a wild one full of emotional events and the market had a somewhat manic demeanor to it. In the end it was essentially a sideways move and it's still unclear whether it'll be the bulls or the bears that'll come out on top. The fact that the system has not gone into a full sell signal yet for either market, shows that the bears are not yet in control and indecision remains the name of the game
On the one hand the bigger picture remains positive and on the other hand the shorter term looks negative. It seems that the market participants are fearful of all the bank issues but then hopeful of what a new leader can bring to the world. Lets see what the week ahead brings.
As a side note, I was looking at some historic charts and the pattern we're in at the moment resembles the inverse of the late 2006 period. In that case the market was headed higher but the technicals were weakening. Eventually the technicals proved to be right, however had you have been short during that time it would have been painful. This seems to be our experience at the moment with staying with the long side.
On to the markets..
We've had 3 weeks of downward moves and have now tested the 800 level. Last week I spoke about a symmetrical triangle developing, that could still be the case but in any event, we're range bound for now between 800 and 950 and no dowbt frustrating a lot of players.
Last week produced some wild swings but in the end we traded in the next support band of 800 - 850. Looking overhead, resistance at 850 seems stronger than support at 800 and the week ahead may reveal which side breaks through.
We seem to be muddling through this period in a volatile broad sideways mode and at this point there's not a lot to say that this situation will change anytime soon. It seems to be a good time for the credit spread strategy.
For next week, support on the SPX is 800 and resistance is 850 - 900.
The VIX Picture
The VIX clearly shows the manic state that the market was in last week with huge swings on both sides. An interesting thing is that there was potential for the VIX to climb significantly higher in the face of scary events surrounding the banks, but it didn't which could be positive. Another glimmer of hope here is that the MACD seems to be weakening which may help the broader market.
Looking forward, the 45 level needs to break again in order for the market to progress higher again, there is some hope but we'll need to see some follow through this coming week.
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
Unlike the S&P, the Nasdaq has a little more support underneath it and if the 1140 level breaks, 1100 offers some support also. However, like the S&P, the Nasdaq is also trading sideways, between 1140 and 1300 and for now the range bounding is likely to continue.
For next week, support on the NDX remains at 1140 and resistance at 1200 - 1300.
Quote of the Week:
The quote this week is from Tacitus, a senator and historian of the Roman Empire, "The desire for safety stands against every great and noble enterprise."
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