NDX (Nasdaq 100) found precise resistance at 50% projection October, 1807.15. Consistent support for the past five days was the 5 day moving average, now at 1790. That's your momentum MA and it held up very well as put sellers worked hard at pinning the 1800 level by the end of the week. As mentioned on Friday, I think we should do a quick pullback to the 10 DMA, now 1766.50, which is also the old 2006 highs established in January (NQ 1770/1775). This bellwether tech index has now climbed 10% off that 2005 close, a few percentage points shy of the S&P, which is up 12%. My guess is NDX holds 10 DMA support after a brief consolidation and goes for next resistance at 1821, which would also correlate nicely with NQ (NDX futures) 1830 price objective outlined last week. If 1766 does not hold then the highs could be in and we are in for some nasty weather as the bull flag pattern of pullbacks in place since September gets negated. So there is your line in the sand, trade accordingly. A break below 1745 would set up a chain reaction of sell-stops, not very likely before January, but set your alarms just in case. There is the distinct possibility that some investors will decide to take the tax hit this year as opposed to waiting for a possible hike on capital gains and dividends by a democratic congress. In fact, I think this distribution is going on every day at the open.
VIX 10 and VXO 9.85 accompanied by an equity pc ratio of .47 are the harbingers of a correction. Don't get burned by ignoring this latest development. Chart.
It is a little disturbing that NDX/QQQQ lags SPX for 2006, even if it is only by 2%. Techs should be ahead of the broader market in percentage gains by this time of the year and they are not. Furthermore, financials have not made new highs as the BIX closes below its 10 DMA after a somewhat inconclusive test of the important 20 DMA level. That index is still in a solid upward channel, nevertheless put it on our radar. The DOW is cracking new all time highs, but keep in mind that it is a price weighted index and only a couple of stocks have actually made all time highs. GE is still down significantly from 2000. Very few investors actually bought the DOW itself, so they are still behind their 1999/2000 holdings if they held on at all. The erosion of the dollar over the past few years is another supportive argument for the secular bear market proponents. If you take your savings from 2000 and moved to Europe, you have lost another instant 30%.
It is still a trader's market and buy and hold investors must constantly be on their toes and shuffle their holdings to keep up with sector rotation. But perma-bears should also lose the silly idea that we will one day test the 2002 lows. Even a 20% crash would not come close. Next year, we will wrestle with stagflation or just plain inflation, so don't fall in love with what you have now either.
VIX 10 and VXO 9.85 accompanied by an equity pc ratio of .47 are the harbingers of a correction. Don't get burned by ignoring this latest development. Chart.
It is a little disturbing that NDX/QQQQ lags SPX for 2006, even if it is only by 2%. Techs should be ahead of the broader market in percentage gains by this time of the year and they are not. Furthermore, financials have not made new highs as the BIX closes below its 10 DMA after a somewhat inconclusive test of the important 20 DMA level. That index is still in a solid upward channel, nevertheless put it on our radar. The DOW is cracking new all time highs, but keep in mind that it is a price weighted index and only a couple of stocks have actually made all time highs. GE is still down significantly from 2000. Very few investors actually bought the DOW itself, so they are still behind their 1999/2000 holdings if they held on at all. The erosion of the dollar over the past few years is another supportive argument for the secular bear market proponents. If you take your savings from 2000 and moved to Europe, you have lost another instant 30%.
It is still a trader's market and buy and hold investors must constantly be on their toes and shuffle their holdings to keep up with sector rotation. But perma-bears should also lose the silly idea that we will one day test the 2002 lows. Even a 20% crash would not come close. Next year, we will wrestle with stagflation or just plain inflation, so don't fall in love with what you have now either.
This entry was posted
on Sunday, November 19, 2006 at 11/19/2006 01:28:00 PM.
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