Monday, September 15, 2008

Still Lots of News Out There That Make Technical Trading Difficult

Good evening, traders. Here are the major indices. The Nasdaq is near strong support levels but the S&P did close below its July lows. A bounce is possible here at any time, especially when you consider the spike in the VIX today and the fact that the put/call ratio spiked as high as 1.70 this morning and stayed above 1.40 all day. There is certainly some fear out there, although I don't think as much is as needed to put in a true bottom. I have a feeling the Fed decision tomorrow could cause a quick, short-covering spike, but again, I think we have more downside to go, perhaps a significant amount, especially if the Nasdaq and Dow clearly break their support levels soon. Any bounce will just be postponing a heavier fall from here.

S&P 500

One reason I think we have further downside to go is that besides the put/call ratio, there are not many signs of extremes in the measurements I follow. My Market Map is nowhere near extreme levels, and the T2108 is just now reaching oversold territory. I would also look for the VIX to get up near 40 or even 50 for a really solid, panic-filled capitulation bottom to possibly be put in. Going through my scans, I was kind of shocked at how little major damage I saw done to charts other than the obvious suspects in the financials. Commodities were hurt, but I really didn't see a whole lot of stocks breaking to new lows on heavy volume. Because of that, I have to assume we have much further to fall before we can even think about looking for a bottom.

T2108 and VIX

With the Fed decision tomorrow and myself having no clue as to how the market will react to it, I plan on sitting things out once again tomorrow. If the financials do rally, I may look to get short a few stocks near resistance points that would give me clear stop loss levels to get out at just in case. I put the XLF below to show where I think it may fail on a rally attempt. I am watching WB, BAC, and C as possibilities as shorts with the same overhead resistance areas as possible entry areas. If they don't get this high or don't rally at all, I will not chase and instead will just stay in cash.

All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

There are a few other setups that I am watching but again am going to wait until some of this news passes and is digested by the market. (WGOV, RBCAA, HOT, MGM, SNDA, BIDU, MSTR, CREE, PENN, OEH, FCFS, FSLR, SQNM, VISN, NETL, GHM, JCG, GTLS, IPHS are on the short list.) We're still in a market where news is trumping all things sensible, including technicals, and it pays to be extra careful in that environment.

Tomorrow will likely be quite volatile once again, so the mantra remains the same. Cash is the best option right now (unless you are already short before today), but if you do have any winning positions, I wouldn't let them run too long without taking profits. Whatever you do, be careful. This is a very dangerous period of time and if you are not careful, you can ruin your account quickly. No need to be a hero. Good luck Tuesday.

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