Thursday, August 14, 2008

August 14, 2008; Bears Need Uptrend Line Break

Breadth closed almost flat yesterday with only about 56% of NYSE volume to the downside which is much less than the 72% yesterday. I can also count a 3 wave correction downward complete. So the signal for a short term bottom may be in. However the data that came out this morning has shot the futures down this morning and it looks like a pretty weak open this morning. So I want to creat a "breaking point" that should hint that wave 2 has topped and wave 3 of (3) is underway. Notice on the daily chart of the Dow above the uptrend line (orange line) that has formed. The market is telling us that this line is important because it's tested it several times. I'd like to see a break and close beneath the trendline, but more importantly I'd like to see a close beneath the previous low that touched the trendline. This level is at 11,388 in the Dow and 1262 in the S&P. A close below both those levels would indicate that wave 3 of (3) is underway.


Anonymous said...

So far at 11:30 EDST the market has once more held the critical level and bounced. Me thinks the market will twist and turn through next week or the week after before breaking down under this support. As the trend line rises day by day it gets harder for the market to stay above it. The onus is squarely on the bulls to produce continuous rallies. It's that or it breaks the up-sloping trend line.

Your blow-off top to 1320 looks more and more possible because of the overall technical and sentiment environment. It is not too far away right now. One more good 200 point day and we could be there.

The R/R short play would be enhanced at that level as well. Diver

Todd S said...

I agree. It just feels that this market isn't ready to give up the goods yet. Not enough blind optimism out there yet. It just feels another 200 point day followed by another 200+ point day where all the bulls are doing cartwheels on CNBC knocking the bulls and touting the worst is over is still needed before a top is in place. That's when the market will give way to the 3 of (3). I think we need a really good piece of news data to kick start that rally. Probably from a bank or something announcing some great deal or something.

And you're dead on, that upsloping trendline is very steep and the bulls have their work cut out for them in maintaining that. And outside of the Nasdaq, the blue chips are having a hard time sustaining meaningful gains.

With all that said, I noticed this morning that the Nasdaq futures chart on the 1 hour+ timeframes is showing a huge bearish divergence on the MACD especially, but also the stocahstics. Plus, the Nasdaq is getting real close to the July highs. This tells me the Nasdaq is about to roll over soon. And that should lead the blue chips down as well.

Look for Nasdaq weakness compared to the blue chip S&P and Dow. Once the Nasdaq start underperforming those indices, that may be the first sign of a top and reversal.

Todd S said...

Correction, I said the Nasdaq is close to its July highs when it's the June highs it is close to.