Thursday, October 18, 2012

point 25 ???

The top chart is a daily chart of the Dow industrials and the bottom chart is a daily chart of the QQQ's, the ETF which tracks the Nasdaq 100 index.

In this post last week I suggested that the Dow was rallying to point 25 of its domed house. The top of a domed house usually looks like a lopsided head and shoulders top and that so far is a good description of the Dow's  price pattern over the past month. Currently this average is not far from its bull market top which was made on October 5. The October 5 top hypothetically was point 23 of the domed house and a potential bull market top. The market may well now be establishing its point 25.

In addition to the bearish hints I cited last week let me point out that the speculative sector of the market as represented by the QQQ and by the Nasdaq composite index (whose chart looks pretty much the same as the QQQ chart) is now also behaving bearishly. While the Dow and the S&P 500 have recovered almost all of their drop from the September 14 and October 5 tops the QQQ is lagging badly. In fact the latter average has already slipped below its 50 day moving average which seems to be rounding over and about to turn down.

This situation would lend bearish emphasis to any drop in the Dow and S&P which takes those averages below their October 12 low points. Such a drop would probably be the start of something much bigger. If this really is a domed house the minimum downside target would be the June 2012 lows while the standard target would be the October 2011 lows.


Win said...

Possible, Carl. Very possible. But I closed my shorts yesterday and am cautiously long now. I think we might just get one more leg up.

Win said...

$SOX (risk measure) looks to be bottoming.

To clarify the previous comment: I am lightly long Gold, Sox and solars. I expect to add longs tomorrow, on a little more downside.

MA Waheed said...

S&P500 has a key level of 1455. Thats the highest contract volume for this month. If that level breaches with a solid bearish engulfing candle, negativity will prevail in the coming days.

Win said...

I agree with some continued range bound trading here, Carl, but with sentiment like the above, a bear market looks a bit unlikely to me.