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Friday, September 4, 2009

Less Bad Is the New Good

Just before noon eastern time, on no news that I could find, the dollar started dropping, a drop which was short but sharp. It resulted in a ramp in the market, along with reversals in commodities, and it was off to test the upper part of the range I had calculated this morning. I figured the top to be 1016, and that is exactly where we went. Thanks, guys, no without a decisive breakout or failure, I have no idea what is in store on Tuesday.

Here is the weekly chart. Momentum is slowing, but still going up. The top two lines I drew in are the approximate levels for fibonacci retracement levels, the top one being 50%, right around 1120. That means we have about 100 points we can move up and still be in a bear market.

The Nasdaq is playing out the fibonacci levels like a Stradivarius. It has hit the 50% level, almost to the penny, and sure looks like it is weakening fast. Since this lead on the way up, count n it leading on the way down.

The Dow industrials are quite far behind, which may explain the recent relative strength. This has by far the most upward momentum right now, but has shown no "leadership" except on down trends, where it drops less.

The Russell 2000 is also playing the fibonacci game, and is within a hair of the 50% retracement level. I'll be watching it closely, because a failure could be the short signal of the century, a breakthrough the short squeeze of the century.

The story this week is gold. It broke out of a short term pattern, but touched the intermediate term down trend line and pulled back a bit. It could be catching a breather for a push up, or it could be the start of yet another round of going nowhere. I put in fibonacci lines from the 2007 low to the 2008 high, and am in awe of the results. I have no idea why the fibanacci levels work so well, but so far, they do.

Today's economic news, while not particularly bad, wasn't good, either. The idea that things are getting "less bad" gives me no comfort. We shall see nexr week when we get volume back into the market, but I suspect that a correction that lasts more than half an hour is imminent.

I will have the new highs update shortly.


Anonymous said...

what do you mean a failure of the russell? Do you mean if it fails to touch the 50% line, or if it fails to go through it. Today I finally started making money with my trading system with options on a paper trading account. As soon as I get some more practice with my system and practice now the money management part, Im going to go live with real money. What Im doing is selling vertical spreads for a credit, and letting them expire. I learned this in my options trading class. Its so much easier to make money this way. Thanks for all your support with the questions.
Eddie B

David said...

Hi Eddie,

I mean if the Russell comes close (or hits) the 50% level, then turns back, especially if it does it more than once. I'll have to see if I can figure out exactly where that level is. Good to here the options are going well for you. I've been getting killed buying puts in my paper trading account, they seem to go in the right direction right after I buy them, but within a day or two the market reverses. I bought some calls on GLD yesterday, so that probably means gold will fall apart. It's really amazing how much money you can make (or lose) with just a small position, but options are kind of fun, too, especially when I'm not losing real money.

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