AheadoftheNews Blog

The bulls are calling it a breather, the bears are wondering if we are backing off from a major top. The SOX closed below the all important 61.8% fib from 2004 (480.55). This is not what bulls had in mind, especially after double topping at August highs. On a relative basis, the SOX is way behind NDX/QQQQ, and that is never a good sign. QQQQ still has a nice gap to close below at 40.77 (11/17). Weekly S2 is 40.94, around gap open and there is a solid chance we could correct to that zone. NQ has the same gap at 1661.50. Weekly S2 is 1665.50, close enough. Today we found tepid support at weekly S1 and trendline on the hourly chart and we might have more downside given the parabolic rise of the past few weeks. Keep an eye on the COMP as we approach 2200. The area of resistance I discussed Saturday (2265) has proven too much for bulls. Note also the big rise in the VIX as it jumped today above the 10 day ema. Bulls need to be very careful here and booking profits on any bounce at this point would be wise. Selling too soon is better than selling too late.

If bulls manage a close of COMP above June 2001 high of 2264.58, there is really not much resistance until May 2001 high of 2328.05. Bears need to respect the power. There is a solid chance December will be a consolidating period so I still think it is wise to book profits ahead of that. These historically low VIX readings are something bulls can't ignore. However, there are longer term developments taking place that are nothing short of bullish. The key is for the COMP to hold ground above 2200. So watch 2265 resistance and 2200 support.

Chart of the VIX (volatility index). Bulls really need to be careful here. Fourteen days straight trading under the 10 day ema. Even last year, we reversed after ten days and that was a much better growth year. I know fund managers want to get their bonuses, but you do not need to lose your shirt in this reckless pursuit.

Fed minutes spark some short covering, but NQ hits weekly R1 at 1704 and backs off pretty strongly. SOX had an early bid, tagged August highs then backed off as well putting in a bearish divergence. It's always dangerous shorting these winter rallies, but it sure as heck is not dangerous to take some money off the table and I would start doing that here. Oil is still rising, now back above 59 and retail numbers on Monday will break or make this rally. All the good news looks priced in, so stay on your toes if long. I think shorts can start nibbling at January puts.

STATE COLLEGE, PA (AccuWeather.com) -- The big story this Holiday week will be the extreme cold weather. By Friday, it will feel more like January across much of the Great Lakes, Ohio Valley, Mid-Atlantic and Northeast. The lake-effect snow will be so heavy that yard sticks will be used to measure the snow.

The coldest air of the season will blast across the Great Lakes Wednesday Night and into the East Thanksgiving Day. An Alberta Clipper will usher in the cold air, and in fact will spread light snow across the Great Lakes into the Northeast and Mid-Atlantic.

Temperatures Friday will be in the 20s and 30s and factor in the wind, the RealFeel

Market breadth is weakening and NQ along with SOX not making new highs today, diverging with ES and YM. VIX and VXN relative to SPX and NDX showing the same kind of unbridled enthusiasm that killed the markets this summer. Even though we have not reached the lows of late July in VIX and VXN, the gap between volatility and index is actually wider, meaning we are even more extended sentiment-wise (see link). QQQQ p/c ratios for December strike shows excessive call interest from 41 on up, with only some put support at 40. This is just not the time to go long for more than a daytrade. If you rode this train, pat yourself on the back for a job well done and cash your chips, at least until we get a better idea of how shoppers will behave. There is no room for bad news and there could be some coming courtesy of Mother Nature (yes, she's back), with a severe cold front moving in for the weekend. That means higher oil and less shoppers. Cash is a position.

It's going to be about oil if we want to crack through long time resistance. Right now, we've enjoyed enough warm weather to keep a lid on the price of crude, but a cold front is moving in next week, and that could send crude back up to 60. Stay tuned.
From accuweather.com:
Unusual warmth has dominated the month thus far over a great deal of the nation, this week`s chilly snap notwithstanding. But the first half of next week will bring a cold outbreak that will be felt over most of the nation by Wednesday. Strong low pressure will cross the northern Plains Monday and, by late Tuesday, spread over the Great Lakes region. Along its path will spread rain and snow while, in its wake, cold air will pour southeastwards from its wellspring over northern Canada, its leading edge reach Ohio to southern Texas by Tuesday night. Wednesday, the cold will charge into the Northeast behind a rainy cold front as north winds drive the chill south to the Gulf Coast.

Yesterday, I warned shorts about the SOX breakout and it was confirmed today. However, this is too far too fast and NQ has hit weekly R1 at 1660 and is an initial short entry. Furthermore, the VIX has hit an extreme low versus 10 day ema and would indicate a YM and ES short as well. See chart. Participation is not as wide spread as the media would have it, with NYSE new yearly lows (137) topping new highs (134) and the advance decline line showing a bearish divergence, only printing +600. That is lame for a breakout day. I want to make it clear the trend is up and shorting here is only for those that are quick and disciplined with stops. OPEX week is coming and the QQQQ 40 strike is where they might want to close it, with pc ratio at par.

SOX breakout? The semis closed above 50 dma and 50% 2004. Everyone was wondering if and when this group would join the party. Let's see if we get confirmation tomorrow. A close below 455 negates the bullish scenario.

Everyone agrees it's full steam ahead and odds are that is going to be the case. However, stocks are right at resistance and I think we need to do a little backing and filling before we get the next leg up, especially when "everyone agrees" we are going to keep rallying. Case in point, NQ (NDX futures), which has a gap to fill (see chart). The VIX is also at a point that indicates some kind of pullback in equities (see chart). It won't last, as buyers are anxiously waiting for any dip to jump on board. The DOW held on to critical suppport at 200 dma. That index has been the laggard and that is entirely due to rising rates. I think bonds are oversold and any pullback next week in rates will have the DOW go into second gear. In any case, do not short this beast unless you are very quick. For now, buy the dips.

The VIX flashed a reversal signal, so bulls should be pulling back a little. QQQQ hit the 40 target to go short. This is a counter-trend play, the overall trend is up. Keep an eye on the DOW 200 DMA, now support at 10497.50. NQ target on the short is 1610, for YM it's 10482. If you're short ES, there is a gap to close at 1218.25. Oil is back on the radar and in cruise control. Add multi-month high in TNX (Ten year) and some money could be moving out of equities. Those yields are going to be tempting for many managers. The jobs report at 8:30 AM will be market moving.

Let's look at gold, a chart that is becoming increasingly bearish. Head and Shoulder pattern has neckline around 460. Another close below that and gold is headed straight for 440 area, 100% projection head/neckline. Add the 50 dma at 463.50, and gold bulls better show their stuff now or risk losing key support. Inflation is under control, a little too much so if you ask me, but that is what the feds do: they always go overboard. The dollar is rallying and seasonal demand for gold might not be as strong as the economy slows. It all adds up to a corrective period for the yellow metal. The hope for gold bulls lies in a collapse of the dollar, which is a very distinct possibility, but don't bet on it too much.

As I suspected yesterday, we were due for a breakout. YM tagged 10388, not even getting to 10370 area and just rocketed up to 10503. The VXN was the canary in the mine signaling an imminent rally in techs and that is exactly what happened as they took center stage and leadership. ES now has upside risk to 1223, YM to 10560 and NQ to 1617. QQQQ 40 is a serious zone of resistance, with excess call open interest. I would consider a counter-trend short when we get close. Here is the chart of VXN (Nasdaq volatility)and what I was looking at yesterday. Notice how we tagged 18 twice, about 10% above 10 dma and not coincidentally trendline resistance in place since early 2003. I think that trendline will be history soon as we enter a period of higher volatility, which is great for traders. But for now, that potential reversal had to be respected and shorts who did not heed the warning certainly felt some pain today. The flip side is now approaching, with a reading below 15 signaling time to go short NQ/QQQQ again.

The rally off October lows is not falling apart even with the bad news we've had on the earnings front. For now. I note that today's equity pc ratio closed at .72 (CBOE) and that zone has been a rallying point before, maybe tag on a few more pennies. VXN (NASDAQ Volatility)is getting extended relative to 10 day ema, so tech shorts should be a little careful, although the VIX is neutral. We could see a bigger pullback as early as tomorrow. Let's see where it takes us and if it is an orderly correction and safe to buy into. I want to make it clear that I don't see much upside after Thanksgiving, so this is not a longer term call. The week of OPEX is coming (11/14) and everybody bought large amounts of puts last month, so I expect it to be a plus week. Target long entry for YM is 10370 zone. Oil inventories tomorrow and they will be market moving.