AheadoftheNews Blog

All is not dark. YM bounced off 38.2% retrace and I'm a buyer above 10732, period. We will take it at the open of trade Monday. SPX closed the year within my recent prediction of 1245/1250. See you next year. Peace.

It seems everyone has decided we will behave like last year in January and get a correction. You know how I feel about "everybody". The correction could very well be happening now and we could rally in January. There is strong put support at DIA 107 and QQQQ 40 and 41. Bullish scenario? The Feds could signal they are done on Jan 3rd, and you better not be short if that happens. I'm not sure that will be the case, but even if they signal only one more hike, markets will take off. There is now enough weakness in the economy and housing for feds to consider a pause. I think they better do so, otherwise, the inverted yield curve will mean something. In any case, an inverted yield curve has always, at 100% accuracy, predicted a slowdown in corporate profits. So it may not signal a recession, but it does tell us profits will lighten up.

YM closes below weekly pivot and it looks like we have more downside. Target is YM 10770/10780, or maybe even 10740 (YM has about a 40 point premium over DOW)

YM (Dow futures) needs to close back above 10850 quickly for bulls to have any chances of making a Santa Rally. Not only is 10848 the 23.6% retrace, but it is also the old descending trendline resistance, turned support and now resistance again. That would correspond to about DOW 10800. Next support is YM 10732, just under DOW 10700.

Nasty reversal as we get the dreaded inverted yield curve, but this sell-off was something I expected. The DOW closed negative for the year.

As winter gets harsher, a prayer and help if you can for the 3 million Pakistani refugees from the October earthquake that face an almost certain death if aid does not get to them soon. This is a tragedy waiting to unfold that will dwarf the death toll from the actual earthquake.

Oil drops on mild weather forecast. Exiting YM short for +12. It could be a gap and crap tomorrow or a lasting push. Hard to tell for now.

A few retail traders tried to push things up but the boyz pulled the plug on the lousy housing numbers. YM short 10970, stop is lowered to 10970, even. 2005 could end on an ugly note.

YM short 10970, raise stop to 10990.

Closing the QM long for +1.10 ($550 per contract).

Rasie stop to 58.35. Target is 59.45, but looking a little light, so locking in some profits.

QM long 57.775, raising stop to 58.20.

They are going to take it down to the wire into the end of the week. I expect next week to see a rally, so by Friday, we should get long YM. Target is still 10809. I like the Feb DIA 107 calls on a push to 10700 zone for DOW.

QM Long 57.775, stop 57.95, sell to close 59.45.

Exited QM long (oil) at 58.45 for +.50 and re-entered Long at 57.775, stop 57.50. YM is stil short in the optioninvestor.com monitor at 10970, stop 10970. Target is still 10809.

Raising QM stop to 57.95, even.

SOX bearish cross of 10 day ema and 20 day sma. If 480.55 breaks, look for a test of 38.2% 473. QQQQ closed the gap at 40.78. Electronic Arts warned in a big way today and semi book to bill is rather uninspiring at .92. I don't see a sustainable rally until maybe Monday, so be patient and don't chase this one quite yet. Watch the SOX and 486 level, August high. YM target is still 10809 (DOW 10750).

Stop is lowered to 57.65.

Intraday update: Long QM (oil) February contract at 57.95 today on the optioninvestor.com futures monitor, stop 57.85.

Game plan for year end at this point would be to either stay in cash, or wait a little longer for a post Christmas rally into first two days of January and exit, the "real" so-called Santa Rally. The coming pre-Christmas week could see weakness, but beware of Friday which could be bullish as traders anticipate Monday 26th. On November 1st, I mentioned that the rally would not find much upside after Thanksgiving and so far that has proven correct, at least for the buy and hold crowd.
The chart of VIX relative to SPX I posted yesterday is not to be ignored. Bonds are seeing their traditional Christmas rally, but again, lots of fundamentals colliding with seasonal plays, which never lasts. Fundamentals will always win in the end and rates are going up at least another 50 basis points.
As for Gold, it could very well go in a freefall if rates go up to neutral or above. Be careful there as well in January.

The attached chart is by far the scariest indicator I have seen in years.

Trouble today for stocks and it was written all over the VIX yesterday (see chart and post). I would wait for support to go long at this point or just stay out (DOW 10700 and QQQQ 41). Those of you who locked in profits on today's morning bounce are happy campers at the close.

Oil collpased, but equities really have gone nowhere. Longer term, oil is a buy, but it seems they are doing some year-end dumping. If the weather forecast changes for early next year, they will pump it up again. Manwhile, there is cold weather moving in this weekend, so the selling here is overdone. Taking a scalp long on oil.

They are running the stops overnight. QQQQ testing 42 again. GM and INTC in the spotlight, as overseas traders bid up.

Bullish divergence on VIX and that signals another volatility bottom, just like in August. We are, once again, at historical lows. Bulls need to cinch up their stops and realize that things are getting dangerous with volatility this low.

NQ found solid support once again at 20 day ema, which was also 23.6% retrace. Still looking bullish above 1715, so shorts need to watch that level (see 60 mn chart, click to enlarge). However, VIX getting low again. See next post.

Quadruple witching tomorrow. Account deficit pre-open will affect the dollar and bonds. Looks like Buffet's bet could be paying off as the year ends. Watch gold futures as they test 500 support.
After an initial movement, the rest of the day could be hard to trade, just like today. They really have been working hard all week to keep QQQQ below 42 and NDX around 1700.
I like a long play in oil, QM February contract (January contract is the one quoted by the media below 60 now, but tomorrow will see rotation into February). Testing the waters with an overnight long on a hit of 60.675, stop 60.425. I believe traders will cover shorts ahead of the weekend as another cold snap hits us. As the dollar weakens, look for Opec to want to hold prices up.

Intraday update: it seems OpEx players want to peg DIA at or below 109 and QQQQ below 42. Keep this in mind if in long positions going into the labor data pre-open tomorrow. If the numbers are strong, stocks and bonds will be under pressure as it would indicate Feds are not done.

The jump after the fed annoucement was on diverging volume and adv/dec line for Nasdaq. We will see tomorrow how the Q's hold up. Option sentiment during this expiration week would suggest we close Friday below 42. Let's see if they follow the plan. The Feds will be watching the jobs data very closely now, so keep an eye on those reports. A strong number will not help stocks at this point.

Intraday update: big push, but NAZ Ad line not participating. Preliminary short entry. This is opex and they will try very hard to bring the Q's back below 42.

Tough day tomorrow. Retail numbers before the open and Feds later on. QQQQ has resistance not far above, but DIA has strong support at 107. There is just not much to play with so take your profits quickly. We might not get a real resumption of the rally until Christmas week. Sentiment is still quite bullish with large amount of calls purchased today at QQQQ 41 and 42. Seems like many traders betting for a fed rally. That never makes me particularly excited.

DIA has more puts than calls lined up at 107,108 and 109. This is bullish for opex week and I would be long the DOW over anything else now.

Intraday update: NQ (March contract) is hovering around 50% from recent downturn (1718.50). Oil is climbing and holding stocks back a little. The DOW 2005 open is 10783 and as long as we are above, bulls will hold the reins, bt it is precarious as YM found solid resistance at 20 dma. To top off all the news that is coming, we are in option expiration week. I will be watching sentiment closely and if it gets too negative, we could have a good rally.

Whatever excitement we open with on Monday, it should be tempered at some point by all those calls sitting overhead. This is opex week and that is the game. We also have November retail sales figures due on Tuesday and the feds the same day. There is some bullishness in the air with the semi numbers we got Friday, but I'm not sure any Monday rally will stick so be quick with your trades. Oil has a bid again and could trade back up above 60 with the London explosion. We're being told it is not terrorist related.

Intraday update: DOW August high is 10719 and I would pick up a long in that area. QQQQ looks like it wants to fill that gap at 41.23. Futures did it yesterday, but it looks like cash will follow, so patience there is warranted. We could even get to 41, so don't rush into longs on evry dip. Opex will try to pin the Q's at 41.50.

Gaps get filled. In any case, here we are, NQ filled the gap perfectly and QQQQ came close at 41.27 (gap close is 41.22). Expect a visit to 41 in the coming day if 20 day ema does not hold at 41.28. There are two more gaps below, the closest one being 40.78/40.91, but I suspect that will be massive support going into opex week as tons of puts sitting at 41. Per my post the other day, you should have cashed in on 42 puts by now. As for DIA, there is strong support at 107, where I would nibble long. Weekly S2 for QQQQ is 40.94, adding to the support there. The oil trade is blasting away at 61.70.
As for a year end rally, I think it will have to wait until the last week of December, or at least after Opex next week. Trading will be tricky and grab profits as you go. I always thought there were too many pundits calling for a year-end rally and now all this optimism is weighing on those chances.

Some resistance is building at NQ 1700. It's now the old July trendline support, lost, regained and lost again (black line on the chart). Call resistance is also building at QQQQ 42 as buyers pile on to calls there, lowering the pc ratio from .75 to .65. All this points to some difficulty for bulls to hold ground above 42. With strong put support at 41, we might very well be confined to a trading range that leaves little room for error. Markets awaiting the INTC update on Thursday after the close. Bulls could regain control very quickly if the news is bullish. If it just re-affirms, it might be a short-lived bounce, as has been the pattern in December.

Intraday update: QQQQ 42 puts should target 41.30 as an exit. Gap close is 41.25 which is also 20 day ema. 41.35, 20 dma is also valid. Conservative trades should exit at 41.50, gap open. The more adventurous can hold until 40.95, but be aware of massive put support at 41.

Finally, bearish divergences caught up with longs. All that bullishness collapsed at the close in a dramatic fashion and is quite negative, even though indices ended in the green. I had a short trigger at NQ 1723, but missed it by 4 points as we were not even able to hit weekly R1. QQQQ now back below 42 and all those calls are weighing on the ability of bulls to hold on to gains. In particular, the failure of the DOW once again to get past 2005 highs and even hold above 10900 is something bulls can no longer ignore. The DOW theory (TRAN/DOW) is starting to take effect and bulls have very little time now to prove to us that they mean business. Oil inventories tomorrow and bulls need crude to slide fast or it will all lie on the shoulders of the INTC update Thursday.

Intraday update: NQ headed for 1723.50, weekly R1. Bearish divergences everywhere, but no one cares. One can be short at weekly R1 should it happen, especially ahead of inventories tomorrow and INTC update on Thursday. But use tight stops and keep an eye on DOW 11K. NDX has surpassed January 2002 high of 1710 and that is a very bullish development should the highs hold at the close.

QQQQ daily chart. Note the three large gaps below, but especially the closest one at 41.24, which would also mean a pullback to 20 dma (41.17). Assuming 42.13 is the high so far, 23.6% retrace would be 41. Lots of support between 40.78 and 41.25. Anywhere in there would make a solid long entry should we get the chance. Weekly S1 is 41.49 and S2 is 40.87. If the pullback is shallow and we don't close the gap, 41.50 should provide support. Just mark those gaps on your charts for the future: they will get filled at some point.

January crude is flying and comfortably trading above 10 and 20 dma's. That is the story and those of us who have been watching the weather patterns have been predicting this for some time. The low last week of 55.75 will probably not be revisited anytime soon, unless of course the economy slows to a crawl. That does not seem to be the case, ask any bond trader as yields keep rising on more fed rate hike anticipation. And they are right. The feds are targeting 4.75% at a minimum, if not 5%.
The weakest link is again, surprise, the DOW. It's the only one of the big three now trading below 10 day ema. Bears need to keep watching the NYSE as it relentlessly tries to get over the hump of March trendline resistance. Keep an eye on that one, 7760. As for NQ, those gaps below look like Swiss cheese and I still expect the one at 1676 to get filled. Watch 1685 weekly S1 support. QQQQ 42 is the battle zone, no doubt. INTC update on Thursday will be key. Optimism is high, I'm not sure we will sell much ahead of that. If we do, buy the gap fill.

This coming OPEX has heavy call resistance from QQQQ 42 and above, so I would favor entering Opex short (long puts) if above 42, or just under. If we correct before Opex and are below 41 and close that gap at 40.78 for QQQQ I would be long (long calls). But keep an eye on open interest for any changes. If you see more puts than calls building at 42, don't stay short above. I won't touch DIA as the picture is muddy, although there is heavy support at 107 and would take a long there without question. Watch NQ futures for a guide to QQQQ. There are three major gaps at 1611, 1661.50 and 1676 that are sitting below and will get filled one day. At the very least we will fill 1676 (exhaustion gap?) soon. Expect a battle at 1685 between bulls and bears. It really is a day to day thing now, so be careful. December could very well be sideways and difficult to trade. I'm also tired of hearing so many pundits taking for granted a year-end rally. There are many profits to protect against the specter of higher rates. Trade the tape, not your bias.

COMP closed above 2265, June 2001 high and looks headed for 2328, should this break hold. NYSE closed right at resistance discussed earlier and that is still the one to watch. The DOW is getting weak in the knees and the SOX held on to gains and some. NQ (NDX) closed at or near weekly highs. However, noting that the new highs in NDX/QQQQ/NQ and COMP were made with a solid RSI bearish divergence on the daily (chart). Will it matter? Has anything mattered? Or as my colleague, Jonathan Levinson commented, maybe bearish divergences are the wall of worry...In any case, oil has found a new life and has 61.40 in sight should 58.80 hold (long from 56.05 in the optioninvestor.com futures monitor, where I post as well). We will see how the markets handle that development. Interest rates are rising and the Feds are likely to keep going until 4.75%, minimum. Don't bet otherwise.

NYSE at March trendline resistance again (7760). Will it break through this time? The weekly shows a negative divergence, but bears need to watch this one carefully. The pullback lasted two days, after which bulls came charging back taking the SOX above key resistance. All eyes on the DOW and 11K, but I think the action in the NYSE is what the smart money is watching.