COMP lost 2300 again and it was downhill from there until it stopped at 50 dma, now critical support (2247). It was just too much bad news and the bulls dropped the ball. Oil hit 69 (March contract), earnings projections disappointed and there were no buyers to be seen. Option expiration players tried to hold us up as all those puts went in the money, but their efforts failed and they were forced to cover the puts they sold by shorting the market adding to the pressure. It was ugly.
Where do we go from here? Short term, YM could find support at 10662, 50% (see chart 1). QQQQ will most likely also find support at 41, trendline off October low (see chart 2). Longer term, be aware of that gap at 39.35 which will be filled at some point. That would be a 10% correction off highs, nasty but a good long term buy. I am noting an inordinate amount of puts lining up for February expiration as pessimism mounts. In fact, the QQQQ FEB 41 strike has 359K puts to 29K calls, given us a staggering ratio of 12.38. The 40 strike has a PC ratio of 6. This is extremely supportive and although we might go down and close that gap at 39.35, I would definitely be long going into February IF we are at those levels.
How could bulls pull out of this? Simple. The Iranian crisis gets resolved. Add balmy weather (see link), and oil could be under pressure soon. That's one. Secondly, we have more earnings to come, especially TXN and GOOG, not to mention MSFT. Any good news there and shorts will cover. Lets not forget the Feds who might come to the rescue. So bears should enjoy the show for now, and there is more to come, but in February, depending on where we are of course, bulls could take over again. Right now, we need more optimism to wind down in order to put in a bottom. Those excess bullish advisors were a red flag, no doubt.
This entry was posted
on Saturday, January 21, 2006 at 7:36 AM.
