Big test today!
The Dow failed to retake the upside of our band in multiple attempts yesterday but the NYSE held the critical 6,900 line which is our first real breakdown level to be tested. As I said to Members in yesterday’s Morning Alert, if the NYSE blows it the next critical line is Russell 575 and the Russell is, in fact, our weakest index already as they have blown their 5% level (off the top) of 589 (our watch level from Monday’s Post) and now must retake 600 before we can call them turning up.
None of our cover plays triggered but they are still valid and we’ll be watching our trigger points this morning. We did place a bullish vertical bet on the Dow, just in case, as the bullish verticals don’t suffer too much damage on a dip and we are still a bit bearish, even as we do test our 5% lines. The 5% rule (drop from the top) levels for this pullback are Dow 9,600, S&P 1,045, Nasdaq 2,066, NYSE 6,840 and Russell 589. Keep in mind that these are about 66% retraces off the last run from the 50 dma in early October and blowing those levels is a Fibonacci failure as well.
As I mentioned in Monday’s post (aptly titled “Is Momentum Shifting?“), 595 on the Russell WAS the 50 dma already so be afraid, be VERY AFRAID, if they can’t recover as the Russell is our “canary in the coal mine” for the markets (as I warned last week). Sorry to get all technical today but we only had our fundamental argument going for us for the past month so it is kind of exciting to see the technicals finally come together to prove us right!
As noted on Trader Mike’s S&P Chart above, we are aproaching an oversold level, due to the sharp drop to the 5% move and we already have our bounce targets set for Members and we have our upside cover plays lined up so we can take a quick profit and then get the hell out if we fail to break through our bounce zone. Watching that stochastic indicator and how fast it moves from oversold to overbought will give us a good clue as to how real a move us is.
The movement was all down in Asia as the Nikkei blew 10,200 and finally stopped falling at 10,050 with a weak bounce to 10,075 into the close,…
