|Intermediate Term Low Around 1175 SPX|
|Written by L.A. Little|
|Saturday, 25 June 2005 16:07|
There are three trends that one has to consider when trading the market. Long term investors are more interested in the long term trend than the intermediate term and certainly the short term trends. Looking at the longer term charts above, the long term trends remain bullish at this juncture because, on the NASDAQ, the SPX and the DJIA, there remain higher highs and higher lows over the 3-year period from 2002 through now.
If we are considering the intermediate term time frame, I would suggest to you that it has likely changed from up to down given last weeks trades. That hasn't been confirmed yet on any of the major indexes but the evidence seems to support the premature conclusion (Only the 100 highest capitalized NASDAQ stocks traded on the NDX has confirmed this so far).
The short term time frame is something I deal with daily in the Trade Chatter and that is currently trending down.
If in fact the intermediate term trend has indeed changed, then you need to either consider shorting the market or, at the very least, moving mostly to cash to ride it out. Personally I will look for entry points to short the market on the intermediate term time frame. I will do this with both individual stocks, the index proxies like the DIA, SPY, QQQQ, etc., and I will also try to time some leveraged trades in the futures when appropriate.
Realize that there will continue to be stocks that work to the upside, but their risk increases as a result of the trend change. In the near term (next week or two) it is likely that the markets will, at the least stabilize, but more likely, bounce. The bounce provides the opportunity to scale out of long positions if you are still holding them and to setup short entries. If we are wrong on our premature call of intermediate term trend change, then the market will send us a signal by making higher highs. Looking at the shorter term charts from above, on the SPX, a trade back above 1120 would do the trick and 2100 on the NASDAQ. It's not the high probability case, but is a reference point that is needed.
The highest probability case from here is the following:
from which a lower high, lower low becomes quite evident. Of course, if you are nimble you can work the dead cat bounce and or bearish wedge, but if the failure occurs as I've laid out, the ability to get in early and get out reasonably quick will be key. If I'm wrong, then the squeeze that occurs on a move past the early week highs will likely be quick and ugly and rewarding if you are smart enough to be long is such a situation. I won't be as it's the low probability play from here.
|Last Updated on Monday, 30 July 2007 00:59|