Market Musings for Dec 26th, 2006
DOW had a continuous third down day bringing it back to the support line through which it broke out. Daily chart is still in an uptrend and no reason to believe that this is the top of the trend until the top is actually formed. So I will continue to ride the bull bandwagon and enter longs tomorrow with market strength.
NDX is the weakest of the all indices. It has been trading in a horizontal trading range bouncing back and forth between 1760 and 1820 level. And it broke down through the 1760 level, and I must say, with quite a conviction. It formed a solid good sized candle closing at the low of the day. That doesn’t portend well for the bulls. Purists might cry havoc that the lower support line is broken and now all hell is going to break loose and its the start of the downtrend. Is it? Maybe, maybe not. What an insightful answer :-). But the truth is that only tomorrow will tell. As per the chart, the index has been falling for last 5 sessions. Don’t you think it is time for a rest? Or maybe a bounce? Chances of it going further down are not so good and I will bet for a bounce back or at least a consolidation before it continues its way down. For tomorrow I look to enter longs, but I am not sure if Nasdaq longs will have much conviction behind them. Best option would be to enter longs with tight stops and quick profit targets until the uptrend is firmly established, if it does.
SPX on the other hand is in a very nice uptrend. Coming to an oversold condition and ready for a bounce. I will be looking to go long with market strength.
Conclusions: All in all a good day to go long tomorrow as the indices are oversold on daily time frame and ripe for a bounce back. However, Nasdaq is quite weak. Any kind of bounce in that index will not likely be sustainable. So, I am not sure how to trade tomorrow given this conflict of indices. I am leaning towards longs with tight stops and quick targets.
