Daily Trading Advisory

arturo1

Well-known member
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DAILY TRADING ADVISORY 06-October-2008


Wells Fargo acquisition of Wachovia, ISM Services Index reported at 50.2, Nonfarm payrolls down 159K and Unemployment rate unchanged and the historic approval of the bailout plan gets approval, gave the markets a reason for an early rally that got strongly reversed pushing the SP500 and the other main indexes to lows not seen since 2004.


WEEKLY PIVOTS FOR WEEK ENDING 10-October-2008

R3 1304.00
R2 1262.75
R1 1173.50
PP 1144.00
S1 1086.50
S2 1042.00
S3 1025.25

ECONOMIC DATA
None

WEEKLY RECAP

After closing the previous week with optimism about the government bailout plan, the U.S. equity markets plummeted during this past week between 8 to 10%. Monday’s morning Personal Spending was reported flat for August and Personal Income was up .5%, however markets started the trading session with a big decline. Later the failure by the Congress to pass the bailout plan resulted in a massive sell off, the worst decline on the SP in the last 21 years and the worst day in the history of the Dow Jones. The SP ended the session at 1118.75 above its 1113.50 daily low with a huge loss of 95.75 points. The Nasdaq lost 162.75 points and settled at 1512.00 and the Russell finished the day down by 53.70 points at 650.10. The Dow plunged, down 777 points at 10365. Tuesday’s session markets trey to come back, the indexes opened the session well above the previous close on expectations that a corrected version of the bailout bill could be presented for a second vote and gain an approval. A surprising increase in Consumer Confidence and a not so bad Chicago PMI data helped the markets to trade higher, the session showed great bullishness, just the opposite of the previous session, the SP gained 48.75 points and settled at 1167.50, the Nasdaq recovered 82.25 points closing the day at 1594.25 and the Russell settled at 678.00, up 27.90 points for the session. The Dow came back strong closing at 10850, up 485 points. Wednesday’s session markets traded lower on fears that the bailout plan won't help the economy to escape from recession. Credit concerns reflected in historical higher interbank rates reflected the lack of confidence in the banking sector. Later on the session the release of the ISM index showed the worst decline since 2001, despite this fact, Berkshire Hathaway $3 billion investment in GE and an additional GE plan to sell $12 billion in common stocks to increase capital kept markets above the waters as they fluctuated during the session and settled with relatively small changes. The SP ended lower by 1.50 points at 1167.50, the Nasdaq lost 27.50 points and settled at 1577.00 and the Russell ended lower by 4.60 points at 673.80. The Dow lost 19 points finishing the session at 10831 after a rally of more than 200 points from its daily lows. Thursday’s session, another lower opening, weekly initial claims higher than expected showing a weakening labor market and Factory orders for August that reported a 4% decrease resulted in another major decline, the SP lost 44.00 points and settled at 1124.50, the E-mini Nasdaq lost 68.25 points finishing the session at 15110.50 and the Russell ended lower by 33.90 points at 640.70. The Dow suffered another sharply decline losing 348.00 points closing the day at 10482. Friday’s opening was highly optimistic, Wells Fargo buying offer of Wachovia despite Citigroup objection offering around $15 billion and the confidence that the second vote for the bailout bill will be passed gave markets a reason to show strength despite the job report that showed a loss of 159K jobs during September, but no increase on the Unemployment rate. The ISM Services index only fell by .4% from its previous month. The bullishness lasted until the $700 billion bailout plan that later was signed by President Bush and converted in law, was finally passed and approved with some additions. The early euphoria resulted in a fiasco as markets fell to new lows not seen in many years on some of the main indexes. The SP ended lower by 15.50 and settled at 1109.00, the Nasdaq declined another 32.25 ending the session at 1478.25 and the Russell plunged more than 3% closing the session at 617.10, minus 23.30 points. The Dow erased a 313 point rally closing the session at 10325 with a loss of 157 points.




FRIDAY’S MARKETS

U.S. markets ended one of their worst weeks in all the history. After making an early low at 1121.00 on the SP before the opening, once the job market data was released, the E-mini SP opened at 1134.00, well above the previous close. The initial rally took the index up to 1144.00 from where it pulled back to 1134.00. The downward move resulted in a buying opportunity as buyers stepped strong in pushing the index all the way up to 1156.00 where a triple top resulted in a profit talking move while the discussions to pass the bailout plan took place, the index pulled back to 1139.00 where buyers jumped in and as Nancy Pelosi started her more speech the index pushed strongly higher reaching 1161.00. With the release of the positive vote, the SP sold off all the way down to 1124.50, rallied to 1144.00 and resumed the downtrend testing once more the 1125.00 level and bouncing back up to 1137.00. Unable to break higher, the SP sold off the way down to 1110.75 where the successful test of Thursday’s low resulted in a short covering rally to 1123.50. Unable to trade higher the SP tested the 1114.00 area and bounced back up strongly to 1123.00 where the move held for a few minutes just to continue higher testing 1130.00 from where the index backed off to 1114.50, bounced back to 1123.00 and pushed down to new multi year lows at 1102.00 before bouncing back a bit into the end of the session. For the day, the SP ended lower by 15.50 and settled at 1109.00, the Nasdaq declined another 32.25 ending the session at 1478.25 and the Russell plunged more than 3% closing the session at 617.10, minus 23.30 points. The Dow erased a 313 point rally closing the session at 10325 with a loss of 157 points.


MARKET COMMENTARY AND OUTLOOK

Last week I wrote, on Thursday:” However if the 1161.00-1162.00 area remains intact before the opening and during the session, the downside could get momentum as traders won’t rush to buy one day before the all important release of the monthly unemployment figures.” On Friday:” Yesterday’s decline has posted double and triple bottom on various indexes that does not mean the markets are ready for a rebound. The unemployment data to be released today before the opening, the ISM Services which could show an important decline and the uncertainty about the bailout plan and the state of the economy will dominate today’s trading session. An early decline that holds yesterday’s lows on the SP and the 11400 area on the Dow could result in a good bounce. The approval, if it happens of the bailout plan could also result in a weak rally or even in another test of the 1200 area on the SP, however, it seems that once the initial euphoria, if the bill is approved, finish, the bear trend will likely complete its last down leg. I have been pointing for the 1093.00 as a downside objective for this move, but it could be that the price will be much lower, between 1040-1020 if it happens. It could be that in term of prices this projected levels seem scary, but in term of time it can happen during the next two weeks and then a mid-term rally could last for the next 60 days resulting in a multi-month consolidating pattern. For today’s trading session, it will be a big surprise if the unemployment data does not disappoint, the same is true for the ISM Services number, so the reaction should be downwards, but if yesterday’s lows can hold during the first hour and a half of the session. The way will be open for another run to the 1138.00 level. If yesterday’s lows can not hold, the markets will keep their negative tone and another 30 points drop on the SP that could reach the 1093.00 could be seen.”

We started the session with a clear upside bias as a result of markets apparent ignorance of the Nonfarm payrolls data which point to a higher Unemployment rate and recession and focused on the approval of the bailout plan, however, too much early buying and happiness finally turned in more of the same, selling. Markets normally adjust their selves with higher or lower prices, prior to the economic conditions, and right now, stock markets are already recognizing the imminent recession on the U.S. economy. That does not mean that the indexes can not move to the upside, but at some moment, prices reflect the fundamental factors of the economy, no matter if the technical analysis indicate oversold conditions, or the individual stocks analysis indicates a price of a particular stock as a bargain. This tells us that even if the indexes rally, we are on a bear market, a market that reflects people expectations. I have been pointing to the 1093.00 area on the SP as a downside objective for a short term bottom, but I think that prices should move substantially lower even if we get a reaction rally, two to four days, when this point is reached. I find hard to believe, that the Dow, which already broke below the important 10400 support area won’t test the 10000 level; is not that technically that level is important, but psychological levels has also to be taking into account, the real technical point is around 9700, from where a strong bear rally can start. If that level is reached, the SP should be trading around the 1040.00-1020.00 areas. It could be considered that Friday’s test of the 1100.00 level, the low was 1102.50 on the futures, could result in a temporary low, but at the time that I am writing my report that low and my 1093.00 minimum projected low for this leg had already been violated. The failure to hold Friday’s lows indicates at least a test of the 1070.00 area on the SP, and that level could result in a strong 100 points on that index. On the other side of the coin, if Friday’ slate sell off was a capitulation, thing that I don’t believe because the SP futures did not close at the lows, we could see a 7-11 days relief rally that move the SP back up to the 1200.00 area before the next strong downward move.

So if the markets will make a run, it has to start since the beginning of today’s trading session, even if we have a lower opening, remember that more than 70% of the time, the daily lows or highs are reached during the first hour of trading. So, the indexes will have to hold the early lows and reverse from early losses not later than the first hour, hour and a half into the session. The first obstacle on a lower opening will be the previous lows at 1115.00-1112.00 on the SP and 10400 on the Dow; trading above them, could result in a positive session, of course if the indexes opened above them, they will have to hold on a pullback those levels or place a double bottom at Friday’s lows. The SP is in a capitulation move; this should end in the near time and result in a short term rally, a second test of the lows and then, a long term consolidation. It is very difficult to forecast the lows or the length of the move when markets are in a panic move, but I do consider that during October markets will place an important low, and then, then will see.

For today’s trading session, trying to catch a falling knife or to guess where the low will be is like throwing a coin in the air or closing the eyes expecting to have the winning ticket, fear and emotional reaction to every piece of news dominates the markets, but I will try to let run the first hour of the session and see if we have some kind of reaction rally, a short covering rally. Trading conditions continue to be extremely dangerous and stops are the only weapon that we traders have. However if my AS PROJECTED LOW at 1076.00 on the SP gets tested during the first hour of the session and holds, we can see a 26 short covering rally, so follow closely that level for a long shot.





TODAY’S SESSION

There is strong resistance at 1114.50-1115.50 on the SP, 1486.00-1488.00 on the Nasdaq and 620.20-622.10 on the Russell. Markets are trading right now far away from those levels, but ranges have been overextended, so those levels could be reached. If the indexes managed to get there, going shorts with tight stops could be a good idea, but if we see a short squeezing move after the expected sharply lower opening, then the indexes could go for a test of 1119.00-1121.00 on the SP, 1497.75-1501.00 on the Nasdaq and 626.20-627.80 on the Russell.

Initial support can be found at 1102.00-1099.75 on the SP, 1668.00-1666.50 on the Nasdaq and 612.60-611.40 on the Russell. Those will act as strong resistance in a lower opening; the indexes are already trading below the next support areas at 1094.00-1092.00 on the SP, 1461.00-1458.00 on the Nasdaq and 606.20-604.70 on the Russell. At this time, eight hours before the opening, markets area holding just above my thirds level support areas at1085.00-1084.50on the SP, 1451.00-1449.50 on the Nasdaq and 601.50-599.80 on the Russell. Watch closely those levels, failure to hold them during the first 90 minutes of the session could point for a fast move down to 1078.50-1076.00 on the SP, if that level does not hold look for the 1069.00-1067.00 area to be tested before any buyer appears on the scene. GOOD LUCK.


TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 1140.00-1142.00 1534.50-1536.50 641.80-643.30
Resistance 3 1126.25-1128.00 1518.00-1520.00 634.50-636.00
Resistance 2 1119.00-1121.00 1497.75-1501.00 626.20-627.80
Resistance 1 1114.50-1115.50 1486.00-1488.00 620.20-622.10
PIVOT 1124.00 1504.50 628.70
Support 1 1102.00-1099.75 1668.00-1666.50 612.60-611.40
Support 2 1094.00-1092.00 1461.00-1458.00 606.20-604.70
Support 3 1086.00-1084.50 1451.00-1449.50 601.50-599.80
Support 4 1078.50-1076.50 1430.00-1428.00 593.60-593.00


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
1255.65 1702.52 722.75
1241.85 1681.98 712.95
1219.50 1648.75 697.10
1197.15 1615.52 681.25
1183.35 1594.98 671.45
1161.00 1561.75 655.60
1138.65 1528.52 639.75
1131.75 1518.25 634.85
1124.85 1507.98 629.95
1102.50 1474.75 614.10
1080.15 1441.52 598.25
1066.35 1420.98 588.45
1044.00 1387.75 572.60
1021.65 1354.52 556.75
1007.85 1333.98 546.95



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 1134.50 1519.00 636.00
AS DAILY LOW 1076.00 1432.50 594.50​



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