Tuesday, August 24, 2010

A Fibonacci Morning

(please see previous post for the Fibonacci chart I am referencing)

Based on premarket action S&P 500 futures have been in a range of 1057-1058ish which takes the index to the 1056 level noted yesterday as the next Fibonacci level (the 61.8% retracement).  I've noticed Fibonacci has been 'working' a lot more the past year; I assume the algo's are really in tune with it, and why not.  They are completely based on math, so respecting a mathematical formula would seem true to form.

Now that the S&P 500 is firmly below 1070 I plan to not completely exit the index ETF shorts I put on yesterday until/when the market reaches a far more oversold level.  Looking ahead there should be support at this 1056 area today... and then below that we have mid June lows in the lower 1040s, and then the all important 1010.  Remember, we have been in a huge range of S&P 1010 to 1220 for almost a year now - so until proven otherwise one would want to buy at the bottom of the range.  If we plunge through it, then all bets are off as the downside would be substantial and Hindenberg Omen might come true.   If all that plays out over the next 2-8 weeks, that would also coincide with the worst month of the year for stocks (September) and the month of crashes (October).   But I'd expect a massive defense by the powers that be at 1010 if and when we get there.

As for today's business, I'll take partial profits (i.e. cover) these ETF shorts if it looks like we are going to open near to 1056.  Not only is this near term support, but housing data comes out at 10 AM.  I expect it to be a horror show (where is the Jim Cramer housing recovery?) -  but then again, everyone else expect it to be horrible too.  So it would have to be especially pungent to surprise the market.   A break below 1056 would be a sign to add back to any shorts covered.

In terms of "generals", the main guy who dominates NASDAQ, Apple (AAPL), looks to be rolling over.

Eventually before this move down is over I'd like to see some pain in Priceline.com (PCLN), Netflix (NFLX), F5 Networks (FFIV), Las Vegas Sands (LVS) and Salesforce.com (CRM) [we own all 5] and a handful of other names which have taken the mantle of leadership.  The generals are always the last to go, and thus far these names have barely absorbed an ounce of pain despite 60+ lost S&P points the past few weeks.

Whatever the case, remember that the sharpest rallies come within the context of down moves so Jack must be nimble & quick (especially in this bipolar market with no memory).  If you are neither nimble or quick it's a time to be on the sidelines lavishing in your cash.

Long all names mentioned excluding Apple in fund; no personal position

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