Strongerhead Weekly Financial Market Analysis 29 Oct 2012

The sales worth waiting for is now on. Many stocks are looking cheap now after the big picture (Dow & S&P500) has broken the support level. But, stocks can get even cheaper if the market continues to slide deeper. How low can it go? Let’s take a look at the charts.

We are into the 2nd week of the down trend, confirmed by EMA. Bears are looking more vicious now with its ability to break its support level (DOW 13250; S&P 500 1425). What could be the possible moves ahead?

Here’s one possible bullish move:
The big picture hit soft support (DOW 13015; S&P 1400) and rallied away from it. RSI is near 40. If it can continue to rally away, the pull back has completed, and ready to move higher.

Here are the possible bearish moves:
This could be just the start of the downtrend (only two weeks old). If this is the case, how low can it go? Of coz, it can go all the way down till all hell breaks loose if you believe the world is coming to an end. But if it doesn’t, at which point will it stop going lower?

Some who believes in Elliot Waves counting (I am not an expert in this area), can consider this permutation as shown on the chart below. NOTE: I’d simplify the counting just to illustrate the concept behind the bearish possibility.

After 3 UP arrows (in Blue), it will follow by a DOWN arrow (in Red). The previous two down arrows experienced a pull back of about 200 points on S&P.

Other form of technical may suggest prices might pause or stop going lower when:
• RSI is in oversold zone (prices are now slightly below 50 only)
• Prices reached the lower channel (estimate Dow 12750; S&P 1375)
• Down reached 10404; S&P 1266

On the daily charts, the big picture is down. MACDH failed to rise above 0 when the market did two attempts to rally. Prices have reached lower channel and bounce last Thurs & Fri. Seem to suggest a pause from a down move. And the pause happened at a viable support level. If the support fail to hold, the bearish possibilities can be crystalised.

VIX (fear index) did has some legs as it rallied into $19 before making a pause. Since the tide has changed, VIX has more room to rally higher. If it fails to stay clear off its current price, means, the BULLs are back in control.

We can’t predict the future. All we can do is to understand the possibilities and make your tactical decisions base on the possibilities to short, long, stay long, stay short, cut loss, or stand aside.

Mid term view:
Market is down. Watch for the various possibilities as discussed above to monitor the bearish sentiments.

Short term view:
Let’s see if the support level for Dow, S&P and VIX can hold, to know if the down move has more legs.

The market does not go down in a straight line. Relief rally / technical bounces will happen. Use it to cut loss, profit take, add short position or watch out for reversal.

NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice.