Daily Trading Advisory 26-September-2008

[Arturo Stern]

DAILY TRADING ADVISORY 26-September-2008


New Home sales plummet, Durable orders sharply lower, initial claims higher than expected and an “agreement” on the bailout plan, which already broke down yesterday’s late afternoon, resulted in a powerful rally for the U.S. equity markets. WaMu rescued by JP Morgan after the FDIC seized its assets.


ECONOMIC DATA


8:30 AM Chain Deflator-final
8:30 AM GDP-final
10:00 AM Michigan sentiment- rev.



YESTERDAY’S MARKETS

Markets rallied on confidence that the bail out plan has been approved. The E-mini SP started the session at 1198.50 and pulled back to 1194.00 where buyers bided strongly pushing the index all the way up to 1216.50 crushing its early resistance levels. The SP pulled back to the 1206.00 area and after trading in a sideways pattern with a slightly bullish bias finally broke up once more. The index rallied strong to our intraday upside objective reaching 1224.50. As news about the bailout plan continued to flow, the markets held strongly near their best levels of the session. The SP pulled back to 1218.99 where another wave of buying pushed the index back up to the daily highs. Once more, the SP pulled back just above the 1216.00 area and try to make a new high posting a triple top. Unable to trade higher, the index sold off to the 1210.00 level where buyers stepped in back driving the index near its daily highs reaching 1223.50. Unable to make new highs and helped by the weakness on the Russell, the SP pulled back to 1208.00 but rallied to 1216.00 before the end of the session. For the day, the SP settled at 1213.50 with a solid gain of 20.50 points, the Nasdaq ended the session with an 8.00 points gain at 1680.00 and the Russell advanced 3.80 points finishing the day at 703.90. The Dow rallied gaining almost 200 points closing the session at 11022.



MARKET COMMENTARY AND OUTLOOK

Last Friday I wrote:”On a quite trading session with extreme low volumes and less volatility, the indexes gave trading opportunities in both sides of the market. As the deliberations at the Congress continue, the picture is clearer; probably the plan will get approved despite the huge opposition and anger between the public and legislators, otherwise Wall Street, which highly contributed to Congress with huge amounts of money during many years, will plummet. Yesterday’s trading session we where looking for long entries as a slightly bullish bias can be maintained at this moment and that will gain some upside momentum during the next 48 hours as consensus for the plan is reached, the first step is to establish prices above the1200.00 area on the SP together wilt the 11000 on the Dow, once markets trade above those levels, the only resistance to get near the 1250.00 level on the E-mini SP during the next days will be yesterday’s Globex highs at 1210.00 that could offer temporary resistance. So for today’s trading session we will continue to work the markets from the long side, an early sell off that gets the SP to the 1193.00-1188.50 areas may be a good buying opportunity. The Nasdaq looks a bit more bullish, and it could continue to advance all the time that the 1648.00 area remains intact, and the Russell, finally will have to join the rally no matter what analyst consider about the mid caps. Take into account that if the indexes are not capable to start a move up then the way for another test of the lows will be open.”

The early lows where posted at 1194.00 just our buying point, however for most of the traders was difficult to get long at those levels as the initial rally was fast and powerful, but our upside bias gave us the chance for many long trades during the session. Yesterday’s highs precisely at our daily upside objective and the nightly reversal in front of Washington Mutual news and the renovated opposition to the bailout plan, has printed a short term high on the daily charts, nothing good will happen all the time that yesterday’s highs remain intact, and the risk to see the markets starting a new leg down and test the 1133.00 area or lower, or print a higher low is still present. Yesterday’s divergences between the SP and Dow, and the Nasdaq and Russell indicates problems for the markets, and obviously the constant release of bad economic figures that clearly point to a recession, plus the political division in front of the bailout plan, should keep markets under pressure. It will be good if the recent range that has been formed between the 1180.00 and 1225.00 areas can hold during today’s trading session. The nigtly sell off has found support around the 1192.00 area and if that level holds, the SP could rally back, but that index will have to deal with the 1200.00 level and then with the 1206.00 in order to resume its advance, on the other side of the coin, despite the fact that there is strong support all the way between 1192.00-1182.00 trading and not holding that band will result in another leg down.

For today’s trading session, the probable earlier lower opening could result in some short covering rally, but be very careful as the move could fail just below the 1200.00 level, also keep in mind that the volatility could return, so placing tight stops on every trade is the best idea until you know that you are on the right side of the markets.




TODAY’S SESSION

As the markets are trading sharply lower, the 1200.00 area on the SP seems to be early resistance, however if the index manages to come back look for a test of the 1206.00 level. If that can not hold and the index trades back above the 1210.00 level, then the nightly sell off could result in more short coverin g that drives the index back up to 1216.00

There is support at 1199.75-1198.00 on the SP that should act as strong resistance if the index opens below that level, getting there once the session has started could be a good selling opportunity, if the index break lower look for additional support at 1192.50-1191.00, those are pivotal so an early test of that level that holds, could result in a 10-14 points advance, however, if the SP starts to trade below that level look for the index to test the 1186.00-1184.50 areas. If those can not hold, a melt down is underway. GOOD LUCK.

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 1236.00-1237.50 1717.00-1718.75 719.00-720.20
Resistance 3 1230.25-1232.00 1704.50-1706.50 714.50-715.80
Resistance 2 1224.00-1225.75 1690.00-1691.00 710.00-711.10
Resistance 1 1217.00-1218.50 1684.00-1685.50 706.10-707.50
PIVOT 1208.00 1686.00 703.60
Support 1 1206.00-1204.00 1675.00-1673.00 700.00-699.10
Support 2 1199.75-1198.00 1666.00-1664.00 695.70-694.30
Support 3 1192.50-1191.00 1652.50-1650.00 689.20-688.20
Support 4 1186.00-1184.50 1636.50-1634.50 681.50-680.00


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
1287.45 1794.34 736.32
1278.30 1782.66 732.68
1263.50 1763.75 726.80
1248.70 1744.84 720.92
1239.55 1733.16 717.28
1224.75 1714.25 711.40
1209.95 1695.34 705.52
1205.38 1689.50 703.70
1200.80 1683.66 701.88
1186.00 1664.75 696.00
1171.20 1645.84 690.12
1162.05 1634.16 686.48
1147.25 1615.25 680.60
1132.45 1596.34 674.72
1123.30 1584.66 671.08



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 1238.50 1721.00 715.10
AS DAILY LOW 1199.75 1672.00 699.70

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