Daily Trading Advisory 22-January-2009

[Arturo Stern]

DAILY TRADING ADVISORY 22-January-2009

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World’s banks collapsing and close to a global nationalization as Obama’s team readies a rescue plan, IBM Corp. providing a better than expected profit outlook for 2009 after reporting strong fourth quarter earnings, United Technologies topping earnings consensus, GE fourth quarter sales down 26%, Apple rallies after record sales, NAHB housing market index hitting a new low and Treasury nominee Geithner pledging aggressive action to get economy moving result in a positive session after Tuesday’s huge sell off.


ECONOMIC DATA
8;30 AM Building Permits
8:30 AM Housing Starts
8:30 AM Initial Claims


YESTERDAY’S MARKET
After Tuesday’s huge sell off where the SP posted its daily low at 797.50, markets rallied during the nightly Globex session with the E-mini SP starting the day at 815.50. After a mild pullback to 814.00 and with the Nasdaq joining the move, the SP pushed to a new intraday high at 817.25, just below the 818.00 Globex highs. Then, the SP pulled back to 811.00, just above our updated support area from where it moved back up testing the Globex highs at 918.00 and pushing a bit higher to 820.25. As the new Treasury Secretary started his speech, the SP pulled back to 813.50 and bounced to 818.50. A small double top at that level resulted in another pullback, this time just below our support 808.50 area. The SP bounced a couple of points where sellers stepped in pushing the index down to 800.50. The SP bounced to 806.50, backed off to 802.25 and pushed higher to 812.75 where the rally attempt fail resulting in another pullback that managed to hold at 807.50 giving way for another bounce, this time to 814.00 where the move topped. Another pullback held our updated support levels at 807.00 where buyers stepped in pushing the index up to 816.00, traded in a narrow range and finally broke higher reaching 818.75. As the slow struggling rally continued the SP finally pushed higher reaching 824.50 while the Nasdaq matched its early 1164.50 highs. After a few additional attempts to break higher where the SP and Nasdaq only moved one tick higher and the Dow futures contract fail short of breaking above 8100. After trading in a narrow range near the highs, the indexes finally pushed higher gaining some additional momentum with the SP reaching 830.50 and the Nasdaq 1174.75. A late pullback to 824.50 was met by buyers pushing the SP to a new high at 833.75 and continuing up to 838.50 closing near the highs. For the day, the SP gain 30.75 points ending the session at 836.75, the Nasdaq advanced 34.00 points and settled at 1181.50 and the Russell closed higher by 21.1 points at 453.70.


MARKET COMMENTARY AND OUTLOOK
Last Tuesday I wrote:“ Yesterday’s broad based sell off and continuation downward move was done after the SP broke below the obvious support around 828.00-826.00 where a series of lows were seen during the last two months, after the November lows. With everybody hoping that a rally could get develop for the President Obama’s inauguration act, only a “suckers” rally that left some early birds trapped during Sunday’s Globex session at levels above the 850.00 area was what the markets were able to do. Yesterday was a wide range session where markets broke below the last two month consolidation. If this last down leg will be the one that will exhaust the bear trend, the SP should break below the November lows and probably reach the 700.00 area or lower. However, this bear market has been everything but normal, and if the index is capable to hold yesterday’s lows on a close and run above the 865.75 where the nightly high left an open gap, the next bear market rally could be much stronger than everybody will be expecting, and I am taking about another test of the most recent highs above the 950.00 area on the SP and 9400 on the Dow. Am I mad? It may be, but the madness of the current markets could give way for such a move. The key obviously will be that yesterday’s lows remain intact for today’s close and that the next countertrend rally, if it happens exceeds five days, that is valid if yesterday’s lows exhausted the current move. After yesterday’s huge sell off, there is a chance that the indexes will consolidate during today’s trading session before the next strong move happens, anything but this or a strong reversal resulting from an early low or an opening upside gap will result in additional weakness and selling pressure despite that markets are oversold at the current levels. So, markets are at the crossroads with not other chances that a strong bounce or a test of the November lows.”

We came into yesterday’s session looking for a positive opening as the markets try to show some signs of life after Tuesday’s huge sell off. The Globex high and higher opening, almost 20.00 points above Tuesday’s lows placed the indexes in a good position for a strong reversal, but get sold strongly pushing the indexes down for a successful test of Tuesday’s lows. This test may be seen as the first attempt of another strong countertrend move after the strong sell off seen during the last ten days, and if it manages to last more than five trading sessions could surprise by reaching the 950.00 area. Yesterday’s consolidation and correction rally was expected as it was an “inside day”, the early sell off attempts managed to found support above Tuesday’s lows and if we want to be optimistic markets could be in the process of building a base for an upcoming strong rally, however, the downtrend has been very strong and the markets have a long way to go before calling a short term low.
As the rally came from a successful test of Tuesday’s lows posting a small double bottom, and closed above the 830.50 previous support and now resistance areas, has left the indexes in a strong position, however, if today we have some additional sideways trading and not a continuation pattern, markets will still have a chance to go for another test of the lows. Meanwhile the obstacles for this rally to continue are multiple, fundamental and technical. Many resistance levels will have to get exceeded only to place the SP on a neutral position, 847.00-850.00, 863.00 and then 870.00.
The pattern is clearer in the Nasdaq, multiple test of the 1140.00-1138.00 lows has created a floor for that index, and they have held any sell off attempt, the last thing is a false break below 1138.00 that has been already reversed. More strength could be seen in that index above the 1205.00 and 1220.00 areas. The Dow has been the weaker, and it can continue to test the 8000 level while facing many resistance areas at 8300, 8400 and 8550.
So for today’s trading session, the important fact will be for the indexes to show additional strength, despite any economic news, and after yesterday’s “strong rally” this appears to be the higher probability. Should this rally fail in the next 3 days and resume the downtrend, or it will continue higher, and as I wrote last Tuesday, go for another test of the 950.00 level? We should have the answer during next week. Meanwhile we can expect the markets to try and move higher, so buying the deeps could be the way to go during today’s trading session. Try to maintain a long position when the markets trade in positive territory.


TODAY’S SESSION
Initial resistance is at 841.00-843.50 on the SP, 1186.00-1188.00 on the Nasdaq and 456.00-456.90 on the Russell, trading above them could indicate a continuation of yesterday’s rally pushing the indexes up to their next levels at 848.00-850.00 on the SP 1195.00-1196.00 on the Nasdaq and 459.80-460.30 on the Russell. If the rally stalls there look for some profit taking, around 12.00 points on the SP, however if the markets push above them, in particular during the last two hours of the session, look for some more short covering that could move markets up to 856.50-857.50 on the SP, 1205.00-1206.00 on the Nasdaq and 463.50-465.00 on the Russell.

There is good support at yesterday’s last hour pivot point around 833.50-831.00 on the SP, 1177.50-1176.00 on the Nasdaq and 451.00-449.70 on the Russell. If those can not hold, yesterday’s rally will be on jeopardy as the markets will be on their way for our second support areas at 828.00-826.00 on the SP, 1172.00-1170.00 on the Nasdaq and 445.60-445.10 on the Russell. These are extremely important areas to maintain this bounce alive. Failing to rally strong from those levels will place the bears in control and the indexes could reach 818.50-816.50 on the SP, 1160.00-1158.00 on the Nasdaq and 440.80-439.60 on the Russell. GOOD LUCK


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TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P NASDAQ RUSSELL
Resistance 4 863.25-864.00 1212.00-1214.00 468.00-469.70
Resistance 3 856.50-857.50 1205.00-1206.00 463.50-465.00
Resistance 2 848.00-850.00 1195.00-1196.00 459.80-460.30
Resistance 1 841.00-843.50 1186.00-1188.00 456.00-456.90
PIVOT 825.25 1168.75 447.00
Support 1 833.50-831.00 1177.50-1176.00 451.00-449.70
Support 2 828.00-826.00 1172.00-1170.00 445.60-445.10
Support 3 818.50-816.50 1160.00-1158.00 440.80-439.60
Support 4 812.00-810.50 1153.50-1152.00 437.50-435.70


S&P NASDAQ RUSSELL
FIBONACCI FIBONACCI FIBONACCI
899.98 1257.81 505.97
891.02 1247.19 499.03
876.50 1230.00 487.80
861.98 1212.81 476.57
853.02 1202.19 469.63
838.50 1185.00 458.40
823.98 1167.81 447.17
819.50 1162.50 443.70
815.02 1157.19 440.23
800.50 1140.00 429.00
785.98 1122.81 417.77
777.02 1112.19 410.83
762.50 1095.00 399.60
747.98 1077.81 388.37
739.02 1067.19 381.43



DAILY PROJECTIONS S&P NASDAQ RUSSELL
AS DAILY HIGH 856.50 1205.75 470.80
AS DAILY LOW 818.50 1160.00 441.40

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