Monday, September 21, 2009

Throw Overs and the Nasdaq

In my recent post regarding the market scenarios, I was looking for some sort of decisive and volatile reaction to the throw over breakouts on the SP500 and Nasdaq 100. Well, we have not gotten that reaction or any follow through so far, and I am still expecting it. If it is to be to the upside, it should be rather weak, given the lack of strength shown so far at this trend line level. If we were going to break out to the upside, I would have expected hard buying and a panicked type intensity to have occurred already. What we have seen instead is panic in AIG shares and very bad trading in the Baltic Dry Index and Transports. I am quite sure that this is not conductive to further follow through to the upside of substance. This is not to imply that I do not expect efforts to the upside.

One other issue that I would like to point out, is that nearly every major top in the market has been accompanied by a failed or over optimistic throw over in the QQQQ or Nasdaq 100 shares. This one is no exception. I would expect that, without immediate and powerful follow through to the upside, any trader worth his weight that is holding any long positions will see such a move as a failure and a sell hard. Goldman, JPM and other firms with large tax-payer funded discretionary accounts will be quick to overwhelm the deer- in- the-headlights pensioners and retailers...if that does play out.

So, tomorrow is simple..."big up with lots of volume" or else. Even if we get "big up" with lots of volume, its likely to be a top of some magnitude over the next few days anyway. But if we do not, then the throw over has failed and likely represents the end of the "never ending" primary wave 2 up.

Please see my gap chart for the SP500 for some levels for the SP500.

[update: 12:00 am]: In response to a comment, I posted these thoughts. Thought I would add them here.

In any case, I do not see why people would want to take the market down before the end of the month...when returns are good for the month - why not close the month respectably and then roll the thing over. The dollar, SRS and other ETF would make very nice divergent lows if they were to make a new low. That could fit very nicely if we get an emotional up reaction from the indexes. In any case, the pattern is emotional, and any thesis related to october would be meaningless if this emotional area reacts stronger or sooner than the end of the month. In any case, equinox tomorrow and a significant fib time window from 23 to 27th. Pays to be alert.
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