Saturday, February 23, 2008

Qs Weekly Update

The weekly 3 linear regression study (above) shows the Qs continuing to hug the lower LR30 channel band, with little indication of momentum towards a mean reversion. As long as the Qs continue this downslope pattern, the risk reward favors the short side and unless you've never read this blog before you know the mantra. . ."sell the rallies".

The daily 3 LRs study is ambiguous, at best. Everybody and his brother has been talking up the emerging triangle formation of the market, so I won't bother repeating it here. The entire month of February has displayed this relatively narrow (but volatile) range and I missed a good opportunity to lay on a 44 butterfly early in the month. So be it. As noted above, given the current volatility, I'm loathe to commit even short term to my favorite premium decay stategeries, preferring instead to manage risk by simply daytrading the pivots and fading the rallies. No overnights for now.

This cute litle chart of the NDX (QQQQ) % bullish is another way of loooking at the current consolidation, with the 50 DSMA providing a good reference point for validating any real change in trend, if and when it occurs.

I also find the declining number of NDX stocks above their 200 DSMA to be supportive of the continued downside trend. Once again the February consolidation is evident and once again the 50 DSMA has served as overhead resistance. At the same time, the current chart looks suspiciously like a bottoming pattern. And so I ratchetted down a notch to the chart below:

This is the number of NDX stocks above their 50 DSMA and this chart actually looks rather bullish, with the current trend headed upward towards the 200 DSMA and again, the February triangle is clearly evident.

As a closing reference point I checked on the current performance of MSFT, INTC and the $SOX. Friday's close was indicative of what's going on with these market titans. MSFT was down .42 and INTC was down .48 while the $SOX finished up .45 (keeping in mind that the $SOX is at 351 and MSFT is at 27.68).

Now chart reading is an art, not a science, and therefore subject to the subjective interpretation of the the viewer. . . so one man's sell signal may easily be another man's buy signal. But, in these last 3 charts I see not so much a bottoming pattern as a ledge pattern . . . and if the stocks fall off that ledge (and they will most likely fall as a group), then the next stop is a ways down. For further arguments in support of this technical position I suggest a rereading of the VIX/ VXN post on Thursday. That's a hint of possible things to come.
I hope I'm wrong, but I prefer to be prepared for the worst.


Cucca said...

So am I your brother's uncle, hahahahahahaha??? At least I think I tried to put a different look on the stupid triangle.

bzbtrader said...

The nuggets of wisdom, insight and humor provided by Beaver's favourite son are always welcome reading and deeply appreciated.