Thursday, March 13, 2008
Wednesday, March 12, 2008
Typically these interventions do more harm than good and while I do expect a bit more on the upside, we need to be very careful in here.
The S&P has not completed its 5 wave down structure as the NASDAQ has and remains very vulnerable to any downside pressure that may be exerted. The move off the lows is clearly counter trend and should have a very limited life with an upside target of about 50 more S&P 500 points. This would put the S&P at 1356 basis the cash index.
Should we see the 1356 area coupled with a pre-mature turn down in the stochastics, then we will have a set up to purchase puts and portfolio protection if you wish for the last leg lower before the market finds its first long term level of support. Expect the first level of solid support to come in at the 1226 level on the S&P 500 cash index. From this level and the right environment, it should be the time to increase our exposure to equities for the coming counter trend rally which could be quite strong.
Aggressive traders can look to capitalize on the decline by purchasing the April 128 SPY puts in the .80 to .85 area. Currently they are trading at right about 3 bucks.
Monday, March 10, 2008
The S&P 500 still has more on the downside to take out its lows at 1265 basis the futures contract, but it seems inevitable that it will.
As I stated, there is a silver lining to all of this and that is the fact that the first leg down is very close to completion. This will afford us the luxury of getting our equity allocation up from 50% to 85-95% for the always lucrative first bear market rally.
The first rally after the initial leg down in a bear market will appear to be a new leg upward and should begin to curb the massive bearish sentiment we currently have. We also should retrace at the very least 50% of the first decline, if not 62% to 79%. This translates into a move of 17%, 20% and 26% respectively. We look for the bleeding to stop on the NASDAQ in the 2160-2120 area.
Currently I am unable to post charts so I will do the update today without the benefit of visual aids.
The market continues lower and the volume continues to dwindle, which is a plus for the bulls.
The NASDAQ has taken out its lows and this is definitely a bearish event, as it signifies a 5 wave structure down from its highs in November of 2007. This event officially places the NASDAQ Composite in the bear market category, but all is not lost here. The good news is that with the 5 wave structure down we can now be looking for a bottom to come into place at which time a substantial rally will begin and allow us the window to hedge our already light equity exposure.
I have downside targets for the NASDAQ at 2160, 2140 and 2120 Maximum.
It is at these levels that I will begin to load up on equities for the inevitable rally in stock prices.
The other good news is with our very light 50% allocation to equities, the sting from this decline has been very minimal and upon taking advantage of the up coming snap back rally, we should be in an excellent position to begin our protective hedge process.
So for now, remain with the very conservative 50% allocation, but be ready to bump this allocation up considerably as we draw very close to an intermediate term low!