Sunday, November 23, 2008

This Week's Trade 11/24

Well after another volatile week in the markets I am back from Vegas and ready to get back into action! Friday's late day rally should not be cheered because in my opinion it is an even better sell than it was on Thursday. I think this week we could see one of two things. We could fall thru the floor and end up near Dow 7000 and SPX 700ish. Or we could trade mostly sideways since it is a holiday shortened week and that means that volume will be relatively light by Wed. It is inevitable that we fall at some point and really see some washout selling to the downside but its just a question of whether it happens this week or next. Let's see what the charts say.

After falling Wednesday and closing below the previous lows near 825 SPX the market went down till midday Friday where it bounced from a low of 740. The 825 level is key support on the daily chart and it was broken with heavy selling last week. Friday we saw the SPX come back to close near 800 on the cash. I believe this is nothing more than a dead cat bounce that will fakeout the amateurs into hoping we have bottomed. We will rally up to resistance (which was previous support at the 825ish level) and then sell off massively from there. In my opinion we will be lucky to even test the 825 area but if we do it will be one of the best selling opportunities you will see for a while. When support is broken, that same level is usually retested as resistance, where it subsequently fails and the price action rolls over.

I believe that we could see 700 in the SPX within a week or two and ultimately the Dow could even fall to 6500 by year end perhaps. We are at support levels that go back to 10 years and if broken, the charts are saying we are simply not done with this brutal bear market.

The VIX could easily top the 100 mark if and when the SPX drops so all I will say is please do not try to sell volatility just yet. You will lose your shirt. I spoke to a pro trader from the CME at the Traders Expo this past weekend and he said that he has been tracking the VIX since it was invented and has never seen such consistently high levels in the VIX. This is a sign that we have a new norm in volatility. He also said that he has tried to sell the VIX twice already since Oct. and lost in both cases.

Economic data for this week includes Monday's Existing Home Sales. Tuesday sees Prelim. GDP for the 3rd quarter and Consumer Confidence. Wednesday we get Durable Orders, Initial Claims, Personal Income and Spending, Chicago PMI, Mich Sentiment, and New Home Sales. The Thanksgiving holiday will close markets on Thursday. Friday will be a half day.

I dont have any specific recs this week because I am looking for a major breakdown here and want to see how Monday acts. However, if we fail to break above the 825-845 level with volume then I would be a seller of this market almost instantly. A break below the 770 level would make me even more bearish. With a breakdown the best play out there may be SDS. Trade safe and obey your stops this week.

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