Top Line: As mentioned in our last post, "we think the market is one bad day away from really taking a dive." That "bad day" could have been Friday and probably is. The market has broken below important support and most 200 day SMA's confirming the downtrend is continuing.
[Editor's note: SMA stands for "Simple Moving Average" and represents the average of the last number of days in the average. The main two SMAs are the 50 day SMA and the 200 day SMA. The way prices move with respect to these moving averages can give us important extra information that we can use to trade better. In fact the way these two SMAs move with regard to each other can also give us better information, compared to reading the financial news.]
Looking back to October, the market, as measured by the Dow, was making new highs over 14K and Friday the Dow put in a close below 12K. That's not a new event this year but it is the first time since the May highs when the Dow was above 13K. We bring this up to remind ourselves that those highs brought the Dow back up to its declining 200 day SMA.
Meanwhile, the NDX, our favorite index, has been outperforming the Dow on the upside recently and has been flirting with its 200 day SMA for about two weeks. Friday, the NDX (NASDAQ 100) fell hard away from its 200 day SMA. The implication as we see it is that the NDX is about to accelerate lower and start to lead the Dow on the way down.
This evening we saw one article of interest, well to us, anyway. It is something we have tried to say in our own way, that the fact that the world doesn't care about risk...wait, that should be did Not care about risk. This attitude is what has caused a great deal of trouble in the world. People have thrown caution to the wind and done things that they normally would not do except knowing there was No risk, or being dupped into believing there was no risk.
Tonight the markets in Asia are rebounding from their opening lows and the US futures are happily trading higher in anticipation that the "lows are in again" and that Monday can forget about last week's poor performance. The oil ministers suggested that they would increase production of oil to help prices come down, Obama said he was going to crack down on oil speculation, and the price of oil is trading up this evening. We still think the price of oil will drop very soon and that the $139 price will be the high. We are keeping a close eye on these developments.
This should be an interesting week...
FSI: 92.00 (a strong retreat here with all four members down)