|
PureBytes Links
Trading Reference Links
|
Hello All,
As some of you may have noticed, our trading operations for the fund have
diminished and a majority of our portfolio is focused on the S&P Futures
Market. The reason being the major indecisiveness and global instability
that has all of a sudden taken hold of financial markets. The panic
sell-off in gold, the crash of the Hang Seng and subsequent recovery the
following day, the frequent 200+ point moves in the Dow, currency
devaluations, to name a few. I just wanted to share with you what will
probably turn out to be a lentgthy analysis of the market as a whole, and
what strategies should be adopted to benefit rather than lose from the
current situation. I invite you to skip this message now, if you do not
feel like reading something lengthy. To begin with, we all know that we
have the longest bull market in history. Dow Theorists claim that the
major market indices need to confirm a serious top/bottom before a major
trend reversal can take place. We have a major technical situation on our
hands.
SITUATION #1:
The Dow 30 has put into place a potential Double Top with its failure to
surpass 8300 with the recent rally that began in mid September. The high
from this rally was 8200, before the Dow fell apart rapidly. Remember,
Double Tops are not exact, a rule of thumb to use is 3%. The double top
will be confirmed with a break below 7590, which is the valley of the top
formation. In addition to the double top, the fact that the second top
reversed at a slightly lower level on the chart, with support being at 7590
from bottoms in late July, and throughout Aug/Sept. Therefore, not only
will a break belo 7590 confirm a double top, but also a Descending
Triangle. Support for the Dow should come in around 7120, but measuring
formula suggest a lower level of ~6300, which also happens to fall smack on
top of firm support established back in mid Dec '96, and mid April '97. A
closer examination of the stocks that make up the Dow 30 shows many similar
patterns taking place within the stocks themselves, a major component of
Dow Theory Analysis.
The Dow Transports show a quick Double Top that surfaced in the last two
weeks at 3390, closing below support at 3242 on Friday. MACD has just
given a sell signal, STOCH has been in a sell since 10/16, ACC/SWING shows
Decling Tops. A characteristic of the last bull wave of a major up trend
is a rapid rise with heavy volume, then a sudden reversal. With the
dramatic rises the Trannie's registered in the last few weeks, and the
sudden about face is an extreme threat to bulls. Even if the major trend
is not reversing, but rather just correcting (which is likely if taken in
retrospect with current domestic economic conditions), then a downside
target of 3016 is very likely, since this is support established back in
July/Aug. I know I threw a wrench in things by bringing up current
economic conditions, but if you take into consideration that a large % of
revenues for these companies, as well as all the Dow 30, and all other Big
Cap firms come from foreign operations, the financial problems overseas
will have a significant impact on these companys' bottom lines.
The Dow Composite on Fri penetrated the uptrend line from mid April through
Aug/Sept. The next supporting uptrend line is a rather significant point
drop away, roughly 225 points (for an index at 2530, thats an almost 10%
correction, which is normal, and very due for delivery). Again, both STOCH
and MACD are in agreement here, having both issued sell signals in highly
overbought territory.
The NASDAQ 100 is in even more technical trouble. A Triple Top at ~1152
has taken shape, with confirmation being a break through the 1066 level
(Friday's close: 1057) GASP! ACC/SWING confirms the pattern breakdown,
and all indicators are in Sell modes. Support should come in at 992, with
the next support being at 935, and eventually the long-term uptrend line
will be reached at ~910-930. Again with the high of 1150, that's a 14%-22%
correction. A 50% Fib retracement of the move from April near 720, to the
top near 1150 puts us at: 925, smack in the middle of our estimates of the
point in which prices will meet the major trend.
The OEX shows a Double Top at 945, with a break below 869 confirming. The
short-temr uptrend from late Aug until now was broken on Fri, with support
coming in at 870. A 50% correction from the move which began in mid April
would take us to roughly 830, which would equate to a 12% correction, but
if support fails at 870, next support is at: voila 830 established back in
May/June, and then 795, from May. I don't fathom us reaching sub-800, but
a correction to 830 would not surprise me. The SPX looks identical to the
OEX, so we'll skip that one.
With respect to the Long-Bond, usually, when this is rallying, it ends up
pulling the stock market up with it. However, in this case, the rise in
the Long Bond is attributable to a flight to quality of capital, both
international, and domestic. Now, the Fed has come on the record as saying
that they will not raise interest rates in order stay clear of a financial
recovery overseas, but if inflation becomes a factor, they will not have a
choice.
Let's take into consideration market sentiment. Being at an all time
bullish level, the market is the most vulnerable to a downside correction.
With Index fund inflows registering record levels, the ensuing redemptions
will cause liquidity problems for fund managers. Being forced to create
cash, they will not find good liquidity in the equities markets because of
the downward vulnerability that is prevalent at the moment. Their only
alternative is to sell Index futures to create liquidity for themselves,
which will add fuel to the fire, and further downside pressure will build
from arbitrage traders capturing the spread by simultaneously shorting
index stocks and buying the futures contract.
So, how are we trading all this info, like I said, we've been engaged in
S&P futures trading. Soon, my activities may spread to Gold, with the $16
one day drop in price, this is becoming rather attractive. This is why my
fund is a "Hedge Fund". Investors hedge themselves against fluctuations in
the economic conditions by using Hedge funds, since these funds shift
strategies on a dime according to global econimc situations.
Also, we will be placing some short sales this week. Those will follow
later.
Warmest regards to all, and be careful out there,
Pejman Hamidi
_______________
Submitted by "Pejman Hamidi" <pejman@xxxxxxxxxxxxxxxx>
Remember: Caveat emptor. Do your own homework. Web: http://pobox.com/~gsp
To unsubscribe: Send "unsubscribe daytrades" to majordomo@xxxxxxxxx
|