With just 5 trading days left in 2007, the indexes appear poised to book solid gains for the year. Although I was somewhat bullish and expecting a bounce after the weak start last week, I was still suprised at the strength shown by the Nasdaq on Thursday and Friday.
Last week’s action leaves the Nasdaq just under its down-trending overhead resistance line, and right at its 50 day moving average. Friday’s open left a huge gap to fill. The index is nearing overbought. My suspicion is that there will be more strength ahead this week, but the index will close the gap before year-end. My intuition tells me that there are many traders expecting a weak January, and some may try to get ahead of the selling by starting early, after Christmas. My guess on the Nasdaq’s close for the end-of-year contest is 2666.
For those playing along at home, the price has now reached the honey hole, and this would be the time to initiate more shorts. However, should the index find the strength in this Steer Rally to overtake resistance, it will be hard not to be bullish.
The SPY has not recovered quite as strongly as the Nasdaq. It remains in the middle of its recent range. As the index is nearing overbought, I think there is a good chance that it will weaken this week, even before the indicators get back into positive territory. This of course would be bearish. If it does continue to strengthen, there is still a ways to go before it meets its down-trending resistance line. One item to note was Friday’s weak volume on the SPY. I assume Stockcharts’ data is correct, but it may not be.
Incidentally, On Friday I placed 2 long trades, the first longs I’ve had since the end of October. These are both short-term trades that will likely be closed out by Friday. I bought [[ECA]] and [[GFA]]. Both were featured previously as RSI(2) Oversold Plays. While I’m still bearish as the indexes near resistance, I feel the volatility squeeze in ECA and oversold condition in GFA will assist these stocks in trading up this week.
One last item to note going into this week is this article on consumers and credit cards:
Unpaid Credit Cards Bedevil Americans
Does it matter if consumer spending was strong in November if the majority of the spending was on credit cards? Probably not, as long as default rates do not rise. However, with rising default rates on consumer credit cards, a strong November may mean even higher defaults in the future.
From: http://kevinsmarketblog.blogspot.com/
http://bp1.blogger.com/_N9xrCjjHNRw/R220UIRSj7I/AAAAAAAACTI/ETVZfHBkKzs/s1600-h/dow hsa.png
Cheese- may be a H&S. Everything I use would not call it a H&S as the shoulders are no where near the same level.
Doesn’t mean you can’t use the wisdom of a trendline break to trade it though.