Support from the low closing price in January broke this week for the S&P 500 ($INX) and the Dow Jones ($DJI). The intraday lows from January 23rd and 22nd respectfully haven’t been broken yet if you need something to help you sleep better. The NASDAQ Composite ($COMP) broke it’s January low closing price at the beginning of February, a full month ago. That’s where I’m returning my attention to today with two charts.
The first chart is from my January 27th post, a chart of the $COMP from a three year, weekly perspective. I was drawn back to it to see what I thought back then. The best line I drew is the one ending in circle B. If I redrew such a long chart again today you’d see that line is still holding.
I started with the older chart so I could find something positive to say before I detailed my second chart – the $comp on a three month, daily chart.
This shorter view is filled with trend lines that are pointing bearish. Both the highs and lows are getting lower and the previous intraday low broke on Friday. You can’t really see it on this chart since some of the detail is lost due to size, but the intraday low from January 23rd was 2,202.54 and the intraday low yesterday was 2,186.93. The only saving grace on this shorter term view is that we closed off the lows yesterday, above that horizontal line. I drew a timid gray line that could be the direction of future lower lows if we stay below 2200 for more than a few of days.
The big hope we can have is that the longer term trend from the upper chart holds and we find support soon. Also, if you chart the Dow again this week and look back to last week’s Dow Jones Chart, you’ll see my hopeful floor of 12,000 held on Tuesday and again on Thursday, but Friday it broke. That’s bad, but my lower floor in the mid-11,000s could be our next stopping point there. Best case, this is just the retest of the low that we needed to finally start moving higher. If the best case is really good, a lot of the fools who run up the markets too fast will stay to the sidelines for a little while and give us the opportunity to ease back in. I see nothing that could turn this into a roaring bull market in the near future, so I’ll continue to sell rallies with naked calls for a while still and will keep my naked puts as far out of the money as possible.
I am bearish on the technicals of the market also but I think there is upside news risk. Every day, we get tortured by weak economic news and fickle government intervention. Eventually, things are going to become so bad that someone has to do something. Suppose Ambac and TMA fail. I suspect the government will step in before the same happens to agency paper and prevent NLY from failing. Any news of a real bailout can send us higher. I wouldn’t necessarily short at this level but hedging the longs is definitely smart. Every day without a margin call is another day of celebration.
I’m starting to get scared of how often we agree. Aside from how closely you run to full margin, our model is very much the same. I’m not shorting any more at these levels either. I’ve actually canceled all my limits since I’m close to fully invested now and want to have a little something left if/when we go farther south.
I am moving towards more a more conservative margin model once I slowly unwind these positions. The lesson is: everything is correlated in a downturn.