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Weekly Wizards

Need to Take Out the 50 DMA to Confirm Trend Change

Thu, Oct 1 2009, 05:41 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

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Gary Dean, On Wave 3 Down (MarketsPath.com)

The S&P 500 made it up to our secondary resistance level Tuesday from our previous night's update, but failed to complete the 1053 downside target. But overall, the support/resistance levels stayed intact. At the close Tuesday, the indexes left everybody hanging again. The SPX may have completed wave 2 at the highs and is about to take on a wave 3 down. The decline from the highs was strong and it would have made things easier to take an educated guess as to which wave count was going to win the battle, if the wave 2 up or the rally on Monday wasn't so strong.

The plus for the bears is that the reversal from the highs came on higher volume than the rally on Monday. The rally from the lows never took out the 78% retracement level, which still keeps the wave 2 up intact. The bullish case comes from the bear's failure to follow through with a sharp decline during this morning's reversal. I would have expected a stronger push lower if we are starting a wave 3 down.

But the bear's case is still intact, as is the bull's case. So we have to stay short term neutral until the markets give us more information. But the bulls have more at risk then the bears here. If we are starting a wave up, odds of it ending between the 1075-1090 level are pretty high, which is only slightly higher than the highs left behind last week. If the bears win this battle and we are about to start a wave 3 down, there will be "greed blood" in the streets for many months to come.

Bottom line: We have to stay short term market neutral until the indexes give us more information.

Jack Steiman, On Need to Take Out the 50 DMA to Confirm Trend Change (SwingTradeOnline.com)

With 1045 being support and 1075/1080 being resistance, neither side was able to get anything done Tuesday. We're simply stuck, basically in the middle of the range, thus there's nothing more to do for the moment. There's the usual number of red flags out there, such as negative divergences on the daily charts, not only on the index charts, but on some of the leading stock charts. It hasn't mattered thus far with those divergences being somewhat ignored for now.

One thing I feel sure about is that the move up is very mature. There isn't much upside left here.
Possibly 1125 S&P 500, but no guarantee we get there. It has a shot but those daily charts don't look promising, although, they haven't for some time and have been able to grind higher. There is NOT a whole lot left before a more sustainable down trend takes place in my humblest of opinions.
Just too extended. Too many negative divergences abound. This will snap at some point. It is possible that the last 1080 print was the top. I thought we'd get one more up from the recent bottom. It may have already happened. It's very unclear but those daily charts stink in appearance and it makes getting too bullish, very difficult at best. At some point all of those bad oscillators, especially those MACD's, are going to come home to roost.

The bears have to take out 1045 on the S&P 500 and 2086 on the Nasdaq before they can claim even the first taste of victory. Longer term, let's be blunt -- unless they take out the 50-day exponential moving averages, they are still nowhere. Those levels today, and changing slightly daily, are 1013 on the S&P 500 and 2015 on the Nasdaq. Many strong longer term markets can test all the way down to the 50-day exponential moving averages and simply blast right back off from there. It'll look terrible if we fell that far but technically there's no real long term damage until those 50's are a memory in the rear view mirror.

Harry Boxer, On 6 Charts to Watch (TheTechTrader.com)

Today we look at stocks that had important moves on Tuesday and are forming patterns that should be carefully watched.

Astrotech Corporation (ASTC), which was in a very distinct 4-5 month coil pattern on very low volume, suddenly exploded on Tuesday. It gapped up to 1.92, and jumped to 3.84, doubling in the first half hour or so. Then it backed off, had a quick run up, pulled back and formed an immediate mini bull flag on low volume. That was the buy signal for a day trade, and sure enough it went from 2.60 to 3.84 inside of about 40 minutes. The rest of the day it piddled sideways, formed a flag, but held the majority of its gains. Up 1.90 or 158% for the day. This is a significant price volume surge to say the least. So, we'll be following ASTC for sure to see what happens over the course of the next few days.

India Globalization Capital, Inc. (IGC), which had a big day Monday and Friday, backed off on one-fourth of the volume Tuesday and may form a mini flag. It should be watched. It's come out across the top of the ascending wedge or ascending coil type pattern and looks like it could start a stronger move. The mid-May volume and late-September volume, which set it off initially, had a secondary surge recently, which is the predecessor or precursor to a potential move higher.

Cytokinetics, Inc. (CYTK) is looking very strong and I like the action after the price volume surge a week ago. The stock backed off for three days on low volume, popped last Thursday, followed through Friday and today had an inside day. It was up 12 cents, but, as the chart shows, the high was low and the low was higher than on Friday on lower volume. That's bullish action, and it could accelerate and move up toward the 6-7.00 range near term.

EDAP TMS S.A. (EDAP) hasn't done much but it has been getting narrower and quieter for awhile.
Over the last couple of days there's been very narrow ranges on very low volume at the apex of a very large type coil. If it does get a price volume surge it could be a spectacular one.

Helicos BioScience Corp. (HLCS) has a chart pattern that I really like, and that is similar to EDAP. It had a big run then settled into a coil. It tried to breakout two days ago, hit the top of the pattern then backed off. Has heavy volume. The technicals are just outstanding, and it looks like it wants to go. A breakout over 3.40-3.50 could make this stock explode.

Morgans Hotel Group Co. (MHGC) has a long one left shoulder head and right head and shoulder type bottom. Broke out last week on heavy volume. Formed a perfect 5-6 day flag. Currently testing moving averages and price support. That could be very interesting, indeed.

Mike Paulenoff, On Dominant Trend Remaining Up (MPTrader.com)

An uneventful afternoon, to be sure on Tuesday, but the last hour was accented to the downside ahead of the final trading session of the Q3. The last-hour blahs might be indicative of a lack of buying interest (window dressing), but we will have to see what develops early Wednesday. As for the technical conditions at the close, well we should not be surprised to see the S&P 500 emini lower in overnight trading; however, as long as key support at 1044.50/00 and then critical support at 1035.75 contain any significant weakness, the dominant trend remains up.

Published on  Fri, Oct 2 2009, 07:23 GMT

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