What a great day!
We didn't crash through 12,600 so I'm happy. You have to test critical levels on the way up or you get that same nonsense we got on earlier bounces where the markets refused to form a proper base. A slow, steady rise back to 13,500 over the next 45 days would be far preferable to retaking it before the end of March.
We are making a critical test here at 12,750, a level that formed a bottom in the Dow in August and November so of course we will get resistance trying to get back over it. The current bounce from 14,000 to 12,000 and back to 12,750 represents a very neat Fibonacci 38% retracement:
So the Dow seems to be behaving itself from a technical standpoint and we don't begrudge them a pullback to lower support at 12,532 after that very nice comeback from 11,500. These are, by the way, Fibonacci levels, not 5% rule levels as I have zero skill as a charter and no one has automated my proprietary system yet! Still this is what most TA guys look at and when the chart is behaving you can imagine that fund managers all around the country are sitting at big oak (or other endangered wood) conference tables sweating over how much of a big move they are going to miss if they don't deploy their capital before another breakout. Going by this chart, I predict panic buying at right about 12,860 (the 50 EMA).
If a buying frenzy there takes us all the way past 13,400 (the uppermost solid red line) then we have clear sailing to a retest of our highs but, as I said before, we DO NOT want to make sudden moves. The best thing the market can do is form a nice channel back in the 13,000-13,000 range I predicted we would consolidate in back in the fall. Other than this little panic down, that's pretty much where we've been and we spent two rangebound months before the fall, we can spend two range bound months before making a move at the end of March.
Right now I'm looking for that big Nasdaq move I've been dreaming of back over 2,500 but to get that we need our SOX, who disappointed me yesterday at the 380 line. The descending 50 dma is at 391.82 and I think if we get above that we can all believe in semis!
A SOX rally can give the Nasdaq a kick right back to 2,900 so I'm going to be taking a long call on the Qs, which are about to either form a death cross at 49 or pull a bullish reversal. Either way, there are lots of fun to sell calls against so we're going to grab the QQQQ June $43s for the giveaway price of $4.44 and we'll try to hold off on selling just yet but you can pick up a quick .46 for the Feb $46s so you can see what a nice income producer this little position can be!
My closing comment of the day was: "This is not a bad sell-off for a bunch of hung over traders on a Monday. As I said, I’m pretty nuetral going into tomorrow and I’ll let the market tell me what to do, not vs. vs…" That was good advice, we'll see what tomorrow (Super Tuesday) will bring.
