My final near-term target, T3 (dashed primary uptrend line) on the $NDX has been hit. Even if we are headed lower in the coming months, the odds for a bounce off this initial tag of support is very likely. The first chart below was published in this post on Friday morning (reflecting Thursday's close as the screenshot was captured before the market opened), followed by today's updated chart. (note: This is the same $NDX daily chart accessible on the Live Charts page as well as on the sidebar of the homepage). As the last couple of trading sessions have been wild & my positioning has gone from bearish (net short) to bullish (net long) literally in just a few trading hours, the annotations on this chart might help explain my rapid change of market bias & positioning.
note: I just fixed the typographic error that has mistakenly listed the horizontal support zone of T3 as 3740-3400 instead of 3740-3700, as indicated by the horizontal line.
Just two trading sessions ago, in Thursday's post titled SPY Approaching Support, Breakdown Likely, I made the following statement:
"If/when the SPY breaks below the 204.20ish support level, my expectation is for a swift move down towards at least the 197.85 area. Should this expected scenario of mine play out, it would likely have much deeper, lasting bearish implications as a break below the 204 area would also be a below the bottom of the trading range that has limited all drops in the $SPX/SPY since early February.
Trading ranges don't last forever and based on the record low contractions in the monthly Bollinger Bands, this has been one of the tightest & longest sideways trading ranges in many years. Often large price moves come following such narrow & extended trading ranges."
On Friday, the day after those comments were made, the S&P plunged 3.2% (64.84 points) with the SPY closing at 197.63 or 1/1oth of 1% from my target of 197.85, hence my reason for covering some of my short positions and taking some longs. After noticing in pre-market trading this morning that the futures were indicating that the "swift move towards at least the 197.85 area" was still in progress, I took a look at the charts to check the next support levels and noticed that the Nasdaq 100 futures were indicating an opening around my previously stated final target, which was to be either the primary uptrend line or the 3470-3400 horizontal support level (with both currently in relatively close proximity).
The first chart below is the SPY daily chart from that post on Thursday in which you see (drawn in a lighter grey color) the lower-most support line which was defined by the Oct 2014 reaction low as well as several other previous reactions. That line has been enhanced on the updated SPY daily chart below. Following the opening gap down today, the SPY traded within pennies of this key support level, along with most other major US stock indices also trading at or near key support.
Hence, we had the Nasdaq 100 index gapping down to not one but two very solid support levels. Even with so many individual stocks and ETF's, including the uber-liquid QQQ (trading down over 17% shortly after the open), experiencing mini-crashes due to order imbalances, HFT, panic selling, chaos on the exchanges, etc..., and with the markets at support (most major indices, not just the $NDX) covering more shorts & adding more long exposure was very objective IMO. As often stated, a bounce off the initial tag of a key support level, especially one of my final targets, also considering the extreme near-term oversold conditions to boot, is a highly probably event.
The primary reason for this post is to point out my reasoning for not only not stopping out of the mild long exposure that I took around the close on Friday, but also the reasoning for adding to that exposure this morning, despite the fact it seemed like another Black Monday might be in the making. Although the markets have so far recouped a lot of this morning's earlier losses, there is still some work to be done to firm up the very near-term bullish case. I'm about break-even on those longs now, still underwater on Friday's positions while profitable on the positions taken this morning (not to mention booking profits on nearly all of my remaining shorts at optimal prices this morning. Again, more market & trade updates to follow soon.