Tuesday Afternoon Market Thoughts

My thoughts (pasted as a reply to a question just received from the contact form):

Q: Any new thoughts at the current levels? Do you think we are continuing lower or is a bounce in store first?

A: We’re at the bottom of the initial target zone on my daily IWM chart, the bottom of the QQQ daily rising wedge and the bottom of the SPY daily rising wedge, obviously all of which are key support levels. Therefore, while a reaction is certainly possibly, the fact that we’ve already been testing those levels with diminishing strength on the previous reactions tells me that sooner than later, these levels are likely to give way & open the door a some REAL selling. I’m talking the 2 & 3%+ down days that now seem like relics of the past.

Personally, I plan to sit tight on all my shorts at this time as I don’t want to risk booking profits here on support, only to have to re-short or miss an objective re-entry on those positions if/when these support levels go. My guess is that we’re looking at a very quick drop of about 2.5 & 3.5% on the SPY & QQQ (respectively) if & when prices move much below current levels (SPY 209.40 & QQQ 107.70).  [end reply]

Keep in mind that although I removed the recent QQQ & IWM short trades because they had exceeded their previously suggested (and relatively tight) stops, that does not mean that those trades do not continue look promising. As most major US stock indices are sitting on support, it would be best to wait for the markets to make another impulsive thrust below today's LOD (it is 2:25 pm EST as I type). That impulsive move could possibly come on an opening gap lower this week or it may not come at all. The main point is that initiating or adding to a short position while a stock or index is at support is far from an objective entry. Typically, short entries (or add-ons) should occur on breakdowns below support or on bounces back to resistance, if the charts confirm the entry or add-on.

The initial drop of about 3% that I'm looking for, following a solid break below today's lows, is only to the first minor support level. I continue to expect a drop of at least 10% from the highs in the QQQ (down to the 100 area) with additional targets possible, depending on how the charts play out going forward.

May 5, 2015 2:32pm|Categories: Equity Market Analysis|Tags: , , , , |Comments Off on Tuesday Afternoon Market Thoughts