11/07/2008 Market Recap: Gauge the trend strength

As you know, I simply use the signals in 0.0.3 SPX Intermediate-term Trading Signals to determine the trading strategy in the intermediate term.  Since the mid-term signals are still buy, the primary strategy should be buy dip at the moment.  However, I don't think the rebounce on last Friday is a buyable dip.  Unless market shows me some muscle by breaking out the 11/04 high on Monday, I tend to believe the market is going to have another down leg.

7.0.6 Trend Strength Watch, this is the simplest criteria to judge the trend strength.  The last Wednesday and Thursday are two down days, if after Friday and next Monday the market can cover all loss in previous two down days, up strength is stronger and I'm convinced.  Considered the inside day pattern on Friday, it will be tough to recover all loss in the last week by the next Monday unless the market rallies massively.  Therefore I don't think last Friday is a buyable dip.  On the contrary, if the Monday rally is not big enough, long positions are better to be closed.

8.1.1 Buyable Pullback Rule.  Let's see what is a Buyable Dip.  According to this pattern, the last Friday is obviously not a buyable dip, is it?

Should the market rises significantly, won't we miss the buyable dip?  Possibly, there is no 100% accurate signal.  However, on 0.0.2 SPY Short-term Trading Signals, VIX ENV is very close to oversold and NYMO isn't far from the overbought.  Therefore, if the market indeed rallies on Monday, it will pullback very soon.  This means we will see more chances of buyable dip.  Don't be afraid of missing a chance, be safe first.

Will the market go up on Monday?  It is hard to say.

The reasons for selling off:

INDU went up by 1% during the last 10 minutes on Friday, and this is the pattern mentioned in http://quantifiableedges.blogspot.com/2008/10/late-day-market-surges.html which means the market will very likely go down in the coming few days.

1.3.7 Russell 3000 Dominant Price-Volume Relationships, the Dominant Price-Volume Relationships on Friday are 1586 stocks price up volume down, which means the market may go down on Monday or as late as Tuesday.

The reasons for rally:

1.0.4 S&P 500 SPDRs (SPY 15 min), 1.1.6 PowerShares QQQ Trust (QQQQ 15 min), the pattern might be an ascending triangle.  For SPY, the target of rebounce is possibly 96.46 which is right at Fib 61.8.  This looks reasonable.

3.1.1 US Dollar Index (Weekly).  On the weekly chart, the US dollar reaches the resistance, and STO is sell signal already while the RSI is still overbought.  Therefore the possibility of pullback is high and this is bearish to the stock market.

5.3.0 Financials Select Sector SPDR (XLF Daily).  Note the Financials also forms a Symmetrical Triangle, and the 75% of chance is down which is bearish to the broad market.

3.3.0 streetTRACKS Gold Trust Shares (GLD Daily), Symmetrical Triangle, 75% of chance is breakout at the down side.

3.4.1 United States Oil Fund, LP (USO Daily).  The crude oil has broken out and this is not good.  The potential target is marked on the weekly chart: 3.4.2 United States Oil Fund, LP (USO Weekly).