Tuesday, June 22, 2010

Summarizing where we are in the stock market after the close on Tuesday, new Support levels have been determined because of the 150 point drop on the Dow today. S2 (Second level Support) is now at 10,278 and S1 (First level Support) is at 10,360. Clearly we went through several previous levels of support and the Dow is poised to drop in coming days.

For the Russell 2000, S2 is at 652 and S1 is at 644. The Russell closed today at 646 down 14.12 or
-2.14%. Since TZA is a 3x ETF Ultra Short of the movement of the Russell, it closed at $7.00, up $0.44 or 6.71% today. I expect these shares to continue to rise and the Call Options for October and January to continue to rise. R2 (Second level Resistance) for TZA is at $7.08 as we already went above R1 which was at $6.17/share. We most likely will go above this level possibly tomorrow.

Those of you who have been following my site now know how to identify and analyze these "W" patterns which foretell of the next most likely direction of the market. In the 6 month chart above, I have identified the overall "W" pattern, you can see it slants downward as indicated by the Red line under the "W" pattern. This usually means this Index will most likely go lower than the bottom of the second bottom point of the "W". This same pattern is evident in the S&P 500 Index and also the Russell 2000. The Nasdaq index has the same pattern but the "W" slants upward, meaning this Index should go up. However this seems inconsistent and will need to be resolved over time. One scenario might be that a single stock drops significantly driving the Nasdaq down greater than the other Indexes and thus resolves the discrepancy. This could happen during earnings season which starts in a few weeks.

The Fed speaks Wednesday on Interest rates. Don't expect any new news but in spite of that watch for a market reaction. Things are not tightening by the Fed because we are in Deflation, not Inflation!

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