01-30-2010: March NASDAQ 100 Index: Main Street Versus Wall Street Again
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Washington has pushed health care reform onto the back burner as it turns its focus to "Main Street versus Wall Street" once again. Going after the bad banks seems like a very good idea, but unfortunately does not lead to higher stocks. Sentiment appears to have begun to turn negative as it is feared that Washington's proposals for improving the economy are falling short of what will be necessary to maintain the upbeat condition of recent months. There is a lack of confidence that leadership worldwide has quite "got it" yet. Things happening outside the U.S. are impacting U.S. equities as the situation turns more and more to a one world "global economy," and the situation in Greece seems to be threatening the stability of the Euro.
We think it is more a situation of "all the money is in" for the recent bull market, and we have noted a tendency for large funds to begin to start dumping stocks once again after buying everything and anything that was out there during the recent market lows.
March NASDAQ 100 Index:
March NASDAQ 100 Index:
Major longer-term uptrend moving average lines were violated during the previous week suggesting a bearish technical position in the stock indices. The 100-day moving average was crossed to the downside. The trade is degrading its forward view of the economy. The economy in Greece remains a factor affecting worldwide equities, and now the U.K.'s credit rating is in danger. Normally, these would be overlooked in U.S. equities except for the fact that they point to a worldwide deterioration in economic outlook. The market appears to be ignoring Washington's proposals for another jobs program and small business offerings. The President offered a small tax credit to small businesses and was accompanied by renewed calls for health care reform by the House Speaker, which did not seem adequate to shut off a selling bias. The market also appears to be repeatedly discounting favorable earnings reports suggesting that "all the money is in." The Fed's low interest rates policy has been good for stock prices up until now. The financial crisis of 2008 was the worst since the Great Depression, but conditions appear to be easing. The federal government intervened massively to keep the credit markets working, and so far, it is helping. S&P 500 companies expect a 35% gain in earnings in 2010 versus a 40% decline in earnings in 2008. A recent strong gross domestic product report has helped strengthen the U.S. Dollar. It is at its highest level since August at the time of this writing. This had an effect to strengthen equities although there is concern that it may also mean the Fed will raise interest rates sooner-than-expected. Improved consumer sentiment also gave traders a reason to buy. Our reading of the latest President's speech and overall actions being taken by Washington is that they are perceived as inadequate by investors and an overall bearish sentiment remains.
201.0I T 1/28
I CME - Mar-10 NASDAQ 100 E-Mini ($20 X Idx) Cm.=0.01 Lim.= 0.2
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical high but are in a seasonal down period.
Our best-performing internal program is "Gotthelf." It is giving a buy signal.
Results of "Gotthelf" for NASDAQ 100 Index (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a sell signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $20 for the mini contract. Initial margin on a single mini contract is $4,000. Use of options is advised.
Scale traders are not a factor in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to down has started from a volatility low point.
These options are extremely-thinly traded and one may have to wait until expiration to collect. Our option trade recommendation is to Sell the NASDAQ 100 Index June 1800 Call @ 83.50 or better.
What the Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down. The best time to enter or leave the above spread is when it is at -5.00 or narrower buying the near as prices are rising and then selling the far, and exiting or entering when it is at +6.00 or wider selling the near as prices are falling and then buying the far.
Here's an intraday chart for the previous day ( 1/28 ).
Risk Versus Opportunity Report
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ND10H March NASDQ 100 Index
High Price: 1832
Current Price: 1778
Low Price: 1667
Risk: -0.062
Opportunity: -0.127
(O/R) Ratio = 2.056
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | + 1 |
| News | - 1 |
| Point & Figure | + 1 |
| Cyclicals | + 1 |
| Seasonals | - 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | - 1 |
| Commitment of Traders | - 1 |
| Historic Range | 0 |
| Range/Volatility | - 1 |
| Level Table | - 1 |
| Other Factors | - 1 |
| Total | - 4 |
Place 3 March NASDAQ 100 Index E-MIni Contracts on a Sell Watch with stoploss @ +36.40 above the get-in point.________________________________________________________________________________________________________E.L.
