Well, we got what I suggested in yesterday's post. A significant down day ...Nasdaq and SP-500 was down 2% and the Russell is down 3%. I think yesterday that I expected a 2 - 3% decline in the coming days.
Although the decline was controlled which is nice to see, it was significant and more importantly it completely reversed yesterday's strong day which definitely is not a positive sign.
Because I saw no indication of strength through the close, I did not start positioning on the long side and instead sat on the side lines mostly (did some minor shorting intraday more for practice than anything) and just watched the tape. We could be done with the decline and have a nice up day tomorrow, but I assume we will still see some downside.
On the QQQ's, we stopped the decline at the weekly pivot and bounced slightly from there. the 5 day and 10 day moving average didn't slow the decline which surprised me. As a result, we could continue down to the 20 day or even 50 day which is still a number of percent away. The QQQ's seem to be in a consolidation range that started on 10/12/2011 between (roughly) 56.80 and 58.20, and our close at 57.35 puts us right in the middle.
This is healthy action if the price can sit in between these numbers for a few days before breaking out. Low volume consolidations give people time to digest the most recent strong up move and accept the new reality. As more time goes by with prices stuck in a range, more and more people are buying at that price which makes the price more significant if/when it finally breaks out of the range (in either direction). This level will most likely be significant for months to come as well for the same reason ... if most people bought at this level and it moves up and then comes back down to revisit this level in a few moneys, it should act as support since most people won't sell sell at breakeven, and in fact will look to add to their position. Also more buyers usually come in in these situations since they missed out on the first advance, they will be eager to jump in again. If in months, the price is not supported though this level and falls below the range, then we could see a quick decline as people's stops are hit. Usually though, these trading ranges provide a nice 'base' to support future price movement ... so again ... this is healthy action we are seeing.
The SPY (sp-500) broke the 5 day, but has yet to hit the 10 day which also is in line with the 10 day moving vwap (at around 122.15) and more importantly at the 50% Fibonacci retracement level from the 2011 highs to the 2011 lows.. I would be suprised is we don't bounce from there with such a confluence of indicators, but again I am not placing any bets on that until I see positive action.
The IWM (Russell 2000) was the strongest in relation to its' moving averages which tested the 5 day moving average and closed above it with all the other averages firmly below. It also tested and closed above the most recent high made on October 13th, showing that this is possibly support for future movement. About 2% lower is another confluence of indicators with the 61.8% Fibonacci retracement, 10 day moving average and 10 day vwap along with the monthly R1 pivot level all within proximity of $70.50.
All in all, nothing I didn't expect and a controlled selling which is good to see, no panic. I assume we will fall a few more percent and then bounce which might all happen tomorrow. In fact, it wouldn't surprise me if we spent the morning declining to the important levels I listed above, then bounce in the afternoon to close a roughly the same closing level as today. If that occurs, then I will be quite bullish that we were able to test and bounce off of these levels.
Have a great evening!
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