An Eye Toward Transition ~ The Risk Averse Alert

Tuesday, March 24, 2009

An Eye Toward Transition

NASDAQ ... rising less yesterday, and falling more today relative to the NYSE ... is a red flag signaling caution ahead. No panic. Just expect some weakness ... maybe lasting a couple weeks or more ... resulting in major indexes giving back 30-50% of gains made since March 10, 2009 bottom.

Expect this once the market's initial lift higher is completed. Quarter's end and all its accompanying, professional money manager positioning strikes me as a technically viable moment for transition ... from the present positive ... to profit taking in a Spring cleaning. Subsequently, look for position building in preparation of summer's scorching rally.


Hard not to like how the market held up today...

RSI ... solidly on the buy-side. MACD ... moving likewise. Nice. The predictive value these measures provide via established divergences (October/November '08 versus March '09) is blossoming.

So, it's onward higher to a point of transition where a larger pause that refreshes should commence ... setting the stage for a further rally still ... targeting NYA 6500-7000 and NASDAQ 2200.

As you can see via prospective price channeling drawn above, there is "room" for more pressure beyond what developed during the final half hour of trading today. However, I'm not sure whether we might see indexes move sideways another day or so...

NYSE 5-min
NASDAQ 5-min

Today's was another 5-minute RSI sinking looking more symptomatic of a buyer's strike and profit-taking than any strong move to the exits ... much the same as we have seen over the past ten days. Look for a sharp move to buy- and sell-side balance (i.e. in the vicinity of 50) signaling the start of the next leg higher I am anticipating.

It should be considered a sign of underlying strength that only yesterday's final hour could be taken away today ... and this, only in the final half hour.

OEX 5-min

Today's slight rise above yesterday's high in the large-cap S&P 100 index also suggests there is still higher to go before this initial advance off bottom is completed.

It's possible that, from an Elliott Wave perspective the market's initial advance since March 10th is already over and a corrective wave has begun to unfold. Still, there's likely higher levels yet to be reached before any sustained pressure redevelops. Somewhere in the vicinity of 400-410 in the S&P 100 appears a reasonable objective.

Fast Money
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