Market commentary for 12/22/2008
Good day!
Another amazing week in the financial markets. The FED outdid themselves when they cut the rate from 1% to 0.00% to .25%. Then they went one step further and said they will do whatever it takes to stimulate the credit market and the economy. There were earnings warnings and downgrades, jobs continued to be lost at a record rate and there were a couple of earning surprises. The 10 year bond fell to a record 2.08%. Oil fell 27% on the week to 5 year lows and then to top off the week the President bailed out the auto companies. By the way the equity markets finished the week mixed to flat.
Market action at Friday was expected. ON option expiration day it is not unusual to see divergence between the indices and whippy intraday action. Actually I would have been surprised if we will saw a trend day. The SPY and the DIA had a small gap down and it was filled right after the open and continued into the 10sma 60 min. We can see it well on the same time frame and how the 10sma can be a useful and interesting support/resistance area. Despite the morning strength, after the indices reached the 10sma 60 min the indices broke down. The QQQQ was the strongest and it was the only one with a gap up and actually held very strong, but still closed near lows as was the case with the DIA and the SPY too. If we look at the daily charts we can see the DIA and the SPY didn’t change much and both are still right above the trend line. The SPY is the weakest and it already broke it.
On the weekly chart I will repeat the same scenario that I have followed the last several days. We still have fair odds for it. If last weeks low is to be broken it will be an official weekly bear flag setup. Will that work or not we can’t know but we can know that it is a technically setup. On the DIA weekly chart we can see the bear flag, on the QQQQ scenario where it can go and on the SPY chart what can happen is if indices will go back to the low or if they will break the previous weekly low. For now I’m more bearish than bullish, but it is important to know that scenario what I have drawn is for now just a possibility and it is important to start with smaller risk on swing shorts and if it does work then we can always add on daily/intraday opportunities. Of course, if we will see strong bounce and move up with strong pace my bias will change, but for now the charts suggest a possible weekly bear flag setup.
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