A Few Thoughts Before the Open:

With yesterday’s brutal move lower in the markets I am going to sit this morning out from a trading perspective;  not because I am afraid of the market moving lower, but because I am worried about a sharp rally.  Here is why,  obviously after yesterday all the chart patterns are bearish, therefore all the trading recommendations would be for short sales; however the market is so oversold that there is a high probability of some sort bounce back higher.  As a result,  going short today could lead to a situation where one would find themselves stopped out at a loss on a short term rally.  Given the high probability of this, I don’t see it being worth the risk.  So, I am saving myself some time and not looking at any individual charts this morning.

I thought I would take a more in depth look at the various indices I track and give some thoughts.

Dow Jones Industrial Average:  The Dow closed at 11,383.68  I currently see upside resistance on the Dow at 11,444.08 and downside support 11,006.02 on a closing basis.  I think the Dow is starting a new intermediate downward trend.  As a result I am expecting the Dow to continue to move lower and test 11,006.02

S&P 500:  The S&P 500 ‘SPX’ closed at 1,200.07  I currently see upside resistance on the ‘SPX’ at 1,225.85 and downside support at 1,178.34. If that level of support fails to hold, then the next point of support is 1,150.23 on a closing basis.  I am also expecting the ‘SPX’ to move lower with the Dow.

NASDAQ 100 Index:  The NASDAQ 100 ‘NDX’ closed at 2,207.20 I currently see upside resistance on the ‘NDX’ at 2,254.23 and downside support at 2,207.97 and 2,192.96  If support fails at those levels, then I see the next point of support at 2,117.33  I am obviously expecting the ‘NDX’ to continue to move lower.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed at4,711.74  Year to date, the Dow Transportation Average is down approximately 7.8%  For those who are familiar with the Dow Theory and the confirmation of a move in the Dow Jones Industrial Average by the Dow Jones Transportation Average,  the move lower by the Transports confirms the start of a new intermediate downward trend in the Industrial Average.  I see upside resistance on the Transports at 4,759.66 and downside support at 4,657.86  I am expecting the Transports to continue to move lower.

Amex Gold & Silver Index:  The Amex Gold & Silver Index ‘XAU’ closed at 197.12  Despite record high prices in the price of Gold, the ‘XAU’ is actually down 12.65% year to date.  I see upside resistance on the ‘XAU’ at 208.78 and downside support at 189.48  Unfortunately as of right now I have no clear indication as to the direction of the ‘XAU’.  My thoughts are that we are going to need a few more trading days to see a clearer picture on the ‘XAU’.

Amex Oil & Gas Index:  The Amex Oil & Gas Index ‘XOI’ closed at 1,151.54  Year to date the ‘XOI’ is down approximately 5%.  I currently see upside resistance on the ‘XOI’ at 1,228.18 and downside support at 1,141.92 on a closing basis.  Aside from yesterday’s market selloff the ‘XOI’ appears to be moving lower.  I am expecting the ‘XOI’ to continue to move lower and test 1,141,92 on a closing basis, if support fails to hold at that level, then I see the next point of downside support being 1,093.86

M.S. Cyclicals Index:  The M.S. Cyclicals Index ‘CYC’ closed yesterday at 909.97  Year to date the ‘CYC’ is down approximately 12.7%.  I currently see upside resistance on the ‘CYC’ at 935.00 and downside support at 895.10  I am currently expecting the ‘CYC’ to continue to move lower and test 895.10 and then 868.97 on a closing basis.

M.S. Consumer Index:  The M.S. Consumer Index ‘CMR’ closed at 695.25  Year to date, the ‘CMR’ is down approximately 7.8%  I currently see upside resistance on the ‘CMR’ at 711.38 and downside support at 691.44  The ‘CMR’ has been in a downward trend since mid-July.  I am currently expecting this index to continue to move lower and test support at 691.44 and then at 682.94 on a closing basis.

It should be noted that the Transports, ‘CYC’ and the ‘CMR’ have both broken through support levels set in February of 2010, while the major market indices have yet to do so.  I see this as indicating a strong probability that the major market indices will also do the same.