Diary of a Financier

SPX & NASDAQ Weekend Update: Bottoming Process Envisioned

In Capital Markets on Fri 26 Oct 2012 at 16:32

Given the support levels I rolled-out last week, SPX should begin its bottoming process as soon as next week–by which I mean SPX will form something like a left shoulder in a Head & Shoulders bottom pattern. SPY has already brushed 1st support ~$140.20 at its 31.8% Fibonacci level:

SPY daily- brushed 1st support twice this week, likely to form L shoulder of H&S bottom in near term

We’ll likely get a false rally off that support, which will eventually yield to a lower-low at my SPY $137.60 target (50% Fibonacci retracement). That could potentially take the form of a “head” in a H&S bottom. SPY’s technical indicators confirm this thesis, with daily indicators oversold but weekly stochastic/MACD/MFI showing plenty of air beneath them:

SPY daily/weekly/monthly- daily indicators getting oversold; a bounce will fade to lower lows as weekly indicators have room to move lower.

On the other hand, the NASDAQ (COMPQ) has progressed even further along its correction process, having almost retraced all the way down to its 61.8% Fibonacci support level and leading SPX in a race to the bottom:

QQQ daily- already below 50% retracement, nearing 61.8%.

Before the broad market correction took hold a few weeks ago, I laid out a gameplan for buying this dip. Since COMPQ had traded both as a leader and in neat accordance with classical chart patterns, I decided to use it as the quarterback for that gameplan. I expect QQQ to give me an early buy signal:

Last week, I noted that the NASDAQ ETF (QQQ) has already retraced 38.2% (a Fibonacci level) of its rally since June 2012’s low. That’s part of why I expect XLK to be a leading indicator of equities’ eventual bottom, being one of the first sectors to rally out of a nearby trough.

The buy signal will arrive upon QQQ’s weekly stochastic bottoming in oversold territory:

QQQ v SPY weekly- indicators show QQQ ahead of the game, leading the broad market lower (and likely to bottom first).

~~~~

Week-end closing prices (4:00 est):

SPX @ 1411.94
ES/ @ 1407.50
SPY @ 141.35

–Romeo

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  1. […] my latest weekend update, I envisioned an intermediate-term bottoming process in broad markets like QQQ & SPY. A bottoming in weekly […]

  2. […] I’ve played SPX like a fiddle.  I bought a bit of the NASDAQ ETF (QQQ) last week.  I saw the left shoulder of a H&S bottom developing.  Although that means a lower low (head) will […]

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