Market Diary 1-16-08
We started with a lower open, rallied up for just a few minutes, then crashed down until about 10:50 EST. Some sort of economic report came out better than expected, and this set the buyers in motion. Dammit. The market rallied up up up until about 2:45 EST, then crashed back down close to where it opened. Some commentators have speculated that the last-minute selloff was connected to tomorrow morning’s announcement of new housing starts. The buyers are eager to start putting cash back into the market, but they don’t want to risk getting blindsided by a disastrous report that triggers another round of panic selling.
The indices weren’t all the same, of course. The rallies on the Dow and the SPX stopped at the natural resistance level of half of yesterday’s big black candles, but the RUT rallied even above yesterday’s high. This made those of us holding puts on the RUT somewhat nervous—not just because of the adverse move, but because it breaks the bearish pattern. Monday made the RUT look like it had a definite direction. Today cast doubt on that.
And even though today’s Dow and SPX had lower highs and lower lows than yesterday, the close was unnerving. The Dow showed a near-perfect doji, with the center point very close to long-term support at 12,500. The SPX was more of a spinning top, but that candle’s body also ended up right at the long-term support. I don’t usually pay too much attention to candlestick patterns, but those two really slapped me in the face. They don’t indicate a high likelihood that the indices will bounce at those levels and rally higher, but they certainly call the short-term downtrend into question.
The RUT was even more troubling with its higher high and lower low for the day. 690 is starting to emerge as a support level. But what convinced me to leave the RUT alone for now was the divergence forming between the price movement and the MACD movement. This isn’t happening on the Dow or the SPX, but the RUT is showing a definite bullish divergence. Maybe tomorrow will crash and break that pattern. But for now, I’m not willing to risk money in the indices when all I’m seeing is a doji at support, a spinning top at support, and a bullish divergence. Let’s see how the housing starts look tomorrow.