Should You Be Buying The Dip?

Should You Be Buying The Dip?

After the Dow closed higher for seven days in a row a pullback not surprising. The declining volume also suggested the rally was losing upside momentum. The market's corrections hit the Dow Transports the hardest as it was down 2.22% while the Russell 2000 fell 1.42%. The S&P 500 was down just 0.68% as it was a bit weaker than the Dow's 0.29% loss.

The market internals were more than 2-1 negative which has caused the sharply rising A/D lines to turn lower. After the close earnings from JP Morgan Chase (JPM) were weaker than expected and though Intel (INTC) beat expectations their profits were down. Unexpected weakness in China's consumer inflation data overnight pushed the Asian markets lower and Euro zone markets are also down slightly.

The S&P futures are flat in early trading as many are suspicious of the recent rally and wonder whether it has just set the stage for another sharp market decline. The positive signs from the NYSE A/D line after the October 2nd reversal did favor a rally last week (A Market Turn This Week Will Surprise Many) and they also suggested that the market had made an important turn.

Therefore I think a further market correction will be a buying opportunity and the charts can help you target a entry level where the risk/reward ratio is favorable.


The Spyder Trust (SPY) closed below last Friday's doji low of $200.58 triggering a low close doji sell signal.

- The rally barely surpassed the September 17th high but has fallen well below the daily downtrend in the $205 area, line a.

- There is minor support now in the $198.50-$199 area with the 20 day EMA at $196.80.

- The 38.2% Fibonacci retracement support of the rally from the low at $186.93 is at $196.22.

- The SPY did close last week above the quarterly pivot at $195.06 which is an important level to watch on Friday's close.

- The more important 50% support stands at $194.42 but we may not get that deep a correction.

- The S&P 500 A/D line broke its downtrend, line b, before turning lower.

- It is still well above its rising WMA which could be tested during a correction.

- The on-balance volume (OBV) is still acting weaker than the A/D line as it has just tested its resistance at line c.

The Powershares QQQ Trust (QQQ) has continued to outperform the SPY YTD as it is up 3.49% while the SPY is down 1.14%. This is despite the continued weakness in the biotech sector.

- The QQQ formed a doji on Monday and then came close to its downtrend on Tuesday, line d, before turning lower.

- The rising 20 day EMA is at $104.83 with the 38.2% Fibonacci support at $103.87.

-The monthly open is at $101.94 with the quarterly pivot at $100.13.

- The Nasdaq 100 A/D line formed a negative divergence at the May highs, line a.

- The A/D line broke slightly above this resistance on Monday and could correct back to its WMA.

- The daily OBV on the QQQ has just slightly overcome its downtrend, line f.

- Once the rally resumes the next major resistance is in the $109.50-$110.50 area.

What to do? The street's outlook for the earnings season is pretty dismal but I would not be surprised to see a better earnings season than most currently expect. Nevertheless the individual stock earning's risk is high and therefore favor ETFs on a pullback.

In particular I will be watching market leaders SPDR S&P oil & Gas (XOP), Sector Select Materials (XLB) and Sector Select Industrials (XLI) . The 20 day EMAs should be tested on a pullback but would expect the 50% support levels to hold. For my intra-day market outlook follow me on Twitter

Share this ...Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someoneDigg thisShare on Reddit



The publishers of this site cannot and does not assess, verify or guarantee the suitability or profitability of any particular investment. The risk of loss in trading stocks, ETFs, and index futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. You bear responsibility for your own investment research and decisions and should seek the advice of a qualified securities professional before making any investment. As an express condition of using this site, you agree not to hold Viper Report, or their employees liable for trading losses, lost profits or other damages resulting from your use of the information contained on this website in any form (web based or email based), and you agree to indemnify and hold Viper Report and their employees harmless from and against any and all claims, losses, liabilities, costs, and expenses (including but not limited to attorneys' fees) arising any violation of this agreement.

0 Responses

  1. […] following two days of very strong market internals (Should You Be Buying The Dip?) provided additional bullish evidence and reinforced the case for buying the dip. That day the SPY […]