On December 12, 2008, I posted what I see as potential upside and downside for the DJIA, SP500 and NASDAQ 100. Below is the updated charts showing my latest take on where the market might potentially encounter. From the DJIA chart, the DJIA was trading above the 50 SMA for couple of days, then today it fell back below it and the developing bear flag is taking a turn with prices reverting back toward the lower trendline. If the price break below the lower trendline, then the bear flag will enter the down leg measured move section of the pattern, and the measured move is projecting the DJIA to go below the 7000 level. But, if the price hold above the lower trendline and resume its upward trend, then we could see the market rally up to the 9200 level.
Similarly for the SP500, it pokes through the 50 SMA for a brief period then fell back below it and now it is bumping against the lower trendline. If it breaks below this trendline, the SP500 will be entered into the down leg portion of the bear flag. The measured move for this bear flag will bring the SP500 to somewhere between 600-700 level.
The chart for the NASDAQ 100 looks identical to the SP500. If it break the lower trendline support, the bear flag measured move will put the NASDAQ 100 below 1000.
Are these charts telling us there won't be a Christmas rally, or the rallies we have seen recently are the Christmas rally. Unless something dramatically happen tomorrow on options expiration day, chances are there won't be any more rally. With traders taking off for the holidays, trading will be quiet next week leading up to Christmas. If the indices break below their respective trendline support, then it does appear the Christmas rally has came and gone.
Apple, AAPL have already broken down from the bear flag. The chart below shows how it gapped down to break the trendline support. The measured move for AAPL will bring it down to the 70 level. When it retrace to fill the gap, I will set up a January PUT spread to capture the potential downward move toward the 70 level.
On the oil front, OPEC once again announced an additional 2 million barrels cut. This bring the total announced reduction to 4.2 million barrels a day. Note the keyword is 'announced.' What is actually produce can be very much different than what is announced. If you read my assessment on the first announced cut in October, you will see why the price of oil continue to fall even with the announced production cut. Right now, my estimate of $35 a barrel made in October might be a bit conservative. Check out the chart on USO below. There are no signs of price reversal from the down trend. And if you take a look at XOM and CVX stock chart, you will sense these stocks are finally come to the realization that oil prices are not going back up to the $70 a barrel in the near future. These two stocks have been acting like crude oil is still over $100 a barrel.
There you have it, my perspective on the market. Have a happy holidays everyone...Ho Ho Ho!
