Dow and S&P find Strong Support

Oct 23, 2007: 7:13 PM CST

The Dow Jones Industrial Average, as well as the S&P 500 are showing a similar technical picture – that of strength in the face of ‘danger.’

Both major US Indexes inflected nicely off a solid level of support, drawn on both charts, which has both served as support and resistance over the last few months.  The longer a trendline exists, and the more frequently it is touched, the more relevant the trendline becomes.

Despite the bounce off support in these two indexes, the NASDAQ actually leads in relative strength, as it is completely erased the losses incurred by Friday’s ‘dramatic’ avalanche in prices across the most popular US Indexes.

The Dow:

dow-oct23.jpg

The S&P 500:

spx-oct23.jpg

I have drawn the major support level on both of these charts, and hinted over the weekend that price showed better odds of inflecting off recent support than breaking through it, even if the price action was a slight inflection.

Although the selling pressure and the most recent ‘down-swing’ in price was forceful, it was not sufficient to create a new momentum low in the lower panel oscillator, which is a bullish development.  The fact that the indexes managed to rally as much following a large volatility down move such as Friday is further evidence of underlying potential bullishness.

I mentioned this in the past, but it bears repeating.

WHY is the NASDAQ (heavily weighted with Technology Stocks) outperforming the S&P, Dow, and Russell 2000?

I need only show three charts and mention that ‘a rising tide lifts all boats’.   But does this ‘euhporic’ move contain breadth, or the support of a broad number of stocks, or just a handful?  That is the important question:

Apple (AAPL) traders reacted to strong earnings today:

aapl-oct23.jpg

Google (GOOG) rose in sympathy with Apple, combined with impressive earnings itself:

goog-oct23.jpg

Strong stock Research in Motion (RIMM) could not be left behind with such a strong move in other technology stocks:

rimm-oct23.jpg

These three charts are even more impressive on the weekly charts.  You’ll need to use a logarithmic scale chart to view them properly.

Keep in mind that these stocks represent a narrow slice of the overall picture of what is happening in the broader stock market.  Other sectors and industries are in massive downtrends that are mirror images of these ‘impressive’ stocks (such as the housing and certain financial stocks).

Nevertheless, it is difficult to combat a rising market, especially one with such resilience as the current market is showing.

Be safe and trade well.

2 Comments

2 Responses to “Dow and S&P find Strong Support”

  1. Jonathan Says:

    Hey Corey,

    Did you play the bounce at all in the Dow or the NAS? I could only find my setup in the e-mini s&p and it didn’t trend all day like I would have liked.

  2. Corey Rosenbloom Says:

    Hey Jonathan,

    I’m mainly a Dow intraday trader that swing trades with the DIA and “scalps” (plays short-term, small targets) when needed using the leverage and benefits of the @YM (Dow-Mini) contract. One of my favorite, though rare, setups is the “Gap Fade” then “Impulse Buy” set-up that occurred in near textbook fashion this morning.

    I don’t think I’ve dedicated an entire post to the pattern, but have mentioned it from time to time in a few instances. Essentially, you trade against the gap down to the open (play a “gap fade” or a “gap close” trade) and then invariably, this will set-up an “Impulse Buy” trade (new momentum high, then buy the reaction after the high) which allows you to play for a clear target.

    I actually honestly jumped the gun and went in short too early and was stopped out when price didn’t fall immediately and was discouraged, but managed to enter again when price fell and a momentum divergence set-up on the second failure swing. I exited just above the target of yesterday’s close (for a 57 point profit!) and then reversed course with a tight stop to play the “Impulse Buy” trade that set-up. I got stopped out AGAIN for a 10 point loss and then entered upon the price rising above yesterday’s close (DIA) again and exited when price hit the target of the falling 20 EMA, which resulted in a 31 point profit.

    Four trades. Two wins. Two losses. Acceptable but not stellar profit taken home. I was done by Noon. Lessons learned.

    My ideas were totally on, but I allowed my stops to be too close, but at least I got back in once price confirmed what I was thinking. Losses were due to over-conservatism and unwillingness to ‘take heat’ in a position. I suppose they were also due to over-anticipation in both instances too, and failing to wait for price to confirm, and wanting to get in at the best price I could.

    For some reason, I just can’t mentally grasp the S&P or Nasdaq e-minis. The numbers on the Dow just make sense to me and I can feel the numbers/levels better. I may look at the other indexes intraday, and always keep up with the internals, but I almost exclusively make trades with the Dow-Minis or the DIA ETF.

    There’s always tomorrow!