Quick Daily Look at Dow, NASDAQ, and SP500 Year to Date

Jul 23, 2009: 10:34 AM CST

With this morning’s powerful break to new 2009 highs above price resistance, let’s look at the comparative price structures in the Dow Jones, NASDAQ, and S&P 500 Indexes year to date (as of mid-day July 23).

Dow Jones Index:

The Dow Jones is the only major US Market Index that has not made a fresh high for 2009, but that’s only in semantics, as the January 2009 high was 9088 which – as of this writing – is  about 60 points away from breaking to new highs.

It’s important to note that the index has risen above the June and February highs on the most powerful, single swing of the year (rising almost 9 days in a row now).

The ‘failed’ Head and Shoulders pattern has lead to a more powerful than expected breakout in the opposite direction, as well as short sellers covering their positions all the way up – which is also the case in the S&P 500.

NASDAQ Index:

The Technology-heavy NASDAQ Composite Index is the strongest of the three, having risen 20% since 2009 began – that is an accomplishment traders who follow only the Dow or S&P 500 are missing.

The NASDAQ is often known as a market leader, so strength in the NASDAQ is generally good for the overall markets.  The NASDAQ is now set for a 10-day winning streak!  Who saw that feat coming!

S&P 500 Index:

While most eyes are focused on the S&P 500, the S&P broke above its resistance that I and probably most people expected to hold which was around 954 from the June and January 2009 highs.

Today’s development reminds me of a couple of things.

First, like Mike Bellafiore of SMB Capital described in his recent interview, it’s best to think of the market and set-up trades in terms of “If/Then” statements.  For me, I expected resistance to hold but noted “IF the market breaks this resistance, it will defy a large number of people’s expectations and – as the ‘last line in the sand’ for sellers – will THEN likely result in a large, sudden rally as stop-losses from hardened bears are taken out, creating upside pressure.”

It is not helpful to have a dogmatic view that the market *has* to go in one direction over the other – pay attention to sentiment and know when a large group of traders are likely to be caught off guard when the market defies expectation.  You’ll probably take a stop-loss but if you’ve framed the scenario properly, you can profit from the losing side being squeezed – sometimes these unexpected moves lead to the largest profits.

Another similar scenario played out earlier this month, when so many traders expected the Head & Shoulders pattern to break sharply to the downside.  I highlighted how sentiment was over-bearish and that just a small ‘spark’ higher would trigger a strong rally (which has been stronger than even I expected).

The “If/Then” was the same:  “IF the market breaks sharply above 875 and holds support, THEN the sellers will be thrown off balance and a large short-covering rally (with new buyers coming in) will commence.”

Finally, it shows us that we need to use good money management and adherence to stop-losses in the event we’re wrong – there’s absolutely no point in fighting the tape (price movement) all the way up just because we have fundamental, technical, or quantative reasons for the market to rise or fall.  A major key to trading success long-term is being able to discern low-risk, high probability trading opportunities, take the trades, and take smaller losses than your profitable trades.

It’s about edge, and the combination of the “Accuracy Edge” with the “Monetary Edge.”

The S&P 500 will most likely try to target the coveted 1,000 level which could serve as a ‘magnet trade.’

I’m reminded of what Brian Shannon of AlphaTrends is famous for saying:  “It’s all about price!”.

Check out my May update post on “Competing Elliott Wave Counts in the S&P 500” for a broader perspective, in which all counts targeted the 1,000 level as a likely outcome, which we’re experiencing now.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

11 Comments

11 Responses to “Quick Daily Look at Dow, NASDAQ, and SP500 Year to Date”

  1. Bob Says:

    Kind of expected a break of the 957 resistance level today. For the day, the volume spike one might associate seems light. I wonder if the pro's are selling into this rally? … but nice five wave expansions at the 5 minute level everywhere one looks.

  2. ZeroPointMind Says:

    Corey, whats your take on this being P4 ? Seems like a rather extended Primary 4th wave. Does the time spent in this wave suggest we may have finished P5 and in a bull market ? Your most bullish scenario ?
    TIA

  3. Corey Rosenbloom, CMT Says:

    Hey Bob,

    I have to say it took me by surprise. With the doji yesterday, appearance of an 'arc,' negative momentum divergence, negative TICK divergence… but what do you do. It's a reminder we play always in probabilities and never in certainties! That's why I prefer the day-trading world to the swing-trading. Unexpected gaps like this don't hurt at all and are actually quite beneficial to the day-trader (as likely precursors to trend days).

    The traders I talk to were just as surprised, though only one was long last night.

    Main play now is not to get in the way of the rampaging bulls!

  4. Corey Rosenbloom, CMT Says:

    I'm still of the mindset we're in Primary 4 up which has a target of 1,000 to 1,100. A break above 1,100 would cause me to question the expectation for a W5 to come but this is how I like to play Elliott.

    Whether we're in Primary 1 of a new bull market, or Primary 4 rally still in the Bear market, then we're long and with bullish expectations. And then after this rally falters (it will – no rally can go straight up for years on end), then we will get a down-swing and it will either be Primary 2 down in a new bull market or primary Wave 5 down ending the bear market. So the trajectories are the same and there are two points we will know for sure:

    1. W4 cannot exceed 1,300. If so, then we're in a new bull market.

    2. W2 (of new bull market) cannot go beneath W1 (which would be the March lows)
    If we break beneath 666, then we're in a 5th wave.

    Until one of these two events happen, the two competing counts are in alignment.

    Thanks ZeroPoint! Glad to have you as a subscriber! Good questions by the way.

  5. Bob Says:

    To quote a phrase from Fantasy Island – “The pain boss, the pain!”

  6. Bob Says:

    Kind of expected a break of the 957 resistance level today. For the day, the volume spike one might associate seems light. I wonder if the pro's are selling into this rally? … but nice five wave expansions at the 5 minute level everywhere one looks.

  7. ZeroPointMind Says:

    Corey, whats your take on this being P4 ? Seems like a rather extended Primary 4th wave. Does the time spent in this wave suggest we may have finished P5 and are now in a bull market ? Your most bullish scenario ?
    TIA for your insights and the Idealized Trades, love em !

  8. Corey Rosenbloom, CMT Says:

    Hey Bob,

    I have to say it took me by surprise. With the doji yesterday, appearance of an 'arc,' negative momentum divergence, negative TICK divergence… but what do you do. It's a reminder we play always in probabilities and never in certainties! That's why I prefer the day-trading world to the swing-trading. Unexpected gaps like this don't hurt at all and are actually quite beneficial to the day-trader (as likely precursors to trend days).

    The traders I talk to were just as surprised, though only one was long last night.

    Main play now is not to get in the way of the rampaging bulls!

  9. Corey Rosenbloom, CMT Says:

    I'm still of the mindset we're in Primary 4 up which has a target of 1,000 to 1,100. A break above 1,100 would cause me to question the expectation for a W5 to come but this is how I like to play Elliott.

    Whether we're in Primary 1 of a new bull market, or Primary 4 rally still in the Bear market, then we're long and with bullish expectations. And then after this rally falters (it will – no rally can go straight up for years on end), then we will get a down-swing and it will either be Primary 2 down in a new bull market or primary Wave 5 down ending the bear market. So the trajectories are the same and there are two points we will know for sure:

    1. W4 cannot exceed 1,300. If so, then we're in a new bull market.

    2. W2 (of new bull market) cannot go beneath W1 (which would be the March lows)
    If we break beneath 666, then we're in a 5th wave.

    Until one of these two events happen, the two competing counts are in alignment.

    Thanks ZeroPoint! Glad to have you as a subscriber! Good questions by the way.

  10. Bob Says:

    To quote a phrase from Fantasy Island – “The pain boss, the pain!”

  11. Chart Junkie: A Picture's Worth ... 7.24.09 | Wall St. Cheat Sheet Says:

    […] Corey Rosenbloom from Afraid to Trade took a nice big picture look at the three main market indexes on midday Thursday. We can see that the rally continues, but also notice how volume and momentum have been waning. Corey notes that the recent rally followed a very simple conditional logic setup (a technique highly recommended by Mike Bellafiore at SMB Capital): “IF the market breaks sharply above 875 and holds support, THEN the sellers will be thrown off balance and a large short-covering rally (with new buyers coming in) will commence.” Monthly SPY with 10-EMA […]