Monday, November 26, 2012

Tale of two Indices.

It’s a tale of SPX and NDX. When the correction started 70 moons back from a high of 1470, SPX came down to 1344. 126 points or 8.6% . Not really earth shaking but OK.  NDX came down from 2880 to 2494 i.e. 386 points or 13.4%. Tech. stocks were lower across the board lead by Apple which dropped almost 25% from peak to trough.   

Now while the bounce is in progress, SPX has retraced about 50% while NDX has retraced little above 38.2%. I expect SPX to retrace up to 61.8% which is around 1420 +/- few points. Will NDX also retrace 61.8%? 61.8 retracement levels in NDX is around 2730. If so then NDX still has another 80 points to run.  It is not guaranteed but with cycles up for few more days anything can happen. The point here, if you are thinking of shorting the indices, better wait for few more days and if you are thinking of taking a day trade, NDX is a better option than SPX.

What is worth noting, since September 14, SPX has lost about 60 points and unless we are very nimble trader, watching the market move every moment of the day, did we lose much by staying in the sideline? Well, we did not exactly stay in the sideline; we dabbled in Nat. Gas for a nifty profit and now waiting for other opportunities. We may get another chance of shorting and this time many parameters are lining up. While shorting, we have to be very quick to grab and run because this is not going to be the end of the world that many are waiting for.

The USD index continues to behave as expected but apart from NDX other risk assets are not showing much vigor. At the point of writing Euro has broken up and has touched 1.30 and yet Crude is languishing and hardly any movement from Gold and Silver.  May be they will also break to the upside but so far that has not happened.

Last week I closed most of my Nat. Gas position and thank my lucky starts that I did. It is always better to be lucky than smart. Nat. Gas corrected almost 4.5% today. So far it seems that $3.70 is the support and that held. The longer term price target is much higher but nothing goes up or down in a straight line.

 Coming back to the Euro, the irrational exuberance is being attributed to the  successful completion of the Greek Aid. Gosh, how long to listen to the same story and how come the market reacts the same way every time. I cannot attribute any logic or reason except that short term cycle of risk assets are up for the week.  So maybe we should just ignore all noise and stop looking for reasons and logic and just accept it as they are.

Among many stories and news that I read during the day the one that touched me is the following : Supermarket Owner Gives Away Stores to his 400 Employees: God bless him and his family.

Before hitting the “Publish” button, here is a contrarian short idea.

(H/T Schaffer’s Market research)

If shorting crude is going to be a good trade, may be this one goes hand in hand with that trade. Please send your feedback and ideas as to how best to short Oil Services.

Thanks for your support and help and for reading the blog.