Issue 320

Posted: August 23rd, 2010 | Author: WMS

Market Strategies

Covering Investing Success Strategies For
Stocks – Bonds – Interest Rates – Natural Resources – Currencies – Venture Capital – Gold

A Publication of Princeton Research, Inc. (www.PrincetonResearch.com)
Contributing Staff: Michael King and Dr. Jan Vandersande

August 16, 2010; Market Strategies Guide To Successful Trading

We give great entries
Trading Options are a timely event , Since we can only report weekly, Your Own Money Management
on Options Trading may be more timely to Take your Profits/Losses

Technical

Last week we wrote that the advance/decline oscillator was slightly oversold and the put/call option ratio had turned slightly bullish (put option buying picked up the previous week but not at the extreme levels seen at bottoms). Hence, a snap back rally was likely last week especially since last week was option expiration week which frequently has a bullish bias because shorts and option writers often get squeezed (this does not happen as often during down trends as compared to up trends- so caution was advised). The market rallied after making intraday lows last Monday and the rally lasted into Wednesday, after which the selling resumed. On Friday the DOW and S&P 500 made lower intraday lows at DOW 10,147 and S&P 500 1063 below Monday’s lows while the QQQQ held above Monday’s low (44.54 compared to 44.30). This is a possible bullish divergence that could result in a rally or which would be negated when the QQQQ trades below 44.30. The advance/decline oscillator is only slightly oversold and put/call ratios have increased with increased put option buying last week but are not at the extreme levels usually seen at bottoms. This means that the market could rally a bit early this week to work off the oversold condition and then selloff again or continue lower immediately to a more oversold condition and then rally into early September (the latter is our preferred scenario). We had an intermediate cycle in mid-late August (plus or minus a week) and we expected it to be a high. It now looks like the high came in slightly early on August 9 (just within our cycle time frame). The next short term cycle is in mid-September which we expect to be a low after a rally into early September. Initial resistance is at the August 9 highs at DOW: 10,720, S&P 500: 1129 and QQQQ: 47.19 and market will remain in a short term/intermediate term downtrend as long as the indices hold below the June 21/August 9 (for DOW) highs (at DOW: 10,720, S&P 500: 1132 and QQQQ: 47.61). Closes above those levels would indicate that the August high is not in yet and that a larger rally was taking place. Initial support is at the July 20 lows (at: DOW: 10,007, S&P 500: 1056 and QQQQ: 43.86) and closes below these lows would indicate a test of the July 1 lows was in progress. The parameters to watch are thus very clear and let the support and resistance levels govern your trading and your stops.

We are in a secular bear market that appears to be far from over and we expect another big selloff this year. However, every bear market has several good rallies that can last from a few weeks to many months. We had one of those rallies (called a cyclical bull market in a secular bear market) which lasted into the April-May time frame (exactly as we predicted based on longer term cycles). It looks like the expected top came in on April 26. It is now likely that the secular bear market has resumed. Only closes above the April 26 highs would negate the resumed bear market scenario.

The support and resistance levels to watch now are: S&P 500: support is at 1056, then 1040 and then 1010 while resistance is at 1129-1132 and then 1175 for the QQQQ: support is at 43.86, then 43.23-43.59 and then 41.77 while there is resistance at 47.19, then 47.58-47.68 and the 48.79 and for the DOW: support is at 10,007, then 9,757 and then 9,614 while there is resistance at 10,702, then 10,920 and then 11,258.

CONTACT

Please Direct All Inquires To:

Mike King
Princeton Research
3887 Pacific Street, Las Vegas, Nevada 89121

Phone: (702) 650-3000
Fax: (702) 697-8944
mike@princetonresearch.com
www.PrincetonResearch.com