Stock Tiger Stalking Stocks™

For Thursday March 1, 2007  

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Dow +51.91 at 12268.15, Nasdaq +8.27 at 2416.13, S&P +7.73 at 1406.77

There has been so much talk and writing about the Tuesday decline that I cannot add anything to useful about the reasons that most are using to explain it. It was time and some event started it in action is all, in my opinion.

If anyone was holding to many open long positions than they may have some draw downs now to make up but we are still in a longer term bull market. Right now until the correction looks to be over you should remember that to preserve capital is to be able to buy when the opportunity is good. Don't let any losses grow. If you have any stocks with "broken" charts you can use any bounce to exit or set a stop to not hold during any further decline.

Our picks yesterday had only one short trigger a trade and today only a couple of small stocks a buy. In February however we had over 100 trades and over 90% closed higher on the same day so to have a few days of little action is like a rest. I checked the web site traffic just now and today it is down about 30% so it tells me that a lot of folks are staying away from the market at the moment and that is not a bad idea as after a violent move it can be quite hard to trust any moves so better to waif for a more clear direction.

The Dow an interesting chart as the Fibonacci projections gave a possible top exactly where the top happened. The Dow broke the trend line, 50-day EMA and the horizontal support at the same point at 12508 and fell to 12083 or 425 points from the break so a short of the Dow futures contract doubled your money in a day. Low risk entries come about many times a month.

So it fell to the horizontal support at the yellow line but it is still above the 32% retrace and the 200-day EMA. I have no idea how many days we could have more rally but I would expect a retest and to drop to he 32% or green line or 200-day would probably set the stage better for a bigger rally before a pullback in the spring.

This weekly chart of the Dow shows how for almost 2 years the Dow climbed in a channel in a mild slope up until the break out in October. Tuesday it touched the top of this channel so it could be support but a break would take it perhaps to the 50-week and that would not correspond to the chart above. I am betting on the chart above to be more accurate. Note on this chart the 9-week EMA and how the Dow stayed above it since last July/August so that was also a clue to exit quick when it broke. In time it will tag the lower Bollinger band that is now above the 50-week EMA and moving up. The Stochastics are now under 80 so we hope it will move back over before the future decline.

The Nasdaq stayed in this horizontal trading range for 3 months and it looked like we may be in for an extended rally but now back in the same range again.

The NYSE had such a lovely channel it is a shame to see it broken. Looks like good support at the 32% retrace at about 8960 so the next drop may take it there.

The Russell 2000 also broke its trend line and horizontal support so unless it quickly gets above it will also most likely take the path back to the 32% and strong support.