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This is just a short term progress update for our previous Stock Market Choke Points for 2008. Currently, well from our last market estimation, to Friday 01-04-08, markets have broken and closed below the previous established quarterly range for second half 2007 on the Russell & S&P Small Cap Indices. The potential for an oversold bounce in these and other indices is significantly great due to the extreme negative breadth statistics on Friday 01-04-08 and the deep oversold condition of 6 consecutive days of lower closes combined with lower highs and lower lows. Under most any kind of market condition even one with such deteriorating health as is currently, there should be at least a 2.5%-5% “drunk dog bounce” high probability. Price volatility is a two way street and has expanded at a greater ROC in the last week than the previous month of December. Take a look at chart sub-titled IWM for the Russell 2000 ETF.
IWM Price has just tested an expanding trend line at its lows and has shown some elasticity, but very little I must say. Failure to get a bounce back above the close of Friday 01-4-08 by a minimum of 1.5% from here before any resumption lower by more than ~.5% invites massive selling by the media driven panic hoards and trend followers. This most certainly would ring the fire alarm at the Fed./Treasury and Presidents Working Group. The next chart I want to point out, is one of the analog driven models used in our client account management in application to the NASDAQ Composite, sub-titled ND Comp.
ND Comp This is a chart of the NASDAQ Composite using an overlay analog of the current time frame of the ND Comp. using the red line chat starting from the August 2007 lows on the lower left to present day closing prices as of Friday 01-04-08. The percentage scale is correlated to just slightly better than 90%. The green bar chart is a previous time frame of that same index. What can be determined here is that there are short term conflicting cross-current signals being generated while at the same time concurrent signals. (Isn’t it always that way though?) The NASDAQ Comp is strongly suggesting continuation lower, using this analog format, while the small caps and Friday’s breadth statistics and oversold price condition bid well for a short term bounce. Either way, without a massive short squeeze come Mon./Tues. and/or Fed./Treasury/ Working Group involvement, any bounce begs to be sold from a technical perspective. The risk here again is a massive one day short squeeze orchestrated by those with the electronic printing press to do it, therefore the potential for whipsaws is extremely high at this juncture. Several long/short strategies could be implemented to minimize that risk while exploiting the near term volatility or trend. Note: This is not a recommendation whatsoever to buy or sell any security or advisement for any action to be taken based sloely in this or any other information presented.
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