T-Waves

[Tetres]

This is a brief out-look of what I sent to my readers this morning

To Test, Or Not to Test ... That is the Question! When I was looking at the charts this morning I’m starting to see the first sign of a diverging signal again. Since August 25th when I instituted a Major warning of a pending reversal and sell-off, the signals had been pretty clear that we would in all likelihood be re-testing the July lows. I recently “Prematurely I admit” issued a reversal call

The first stage that confirmed that plausibility came on September 3rd, when we experienced a cliff dive event for the DOW as it shed more points than a Jenny Craig group sheds ounces. Usually such a significant drop can signal a change in investor sentiment, that cliff dive was important technically as it marked the first lower low since the volatile reactionary rally from a low of 7532 on July 24th took hold. The Dow then found support and rallied up to September 11th as a patriotic gesture. Unfortunately for the bulls that high was a lower high following a lower low, a significant bearish formation. This set up was then followed by several defining days of market action which resulted in the development of a classic head and shoulders pattern, with a neckline break at 8260 that signaled the continued drop, we came within 50-60 points of completing a normal H&S retracement (I had projected a drop to 7,355 -7,365, and on Monday we dropped to 7,422 only 57 points shy), hence this may be deemed a success. However as of right this writing we still have not seen a higher high in the Dow or Nasdaq. we have recently been probing fore just such an occurrence and I believe we could very well, see such an reversal event so I am looking at several key areas of overhead resistance that I thing you all should put on your radar screens.

A key area of overhead resistance in the DOW that needs to be overcome 7,998 – 8,012, yesterday’s rally fell short of reaching this level by approximately 30 points. I have received many emails from loyal readers warning me that a potential whoosh could be around the corner. I agree, there is that potential, however that potential exists on almost any day, as many market participants are as skittish as a long tail cat on a geriatric ward. As if we experience another terror attack, large blue chip corporate scandal etc. However, I believe that since we have recently seen that the objectives of the bad-news-bears was to test the reactionary lows of 7/24 (7,532) which was just accomplished…then to probe the zone of the 7,405 -7,415 that related back 4-years ago to September 1998, which they did, they failed right at the linear regression zone of 7,460-7,480. Hence I believe we have successfully tested the July low’s and are now on stage #1 of a rebound.

So, I believe that we need to be on the look-out to ascertain whether this was in fact the first stages of establishing a true bottom or just another trap being set by the bad-news bears. A break through the 7,998 -8012 zone on the DOW above and a close above the psychological 8000 barrier would be the first sign of such a potential reversal. The bears are running around saying that since we actually saw a lower low than we did in July, that we are still on track to DOW 5000. They have a chance at being right however I believe the Bears as did the Bulls suffer from Irrational Exuberance as they will tend to overshoot rational valuations just as the bulls did. Now for my Bearish View, my balanced approach…After today's warnings after the bell, we may be close to a second retest of the July reactionary lows, as we are only 220 points away, and triple digit moves are becoming the norm of late, after failing to power through the aforementioned overhead resistance zone.

After a massive rally of almost 350 points in the Dow on Tuesday, we expected to see a retracement/pullback could be expected. That makes it hard to tell whether the failure under 8000 is a significant sign of weakness from a failed rally, or a normal pullback. We closed at 7,939 on Tuesday…hence:

A retracement of 23.6% would have resulted in a drop of 82.6 points, or a retracement to 7,856

A 38.2% retracement would result in a drop of 133.8 points, or a retracement to 7,805

A 50.0% retracement would have resulted in a drop of 175 points, or a retracement to 7,764

Prior to the White house announcement of the IRAQ resolution and the uncanny screw-up in the data feeds system wide, we had rallied from 7,803, the 38.2% retracement level up to 7,960 21-points into the Green zone the markets were demonstrating what I called a healthy retracement, some back filling and then a gradual move up, all this was happening after A warning from Dow Chemical, rocked the Dow on the open. As the President was talking the markets were waffling, then the data feed issues started a sell-off as skittish longs decide to book-em as they could not trade appropriately. The Dow traded off down to 7,850 and started to rebound into the Bear Stearns fiasco…as it appears that a clerk apparently hit the wrong button and almost turned off the S&P (imagine a clerk could do such a feat, and that there were not safe guards built into the process?). Shortly after 15:00 hours a Bear Stearns clerk was supposed to enter an order to sell $4 million worth of S&P equities, a normal type of occurrence as it was a basket sell-program, however the normal part stopped there, it is reported that the clerk rather than execute a $4 million order typed in a $4-billion dollar sell-order. It was reported that they were able to cancel all but $622 million of the orders prior to execution. This tends to explain the sudden whoosh for the end of day drop


Best of Luck folks
Steve
http://www.twaves.com/