Aug

Investing Systems Research Lab Blog for Week of August 16th, 2010

Last week I mentioned that the “path of least resistance was likely down” but didn’t think it would be so fierce. Once the uptrend line gave way the S&P fell fast and hard, taking out the 200-day and 50-day moving averages. Just like back in June, we chopped around slightly over the 200-day in a tight range, then quickly started the descent.

So where we go now? Well, honestly I don’t have much of a read on next week at this point. The selling might carry through for another couple days, then bounce back up a bit into options expiration Friday. Or perhaps we get some buying early in the week only to resume the fall into opex.

I will be watching closely which of the areas the SPY moves into this week, the red box or the green box.

I’ve drawn the Fibonacci supports from the July low to the recent high and we see that the 50% retracement is in the middle of the red box while the 61.8% retracement is at the bottom of it. These are likely downside targets if the market continues it’s slide.

Right now the SPY is just below the 50-day moving average so that is the one to watch this week. The horizontal green line at 113 or S&P 1132 was the brick wall we have been discussing for a couple weeks and we noted how the market got sandwiched between that and the 200-day, just like back in June. Other than the potential for some retracing and a bit of a bounce, the S&P looks like it still wants to go down The bearish sentiment in the media is high, but not quite to the point we are ready to fade it. A couple more down days early in the week and a crescendo of pessimism on CNBC would set us up for another tradeable bounce.

On the weekly SPY chart we see that the market is well below the all-important 30-week moving average and even managed to close below the 10-week. The red and green boxes on the weekly actually give me a little hope as it wouldn’t surprise me to see this weeks tail in the red box with a close in the green. However the potential exists for another leg week with a close near the 1040. That would really shake out the weak hands indeed.

Nevertheless, we can always find a few interesting charts to watch and we know for a fact that on a daily basis the scanners will find some great movers for intra-day trades. Here are some stocks on our radar.

Next week is one of the toughest to get a read on at this point so we will have to wait and see how it shakes out Monday.

One thing to note is that we have a ton of Pivot Low trades, which usually signals we are getting close to a near-term bounce, but many times they don’t fill. as you recall last week it was all Pivot High trades so this is definitely something to consider.

Join us live at the opening bell Monday and we will have a better idea of what to expect.

In the mean time have a great weekend.