By Mike Paulenoff, MPTrader.com
Today is quite a difference from yesterday. Yesterday the markets had a wildly higher opening based on the capture of Saddam Hussein, and then no sooner was he caught then the markets decided that was the news to use to take some profits.
Until the big opening gaps were filled yesterday, we looked at the declines off of yesterday's highs as pullbacks. Once the gaps were filled and the indices continued to ratchet down, it became apparent, pretty late in the day unfortunately, that now that the gaps were filled and the indices were chewing through some important support areas, we were having a significant one-day downside reversal.
The follow-through from that downside reversal today is interesting. The Nasdaq, which led yesterday's decline, is still weak today, and right now the E-mini Nasdaq is down 7 points, although it is 7 points off the low as well. The E-mini March S&P is up a little less than 2 points at the moment and is holding above critical support at 1065.50. Right now it's trading at 1069 and change. A break in the E-mini S&P below 1065.50 should trigger additional weakness down to 1060 or 1059 immediately, and if that doesn't hold, then we start to get real interesting because the prior pivot lows in the case of the E-mini March S&P on December 10 at 1051.50 will be tested. The fate of that test will tell us whether or not we have a significant top on our hands or if we're just having another vicious pullback within the confines of an existing uptrend.
So for now 1065.50 is the micro support for the day, and 1073.50-1075.50 is where rallies could gravitate towards and fail and rollovers should take place. Only above 1079 would we have an argument to be made that despite yesterday's vicious decline, the recovery rally is intent on getting very close to retesting yesterday's highs. That does not look likely.
In the E-mini Nasdaq, which is leading and made new lows this morning below 1394 into the 1388 area, those critical lows got very close to the December 10 pivot low at 1375.50. That is the low that we are focusing on. If the E-mini March Nasdaq breaks 1375.50, then we have confirmed major intermediate-term top on our hands, which will be the feature of the Nasdaq market for many weeks, perhaps many months, to come.
However, any rebound right now in the Nasdaq from its low at 1387 should find resistance at 1405-07, and if that breaks then I think we could get into 1415-20 area. But right now the move from yesterday's high at 1456 to today's low at 1387 has the look of the first leg of an emerging downtrend, and after this little recovery rally runs its course, there should be another very big move down in the Nasdaq.
As for the QQQs, I posted a 4-hour chart of the Qs earlier this morning. That's a very interesting chart because it shows the way the Qs have been trading and contained in a series of lower highs juxtaposed against higher lows since early November. The key levels for the Qs in the general sense are right in the 34.25-.20 zone. That's the trendline off of the November 21 lows. If those are broken, then you test the December 10 low, which similarly to the Nasdaq futures and the E-mini S&P, is the critical low. That's 34.13. If that breaks I think the Qs could have a waterfall decline.
On the upside, if the Qs manage to get above this morning's intraday recovery high at 34.93, then I think they can go up to the 35.20-.25 area before they fail and roll over again.