The Nasdaq tanked this morning with a 22 point gap down but within minutes the time and sales log shows that mega block trades on the SPY and QQQQ were pumped into the market rapid fire by the bailout team pulling us back up to flat. The rest of the day the market was really choppy. While this choppiness is more intense than usual, it is characteristic of the indexes to do this when they are near the great 108 EMA. Why this support/resistance line is so important is that it is considered the dividing line between bull territory and bear territory on any stock or Index. Wall Street considers the short term to be 6 mos. and the 108 EMA is considered neutrality or equilibrium, when you are looking at 6 month chart of daily trading. So if a stock or index is above the 108 it is in bullish territory and should go up but if it is below then it is considered to be in bearish territory and should go down. Thus we have this great line in the sand in which both bulls and bears fight for and defend at all costs.
On the Nasdaq the 108 EMA passes thru at 2264. Yesterday afternoon it crossed above this line twice but came back down below it into the bell then we had the nasty gap down this morning. Throughout the day today they worked it back up and at 2:05pm they launched a run up to the 2264 number but were stopped cold right at it and sold back down to 2254 close.
Once we are 50 points either above or below the 108 EMA trading will smooth out and things will be more stable. When we are within that 50 point area on each side of the 108, it is the official battleground area and the indexes really get knocked around until one side wins and we are clear of the battleground area to the upside for a rally or downside for a sell down. Neither side can afford to lose the 108 fight.
What causes new rallies and new sell offs is that when the price does get 50 points away from the 108 line above or below, the opposing side concedes they've lost it and change their trading positions to that of the winning side and all of a sudden the market is all bulls or all bears and it charges in which ever direction got the victory.
The bulls we be in position to begin working a new daily bars 5-10 bounce on Monday, which if the bears can't break it down, would easily get the indexs above the battleground area for a clear victory and next leg up. Let's just say the bears have another plan for next week.
The trading is still too choppy for taking any new long positons, but if the daily 5-10 bounce successfully completes it set up by Tues or Wed, then trading will improve quickly for the rest of next week. If being the key word, but I am still in the bullish camp.
Alan
