9:00am (EST)
The bears continued their assault on Thursday after setting a trap at the open followed by an ambush the rest of the day. The weak pop higher faded after the first 30 minutes of trading like we were counting on which helped a number of our put option positions post solid gains.
The Dow dropped 121 points, or 0.9%, to close at 12,811. The blue-chips went out at their low for the session but held 12,800. The next level of resistance comes in at 12,600 which has been our mid-October target and is less than 2% away. Resistance is at 13,000 and the 200-day Moving Average (MA).
The S&P 500 fell 17 points, or 1.2%, to settle at 1,377. We have been calling for a test down to 1,375, and then 1,350, once the 200-day MA at 1,380 withered. The index made a brief trip past 1,400 after the opening bell but this level is now resistance after serving as support since early August.
The Nasdaq tanked 42 points, or 1.4%, to finish at 2,895. We said a test to 2,900 was coming and Tech has made us look at it actually closed below this level. If the bulls cannot claim this level then look for 2,850 to be in the mix. Short-term resistance is at 2,950 on a rebound.
The Russell 2000 declined 11 points, or 1.4%, to end at 793 and below the 800 level. Meanwhile, the S&P Volatility Index ($VIX, 18.49, down 0.59) slipped 3% despite a down day. The VIX reached 19.40 on Wednesday’s selloff and we have said a move above 20 could cause panic selling.
Once again, our chart work was money as you can see the indexes are within spitting distance of our mid-October downside targets. Although trading ranges can be a nuisance to navigate, often times the breakout or breakdown is pretty tremendous and that is what we have seen this week. However…
There was breaking news last night that the zombies are trying to come together to get the Fiscal Cliff solved (before the market tanks any further and Big Ben has to step in). There could be a major rebound if Wall Street is buying what the White House might be selling today. One side will speak at 11am, Obama at 1pm, according to the talking heads.
We have said we are in great shape to play the market’s next major TREND, and as we wind down our current trades, we can go either way. We can play a possible rebound or we can keep stepping on the gas with put options.
As we head to press, futures are showing a nasty open: Dow (-85); S&P 500 (-10), Nasdaq (-12).
Subscribers, check the Members Area for the updates and stay on high alert this morning as we could be busy ringing the register on more profits. We have a number of trade instructions for you this morning so please take your time to read our Action comments for each trade.