Tag Archives: resistance

In America’s Ponzi economy, the financials lead the way.

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There is a huge wall of resistance overhead here, and the upward momentum from the first half of 2009 is simply gone.

Prophet.net

Perhaps it’s time for another look at this chart:

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UPDATE: Pej sent me this updated reset chart, which gives a closer view:

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FAZ (triple bear financials) has toasted so many traders in the last 12 months, but perhaps it’s worth another look for the yahoos out there. It’s not fallen much at all since October, actually, and you have a clear stop at January’s lows.

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My own preference is actually to short FAS, the triple bull counterpart. That way you collect the decay even in a choppy sideways market, and you don’t have to worry about counterparty defaults since the cash is already in your account. Look at how weak the latest rally is relative to previous ones. The high was in October. If you’d sold this short back then, you’d have enjoyed a 20% price decay though the underlying stocks are only down 4%!

Nasdaq at major resistance

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Look at how important this level is for the Nasdaq 100 .  It has been both resistance and support and seen breakaways and breakdowns. It also happens to be the 61.8% Fibonnacci retracement of the ’07-’09 decline.

Source: Prophet.net

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Levels like this are not voodoo. When there has been a lot of activity at a certain price, there is much emotional weight attached to it. In this case, those who went long the Nasdaq and its components at this price must be delighted to be breaking even here. Those who decide to count their blessings and sell provide supply, as do the other longs and short sellers who recognise the importance of the level. If there is more eagerness from buyers than sellers here, that supply will be absorbed and prices can move higher, as people get more confident that the bear market levels are behind us. Of course you could say that for any level, but levels that have previously lead to multiple reversals or accelerations have extra importance.

A breakthrough here will mean a lot more if the S&P500 and Dow follow suit. As noted before, in ’07 and ’08 the NDX had a habit of coasting higher just as things deteriorated. The Dow and SPX of course are still under their highs so far.