|
The recent correction in the stock market should not be too surprising. Before the most recent signal of buy our mid-term system was up just under 40% for 2007. In a market with extremely low volatility 40% is a large gain. We knew that eventually we would have a drawdown in our system for 2007 and it looks like it has started. On the other hand, with QQQQ and IWM sitting on very strong support there is a possibility that this correction is already over. If not, we expect another leg lower which could temporarily bring our yearly gain down around 5-10% from here.
QQQQ's low the last two days has been on its 50 day moving average. There is also horizontal support in the 48 area which is helping to hold the ETF up. To confirm that the bottom is already in, we need to see a sustained push above the 49.70 resistance level. A break of the 48 area and 50 day moving average could bring a fall to 45.50.
SMH is not looking as positive as QQQQ. The ETF has been cutting through its 50 day moving average the last three days and the support in the 37.50 area is rather minor. Regardless, QQQQ has been leading strongly and if this continues, SMH will follow suit. A break of the 37.50 area could bring the ETF to 35.50.
IWM has been really hit during the recent decline, but is currently sitting at very strong horizontal support. The ETF has a long way to go before we can confirm that the correction is over, but it goes without saying that once QQQQ confirms a new uptrend, the rest of the indices should follow suit. Meaning, we don't need to see every ETF confirm a new uptrend to know that one exists. QQQQ having a sustained break above 49.70 is most important right now and our best indicator that the correction is over.
We have had a very strong year and there will be drawdowns in our system. It is possible that this correction is over, but if not, there should only be a maximum of 5-10% more on the downside.
|
