Thursday, October 9, 2008

The Carnage Continues

Yes, the carnage continued today, but interesting developments are taking place. The QQQQ relative strength is rising sharply, along with the SMH relative strength. This is behavior that is typical of a potential turn. We are now only two days away from the turn date that I mentioned in a prior post of October 14. In addition, many breadth indicators have hit multi-decade lows.

The McClellan Oscillator closed today at -363, which according to my charting service is lower than the 87 crash low. The McClellan Summation Index closed at -3761.83 only a little above the -4050.17 recorded in the 87 crash.

That said, the Dow is likely to go lower tomorrow. Also, earnings start coming in next week, but next week is an options expiration week so that could mitigate the downside next week. When a reflex rally occurs, and it will occur, the most likely targets will be from the 10 dema to the 15 dema. After the crash of 10/19/87, the Dow hit its 15dema 9 days later rallying 17.85%. Such a rally now would take the Dow to 10110, which fits with the rally targets I have been posting. Currently, the 15dema is at 10172. Looking back at the 1929 to 1932 crash, the longest periods without a significant rally were consistently about 8 weeks. Monday would be exactly 9 weeks from the high of 8/11/08. So anyway you look at it, we are at historic extremes. Perhaps we will exceed those extremes, but somehow I think not too much.

Regardless of how much lower the markets go, it is way too late to go short except on an intraday basis.

Updated Rally Targets:

Dow - 9549, 9731, 10003
QQQQ - 35.88, 37.40, 38.92

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