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Thursday, July 31, 2008

 

sold QLD


admittedly a nervous move -- following a selling climax like we saw two weeks ago on july 15, one should typically expect a longer duration/magnitude upside move than this. but my logic is twofold.

first, the nasdaq 100 is emitting some short-term negative divergences -- 20d new highs, volatility envelopes, participation over 10dma, mcclellan oscillator -- and there exists a decent probability of at least a retest of the july 15 low before any intermediate term move higher. this was the lesson of looking back at past 250d new low spikes (a junior version of which we got july 15). as the index has already hit my meager price target, that's enough for me.

the s&p 100 and 500 are behaving better -- probably consequent of their greater inclusion of financials, which have rallied powerfully. and we're not seeing much growth in 20d new lows. and, though things became a bit overbought on july 23 from the short-term volatility envelope perspective (which is the point from which the indexes now appear to be weakening somewhat) the longer-term version is still has headroom. so i might be early to move out, maybe plain wrong -- indeed, i'm not shorting right away, though that will come later i suspect. but i submit that safety in the current environment is at a premium, particularly playing the long side.

the second element is that the relative performance of the nasdaq 100 vis-a-vis the NYSE seems to have peaked in june. technology (which the NDX is overweighted in) hasn't done very well in that time. until the performance spread between the indexes contracts to more normal levels, long SSO/short QID may be the way to trade.

my DIG long is still open, with a consideration of adding to. my average cost is around 90, and DIG is at 89 or so this morning -- and has traded as low as 82 in the last week as DJUSEN failed to 615 (as earlier considered possible). but the internals are behaving very well on teh retrenchment. rising new lows on each price stab down, volatility envelopes improving from oversold alongside, mcclellan as well. yesterday was a 98% upside day in the basket. on the whole, DJUSEN looks a good setup to push resistance at 675, possibly 700-710. i broadly consider oil to probably be in the process of breaking down out of a terrible futures-driven bubble, but will trade the chart regardless.

UPDATE: i did add to DIG this morning around 89.

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