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By Pejman Hamidi Pejman Hamidi is editor of the Polar Analytic Services Newsletter (PAS). The following are excerpts taken from PAS. PAS is a short-term stock trading newsletter for the active investor. PAS includes: specific strategies, trader tips, and a real-time chat room during trading hours. PAS is based on technical analysis and all recommendations are accompanied by charts. For a FREE trial, visit: http://www.pasnewsletter.com/ September 14, 1998 Technical Analysis of Key Indices INDU: The Dow Industrials appear to be consolidating the recent sell-off with a tight congestion pattern. We anticipate a September rally in the Industrials but expect that rally to subside around 8150 due to overhead resistance from the Oct – Dec ’97 highs as well as a descending neckline from the April – Aug Head & Shoulder top. These resistance zones converge at approximately the same level, therefore it is safe to presume prices will turn around and head lower. Also, we may be forming the Right Shoulder of a much broader top that will send this market into a Bear lasting several months and likely achieving a price objective of approx. 5000, which will coincide with a trendline connecting the ’90, ’91 and ’94 lows. This trendline appears to be the Primary trend and looks like it will be tested if the market confirms a Bear signal and breaks down further. We are implying that September will rally, but October will bring new lows and a likely major technical breakdown. The 50-day Moving Average has crossed below the 200-day Moving Average for the first time since the 1990 Bear market. This is a strong signal and cannot be ignored. GSO: The Goldman Sachs Software Index has rallied back to retrace about 50% of the sell-off that took place in late August. Prices are approaching a convergence of resistance from both the neckline of a Head & Shoulder Top and Dec. ’97 highs. In addition, less significant but still important when looked at in combination with the other resistance zones, is a sharp downsloping trendline that connects the July and August highs. This triple convergence will be effective in stalling this rally and allowing the bearishness of the market to once again take control. We will look within this index for short candidates with similar characteristics: breakdown retracements to test their resistance lines. INX: The Internet Index completed a major Head & Shoulder Top in late August with a breakdown through the neckline that eventually reached panic-like proportions and carried prices well below their 200-day MA. A sharp snap-back rally ensued, not surprisingly, and prices have once again returned to test the 200-day MA and are facing resistance at this level. Technically speaking, prices should return to test the neckline before breaking down further, however, during Friday’s rally most Internet stocks lost further ground. Therefore we will stand aside and see where this sector wants go. We are Bearish on the sector, and looking for the opportune moment to move in and set-up some short trades. If the broad market experiences another break, this sector will experience major damage, thus, we would like to participate. OSX: The Oil Services Index appears to have put in place a short-term bottom. The pattern falls under the classification of a Head & Shoulder, but is too compact to be construed as a long-term reversal. Therefore, we expect this rally to be short-lived, but nevertheless profitable on the long side. Stocks like Diamond Offshore and Parker Drilling have already broken out above resistance, but Global Marine is indicated to be the laggard and will likely breakout on Monday. If this move is in fact the beginning of a much larger reversal, further testing of support needs to take place. The sector is also approaching overbought, but still has further room to the upside before raising any flags. SPX: The
S&P 500 continues to consolidate August’s
sell-off by using support generated from an intermediate
term trendline connecting the ’96 and ’97 lows.
There is a likelihood for a rally to the 1040 area as
this would be a test of the neckline of a major Head
& Shoulder Top. We expect strong selling to meet any
rally to this level, as a bearish trend has clearly taken
over. A break below 960 would indicate a penetration of
support and should find some support around 940, the
recent low. The days ahead should be interesting, as
political and financial turmoil has taken the spotlight.
We are definitely bears, but are not as aggressive as we
could be just yet. [Visit the BizFN.com home page]
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