Election Direction…

In general, stocks caught a bit of a rally this week.  Not surprising us though, as we were expecting a bit of a rally from Monday on.  On Tuesday, Johnee and I discussed the probabilities of a flat transpiring, and it still appears that is the case.  We remain in a “chop zone,” and the wave count would allow for the rally to be complete here, or with a slight wiggle down and then one last push higher, likely no more than 1450-1500.

Hourly $NDX

The technical picture is setting up nicely for a divergence on the next push higher.  The $NDX has been “lagging” for the majority of this rally, only closing up 0.06% on Friday, while the $SPX and $INDU closed up 1.54% and 1.57% respectively.  I have said many times in the past to watch the action of the $NDX, as it is typically a leading index.  I was strengthening into the last low, and weakening into this high, signaling a top is likely quite near.

Hourly $INDU

Here is a daily chart of the $INDU.  Notice that the MACD histogram is at its highest level in more than 10 years.  This type of divergence can be tricky.  There is a chance that this could be a bullish divergence, and that prices are going to explode higher, potentially much higher due to such a high value.  However, breadth has not strengthened by a similar (or larger) margin, as one would expect if Beanie’s call of seeing the heavens before year’s end were to materialize.

Daily $INDU

So, aside from Tuesday, we had a fairly calm boring week.  As we all know, the markets are poised for a fairly large move.  We still expect a drop, whether it be of catastrophic proportions or not remains to be seen.  Many people are expecting a quiet week until the election has been decided.  I could argue that both ways, so I will just see what the market brings us.

I continue to watch the same stocks, especially since most of them have rallied quite a bit.  In case you have missed it before…BIDU, BG, FSLR, MA, CF, POT, AAPL, RIMM, GRMN, GOOG, CHK, and CCJ.  The most notable new addition, however, is WYNN.  Now priced nicely at $60 (again), off of a nasty, but extremely unhealthy V-Bottom, with a MACD histogram divergence.  Granted, the IV is a little high with all months ringing in around 140% IV (+ or – 10%).  However, should WYNN spin down for another nice drop, the IV will likely push the 200%s.  Be careful with option selection, but there is plenty of potential for profit in this move…especially should we hit $28 again.

WYNN's horrible V-Bottom

That’s it for tonight folks.  Happy hunting this week.

Skål!