Trade Ideas for 8/20/08

Further broad deterioration today, with lower lows in the major indices. The general market has pulled back to a critical point. If we don't see a reversal tomorrow, to my eyes the concept of the mid-summer rally looks to be in peril. If it turns out the rally is over, that's a testament to how bad things are — and how very bad they will get. With reference to the SPY chart, note how far we still are from the 200-day moving average. For this rally not to have the legs to get within spitting distance of that moving average would mean incredibly deep damage in the market. For those that read Elliot waves, note how the rally from mid-July has traced a simple wave 1, complex wave 3, and we are in the middle of the C portion of wave 4 — assuming a 5-wave countertrend. This could very well turn out to be a 3-wave countertrend instead, meaning no further upside. It will all unfold in the next few days. I read Andy J. Askey's PTV-Investing blog, and it's probably no coincidence that he highlights August 22nd as a potential reversal day. So stay tuned.

On a positive note, the pullback in the Nasdaq actually looks really constructive — it had gotten ahead of itself — and some commodities like gold had stunning mid-day rises and finished at their highs of the day. In fact USU was going to be on tomorrow's list, but instead it broke out in the last half hour. As for LVLT, I'm carrying it over to tomorrow, but the aggressive entry is no longer valid, and the aggressive exit was violated. We came within a couple points of entering on the aggressive position and then getting swept away — telling me it's not time to be aggressive. The other signal for tomorrow is STEC, which has a really nice setup, but again I caution you not to risk too much on the aggressive figures. While the market could go either way at this point, from a longer-term point of view you have to give the edge to the major trend, which is the direction of the 200-day moving average — and for the general market that direction is down. Of course the 2 trade ideas for tomorrow have neutral or better major trends — no accident there.

Ticker	Entry	Exit A	Exit C	Chart
LVLT (Level 3)	3.43	N/A	3.07	Chart
STEC	11.21	10.88	10.34	Chart

Please refer to "How To Trade This System" (right-hand side) to read this table.