by Jason Ng, Founder, Master ‘O’ Equity

That was a huge huge ditch yesterday, wasn’t it? Well, surprisingly, our qualifier yesterday, TRID, which was a morning star still gained over 5% in a day. What does that remind us again? Yes, as a Star Trader, we do not guess the market direction nor allow it to hinder our decision making. We simply trade whatever the system qualifies because it has the ability to pick those falling stocks in a rising market and those rising stocks in a falling market.
Today, we have a full house of evening stars, let’s see if any qualifiers which will allow us to ride the bear trend.

FUNDAMENTAL ANALYSIS
Stocks completely went flat on the face and surrendered an entire week’s gains in one day today! The Dow went down 242.66 points and the Nasdaq composite went down 51.72 points! Decliners led Advancers 8 : 1 in a broadbased stock market earthquake. This landslide happened right after a report from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years. This report hit the financial sector badly as the S&P Financial sector ditched 3.2%. Even the continued slide in oil price do not seem to pump in any more optimism as investors scattered like scared rabbits. Basically what these numbers are doing is to bring out the fear that the economy is indeed doing badly and that the Greenspan Prophecy (of a recession by the end of the year) might indeed be a reality. There are more numbers coming out this week… will the CPI and PPI numbers calm the nerves of our nerve shaken investors?

TECHNICAL ANALYSIS
Well, again, this ditch didn’t come as much of a surprise for followers of my blog, did it? As I have mentioned yesterday, with the “rally” so far being weak and unenthusiastic plus  the Dow coming up against a strong 100MA (100 days simple moving average) resistance level, the markets might just tumble back down and regain its bear trend. Looked like the 50/50 chance fell flat on the down side. That is why traders must never go on hunches but look for objective evidences and trade according to what is actually happening. Option traders straddling on my advise yesterday to go both long and short should be laughing your way to the bank by now. With such a huge single day drop, it will not be strange to see the market going sideways forming small candlesticks over the next few days. This is also supported by the weekly charts showing both the Dow and the Nasdaq composite on their respective 30MA support levels. With such a strong break to downside on rising volume, I see that the bears have definitely taken over and that the market will most probably continue to drop after that few sideways days. So far, the market has followed a classic mid term bear trend pattern by going down strongly, pulling up its loose sock slightly, before going way down again. As such, we might see a testing of their respective 200MA at about 11800 and 2300 soon.

The Star Trading System shows its neutral stance today with 3 Morning Stars and 2 Evening Stars. This is the output from the 1st Filter. After went thru the 2nd Filter, I now have 2 quality signals (counters) that I will monitor during the first one hour of the market today. The 3rd and Final Filter let me know if these signals qualify for the trade. It’s all depend on how these 2 counters perform today.

Here are what I got from the 1st Filter using Telechart 2007: