Daily Trading Advisory 2 October 2007

By: Arthur Stern
ECONOMIC CALENDAR

PENDING HOME SALES

AUTO SALES

TRUCK SALES

Dear Trader:

As I wrote yesterday, "If 1543.50-1545.00 does not stop the rally, the door is open for new highs in the NASDAQ and a test of 14000 on the Dow Jones", and boy, what a test.

After a higher opening the market started to trend up and in the first 45 minutes of trading, in a parabolic move reached the 1550.00 level. What appeared to be the daily high (many times the market makes the high or low of the session during the first hour), resulted in a sideways trend between 1549.00 and 1546.50, the market held its momentum and broke the consolidation to the upside starting a trend up day. Just small retracements were seen until the 1561.00 level on the SP and 2143.50 were tested and stopped the rally. Only during the last hour of trading some selling was seen as the market started to trade bellow its moving average.

The market appears to be in a good shape as bad economic news stimulates buyers to go in assuming that the FED will cut rates by the end of the month. But the last hour of trading seems to left many traders trapped at the highs.

It’s unusual two trend days in a row and this rally has to be consolidated before another strong move to the upside is seen. Also, new highs on the Dow have been sold at least for a few sessions, and if this index trades once more bellow 14000 we could go back to 13700.

For today’s session, keep a close eye on a test of yesterday highs at 1559.50-1561.00 area, and if the move stalls there, it will be a good set up for a short trade that at least should bring the market down to test 1552.00- 1550.50on the SP and 2131.00-2129.00 on the NASDAQ where our daily pivots come in, if broken, a test of 1546.50-1545.00 and 2123.00-2121.50 should be in the cards before buyers step in, if this can not stop the selling things can be changing and the market could start to trend down testing first 1540.00-1539.50 on the SP and then 1535.00-1536.00 where this uptrend started. A close bellow this level on the SP means a possible test of 1500.00 during the coming week.

Breaking above yesterday highs will bring prices to test the 1565.00-1566.00 area on the SP and 2149.00-2151.00 on the NASDAQ, if this levels can not stop the short squeeze, only 1572.00-1573.00 on the SP and 2160.00 -2163.00 on the NASDAQ will mark the end of this leg up.

In our trading methodology we see how prices react against support and resistance levels to go in a trade with tight stops and if those are broken, they become the opposite, support is the new resistance and resistance is the new support. Remember mental stops DOES NOT WORK, place a hard stop on all your trades and if your position is not running in your favor, get out.

TODAY SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P NASDAQ

Resistance 3 1571.50-1573.00 2163.00-2165.00

Resistance 2 1565.00-1566.00 2149.00-2151.00

Resistance 1 1559.50-1561.00 2142.00-2143.00

PIVOT 1550.00 2129.50

Support 1 1552.00-1550.00 2131.00-2129.00

Support 2 1546.00-1545.50 2123.00-2121.50

Support 3 1540.00-1539.50 2116.00-2115.00

Support 4 1535.00-1536.00 21103.002101.50

S&P FIBBONACCI NUMBERS NASDAQ FIBONNACCI NUMBERS

1602.66 2177.50

1586.75 2164.51

1576.91 2152.68

1561.00 2143.50

1551.16 2130.12

1548.13 2126.90

1545.09 2122.49

1535.25 2109.50

1519.34 2088.49

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