Wednesday, January 14, 2009


I was twittering all day that we were forming a symmetrical triangle, then an ascending triangle. The breakdown of the triangle set off a cascade down from 12:30PM to 2:00PM. And then, from 2:30PM till 4:00PM, many people got mauled. It is a fact.

Just when you thought that the market was going to breakdown at 3:00PM, you got screwed. The movement in the last hour was definitely impressive, nothing short of a spectacular come back. It made you say "WTF?!", didn't it?

The only trades I made were closing out positions in the morning. It's typically not good to trade on doji days also known as tight-range indecision days marked by very little volatility. Doji tell you that the bulls and bears fought all day long, and neither side could best the other. The market could go 50/50 from here. I did not trade all day long because there was no edge. Did you see one?

We are very close to 857-860 once again. In addition, all three 20--, 30, and 50-day MA's are above the SPX, no doubt going to make the SPX's rally attempt laborious and very irritating. The downside is not that far, in fact, a breakdown is waiting only about 12-15 pts below. Watch the charts, they'll tell you where YOU need to be.

SPX 1-day

SPX 5-day

SPX 40-day

Here's a very important observation I made today. Below is a 3.5 month chart of the SPX right now. Below that is a chart of the SPX from 06/08 - 09/08. See any similarities?

1) Price/Volume Divergence - The rally heads higher, but volume isn't sustained. Here is where volume will be important. Once the range is broken, a burst of volume should be present.

2) 50-day MA Churning - Churning is the equivalent of "hanging out". In this case, the SPX has repeatedly made numerous attempts to rally on both charts, passing and failing over and over until the MA could no long support the market.

3) Bollinger Bands - The BB's are currently at their narrowest levels since the August-September rally. The market was in an approx. 50 point range before a major move occured (down). The market right now is in an approx. 87 point range. The more narrow the bands, the more explosive the future move.

4) V-Spike Bottom - Look carefully at both charts and compare their rallies since the first long white candle and it's trek upwards. It's similar enough to not ignore.

Keep these things in mind. I'm not saying it's going to be this way, but it's nice to know, right?

Don't forget to try the Free Trend Analysis. It's FREE, so give it a shot!

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