MARKET COMMENTARY (2-12-09)

I'm glad that I'm still on break (not having traded for a few days now). Looks like I picked the right time.

We saw a classic WTF pattern yesterday. If you don't know what those are, they frequent occur during the last hour, half-hour, or 15-mins of the trading day and come in the form of a HUGE spike. It is a sudden and massive reversal. If you get caught on the other side, then you know immediately, without a doubt, that you are screwed. Whatever gains you had get wiped out instantly and you get closer to taking a loss each second you sit there bewildered by how things, such as hot air from the government, could totally ruin your trading day.

You know what I'm talking about. We've all seen this pattern too many times last year. It appears to have resurfaced like some kind of trader-hating virus bend on taxing your ass. Clearly, both bulls and bears had a difficult time today.

I signaled caution to traders that yesterday was not a good day to trade. I was actually cautious the whole week, unable to find decent opportunities. Sometimes, you do very well just sitting around reading your (currently) favorite book, "Trade with Passion and Purpose" by Mark Whistler (Wiley, 2007), while avoiding a huge mess. Also, a shout-out to Lauren over at Wiley today for hooking me up with a complimentary copy of "When Giants Fall" by Michael J. Panzner (Wiley, 2009). You can read his blog over at Financial Armageddon. I will be reviewing both books.

Once again, I encourage you to practice some caution. Don't forget that the market is closed on Monday, so plan according. I say "caution", because the market is "boxed in" once again. We have major support at 805-815 (as witnessed). This is in addition to the already tested 820 level. We are currently ar 835. The 20-day MA is 838 while the 30-day MA is at 854. In between these two MA's, we have 850, which is an important psychological area. You might want to lighten up on your position sizes and take less risk until a clear direction is determined.

Here's what happened (besides the massive short squeeze): we formed a falling wedge over the past 3 days. Then, we bounced off of the lower bollinger band at 808 almost perfectly. I have no idea what happens from here. The government can come out at any time to announce whatever they want to announce. Don't trade if you don't have the upper edge.

1-day SPX

3-day SPX

10-day SPX

40-day SPX

4-month SPX

Latest from WSP (Ny now, you know that he is extremely offensive)

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