We formed a shooting star as a result of the pullback, which indicates that further distribution may be necessary. The 875 level on the SPX continues to act as a "magnet" if and when prices fall too low or rise too high from this level. This battle is and will continue to be a multi-day battle. For those that freak out during the day having no clue what's going on, then you need to keep the following charts in mind:
The 60-day chart clearly shows a sustained uptrend, but pay more attention to the 10-day chart. You should be doing this every night on your own, but I have added some extra space for a "blank day" so you can imagine where the support/resistance levels will lead. As you can see, we are still within this 2-week channel. Besides 875, there is intense struggle between 868-878. Collectively, let's call this area the demilitarized zone (DMZ).As for individual positions, continue to remain selective with only the very best setups, just in case the market chooses to go against your expectations. Almost everything on my watch list has to be confirmed intra-day, many times minutes before a breakout. Trades have been and will continue to be posted in the comments section.
4 comments:
John,
Can you explain the 10 days, 5 days and 3 days charts and what is the significant of these chart in term of making the trading decision?
I'd read your blog everyday, and couldn't understand you like to list it while other bloggers don't.
Brandon
Brandon,
Go to this link: http://www.forexpros.com/live-events/transcripts/multiple-timeframe-trading-23604
Its a webinar explaining to you what you are asking about. While the examples given are for FX trading, technical analysis applies the same way, no matter if it is the equity market or fx market. Some tools may work better on equity and others on fx, but its all trial and error and what you are comfortable with using. (Note: In no way I am affiliated with forexpro, just wanted to save you time and help you from losing money, b/c I went through like 20-30 technical analysis books before I found that site and it would have saved me months in trying to understand technical analysis and time frame analysis.)
If you are a short-term trader, you need short-term charts to accurately pinpoint entry and exit, support and resistance levels.
On April 29, S&P hit momentarily just above 880 with stochastics printing >80 then, on April 30 S&P briefly flirted with 890 with stochastics printing >80, and on April 30 it failed resistance just BELOW 880 and with stochastics printing >90, and finally the late day surge back to around 872 showed the stochastics at only around 50. Looks like a possible umbrella top and a bull rally in serious risk of running out of momentum. If we do not see strong volume to the upside on Monday a reversal is in order.
Fundamentally if one assumes a modestly average PE of 15 for the S%P, then anything over 900, S&P earnings will need to be > $.60. I would seriously question whether such is possible at this time. Thus, quantitatively and fundamentally additional inflections might be needed to continue this rally. What it has mostly going for it is historical low prices and increasingly appetite for risk as seen via ERUO/JPY. The whole thing seems, short term as much of a "gambler's paradise" as anything.
Longer term, the fact that contract law is being changed via Govt. fiat, interfering with the Chrysler shut down (referring to the Govt., offer to the bond holders of .04 on the dollar, while giving 55% of the company to UAW) hardly bodes well for the future. That is, in that there is now a complete abrogation of the historic promise, and heretofore LEGAL obligation, to senior debt holders, allowing them to be first in line re bankruptcy, who in their right mind would loan any distressed and/or leveraged public US company money??? Hence, as I have asked myself repeatedly how then, can anyone with any assurance, apply a classic DCF intrinsic value or even net/net to anything inclusive of the overall S&P? How can one play any game with any degree of confidence when it is painfully obvious that the rules of said game might well be changed in the middle? It really is; "different this time". Thus, old metrics just no longer apply. The simply is no longer any type of separation of powers in that the Legislative and Executive effectively trumped the Judicial. And "court packing" will soon come if anyone in the latter deigns to object, indeed, it will still nevertheless come even if they remain silent. I thereby submit historic valuation means very little in our brave new world. Until further notice therefore, both "value investing" and "buy and hold" are dead.
What I am really amazed at is that it has all largely gone through with scarcely a shrug. Contract law, property rights, shareholder values are now subject not to the rule of law and historic agency regulations, but rather the changing winds of governmental whims. This is not good.
The primary point of all this blather is just one thing.
We live in a most UNCERTAIN investing environment, with no one knowing how far current interventionist tendencies will run, or, what directions they might take. They have already run farther and traveled in more directions than many thought. And more seems to be on the way. In the end, there is one thing above all else that Mr. Market both hates and fears, and that is...uncertainty. Sooner or later, this implied uncertainty will be expressed and then, show its weight. Hence, the phrase of the day for the current market situation is..."Caveat Emptor".
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