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)
UPDATE: Jobless Claims - 623K vs. 582.25K previous, 510K/650K consensus.
The levels to watch are:
1) 820-840 SPX - The range has narrowed and the past two days may be setting up for a rectangular consolidation are, most likely for a bearish continuation. A gap down below 820 and a gapup above 840 need to be taken seriously.
2) 20-day MA - Currently located at 839-840, the SPX could not break out above it all day yesterday.
3) 850, 30-day MA (858) Resistance - This is in addition to the 50-day MA(867) and the upper line segment of the triangle (875ish).
4) 820-822 Support- This is a major level that was tested intra-day yesterday. 820 and 815 are also psychological support areas in addition to a break in the November lower trend line.
Oh man, we got some problems. I'm not kidding. If we break below 820, or 7 pts below our current level of 827, then that will break the only uptrend support level that the market has been relying on so heavily in the past few weeks. You don't have to be smart to figure this out. I can guarantee that you'll see some serious selling if (when) that happens.
If we do get a bounce, watch the 839 -840 level. This is the location of the 20-day MA. The SPX dropped 30 pts the last time the market failed the 20-day. In addition, 850 is key resistance which also serves as a psychological reversal area where the SPX has failed many times..
This one is really tough for the bulls. In the intermediate-term, the action from mid-January till now looks like a bear continuation flag. It can also be an ascending triangle, but the market has to recover most of yesterday's losses today to even have the slightest chance for an upside breakout. If we get some bs secondary reaction rally, it'll be time to re-short. This environment also sets up for higher probability swing trades, most of which will be entered at the very end of the day.
Focus is on the REITs, large and regional banks. They will give you the biggest bang for your buck.
I closed out all my existing positions yesterday morning and didn't trade at all after that. The reason is because I know what the 50-day MA can do and how it can waste a trader's time, energy, and in many cases, result in losses and potentially perpetuate a death spiral. We closed at 869.89, or .24 pts above the 50-day MA (869.65). This was highly expected.
You just don't mess with the 50-day MA because it acts as a "magnet" on an intra-day level. If you noticed yesterday, the entire day zigzagged above and below the 50-day MA, eventually returning to the mean. This showed extreme struggle between the bulls and bears. This is usually because of a pending news item. The end result is that the day becomes a doji, or an indecision day. I even mentioned yesterday (mid-day) that the day was going to be a doji and that it wasn't worth my time or energy to trade.
Not only that, the market is presently bound by the 30-day MA, located at 862.09. This is in addition to the 860-880 channel that I've mentioned many times already. Notice how we kept bouncing off of 860? There are too many support/resistance levels that are keeping this market in such a tight range. In fact, I picked a nice time to take a temporary break from trading to mentally refresh. As long as we're in the 860-880 range, I will not be trading. As long as we're lolligagging around the 30/50-day MA's, I will not be trading.
I am very interested in seeing how the market will react in the morning. Currently in 100% cash and avoiding all the government fuckery.
WARNING: Extremely Offensive
A new feature, The Guy from Boston! (Also extremely offensive)
The most important technical area right now is the 50-day MA. This moving average has caused a lot of grief for bulls since 2007. We are still in a huge neutral range. I suspect that it will take the market a while to make up it's mind, but when it does, jumping on the intermediate-term will be extremely profitable. Until then, stick with short-term swing trading and the more favored day trading strategies.
On the 40-day chart, you can see that I marked off 860-880. This is an area where the market either continued or reversed it's direction. This area also marks the 50-day MA, which is currently at 867 on the SPX. We broke out of a short-term symmetrical triangle, but with all the crap going on, don't be surprised if we get a -20/-30 pt pullback. There are too many news items that will be coming out that will precipitate an instant rally or sell-off. This could be another "buy the rumor, sell the news" type of thing. Don't get too excited about anything.
I am currently reading "Trade with Passion and Purpose byMark Whistler (Wiley, 2007)". It's a $49.95 book, but worth every penny. It deals with all aspects of the psychological/emotional element in trading, an area that is very much neglected. I always tell traders to be patient and stop being impulsive. Much of trading is about waiting - waiting for the set-up, waiting for the breakout, waiting for the pivot point, waiting and more waiting!
Be cool, hunny bunny.
I did remarkably well so far in 2009, producing gains above +60% YTD. My intention is to now cut my position sizing by half and trade less frequently in order to make sure these gains (+ future gains) stay with me until the end of 2009 for my 4th annual triple-digit gain. In fact, I'm going to take a break for a week because I fucking deserve one. I would go on vacation, except I have to babysit some students. The majority of my gains come from my proprietary Spiker™ strategy and maybe, one day, I'll write a book on it.
Currently in 90% cash and not giving a damn about what happens this week. Watch that 50-day MA.
I forgot to mention: the Total Unemployment (U-6), unadjusted, is at 15.4%! The chart below is the only chart where I don't expect a pullback any time soon.
1-day SPX
3-day SPX
10-day SPX
40-day SPX
4-month SPX
