Not too shabby today! The market was riding the upper range of the channel until it broke out. Half my long positions were sold out in the afternoon and I was finished for the rest of the day. I am 12% long/10% short/RIC, so I have no personal bias toward either side. I know people who are insanely long and insanely short, but at this stage, after a double-digit run-up in the market, I think it's best to get hedged, no matter what side you are on. Or, why not wait until Monday and just enjoy a 3-day weekend?
It gets tricky here as you can see in the 1 month/60-min chart. We are sitting right above the 20-day MA, only about 20 pts away from the 30-day MA, and there's a whole bunch of support and resistance all over the place. Keep in mind that it can get really choppy here. I think I'll sit this one out and take a road trip. In my opinion, we are due for a pullback and we are in a zone where it is very possible for that to happen. Also make note of the multi-month charts of the various indices approaching 'chop zones' and resistance areas. I take no chances here.
On a fundamental level, I find it hard to believe that C, JPM, WFC, and now BAC have all of a sudden become "profitable". BAC and C are stressing that they don't require anymore government capital. All of a sudden just like that? Businesses that lose money need to reach the breakeven stage before becoming profitable. All we can do is wait until they report to see if the CEOs told the truth, but I find it difficult to believe that the big boys are all making money now...just like that. Now THAT's a miracle!
I nailed the doji day. For some reason, they are the most predictable for me. You can go through my twitter or whatever and see that I called doji days before noon on many, many days. As a swing trader, doji are the most important days for me, despite the fact that nothing really happens on these days. Depending on other factors as well, doji are the most perfect set up for swing traders. It is absolutely the worst day for daytraders to trade. There is absolutely no point in going in-and-out unless you want to waste your time. The key is determining if the day will be a doji well before the day is half way over. I'll try to write something up about that in near future.
Anyway, the market is boxed in. You'll also notice that I use the term "boxed in" quite a bit. It is a term that I use to describe a stock that is either entering or is in the middle of a major congestion zone filled with multiple support/resistance levels, channels, and or moving averages, all of which will limit the movement and progress of the market or stock. A good practice is to take out a chart of whatever timeframe you are using, and extend lines as far right as you can to visualize the next day's support and resistance areas. This way, you'll never be caught off guard whenever a bounce or pullback occurs. Give it a try sometime.
For tomorrow morning, I will depend on my trusty lines to ascertain direction. After all, a doji suggests indecision and is usually 50/50, so the support and resistance levels become especially important for today's trading. I will keep an eye on the COMP because that is actually a spinning top, and there's more weight towards a reversal. Also, several financials are on the "potential reversal" list, and they are WFC, BAC, C, PNC, etc. I'll just have to see what happens pre-market to make the call.
So, my current allocation is 22% long/10% short/RIC. Nothing special, I know that. I didn't remove my existing shorts, but I plopped on double the longs at the open. There will be a point where I do go massively short, for only 2 days, and that will come very soon. This is to catch the top end of the spike for a quick double-digits, and then, who knows what happens? We could head higher or lower, I simply do not know what will happen. If you missed the entire rally and are planning to go long tomorrow for a swing, then you might be better off waiting for a major pullback - just a thought. You do not have any buffer to protect yourself against one up here.
As for the short signal, for a 2-day short spike play, I need to see a number of reversal candles, such as doji, hammers, shooting stars, black-filled bearish gap ups, dark cloud covers, etc., combined with resistance at a MA such as the 20- or 30-day, and short-term technical overbought levels. Combine these three, and the short-side Spiker™ is highly successful when nearly all components of the sector exhibit similarities. It's obvious which sector best qualifies (hint: you make deposits in these).
On bottoms - bear market bottoms are carved out over a lengthy period of time. It is proper to assume that this is another bear rally, until it isn't. On a technical level, a bear market is over when the market is able to breakout above and stay above the 200-day MA, which is over 335 pts on the SPX. On the short-term, there will be significant resistance at 745-750, which is the location of the November lows, and the 20-day MA. Depending on what happens at this pivot point, we could head much higher, or make a new low. Right now, enjoy the long side and I'll alert you to the day to short the Spikers™.
Near-term resistance is at the green lines drawn on the 10-day chart. The red line is the 10-day MA.
On a personal note, I adopted a black lab puppy, and will be giving it away in the morning to a trusted friend. He is TOO MUCH WORK, but it was fun while it lasted.
The market was flagging all day long in a downward channel. As a multi-day/week holder of shorts and cash, the actual shape of the channel and 2-day flag/flagpole means a lot to me. In fact, the last few minutes should have determined a highly likely scenario for the next day, but it looked 50/50 to me. I simply saw no rush to "load up on longs".
Mathematically, slopes have very high importance to the technical flag pattern. I'd say that today's flag had a negative slope of around -0.60. For me to give consideration to a potential Spiker™ play, I like to see a slope of between 0 and -0.30, and no positive slopes. Deeply negative-sloping flags increase the chances for failure to the downside. In addition, the length of the flag is also critical. I will give the market one more day to figure it all out.
Not only that, we are in a very slow and boring measured move down on the 1-month/60-min chart. We are still in a downward move until there is a force spike to the upside well above the upper area of the channel. What's interesting to note is the dried up volume today. Compare today with the past several weeks. It confirms that we are temporarily consolidating here.
Another interesting note is that the COMP has finally caught up with it's brothers and is making the habit of making new lows on a daily basis. This was a divergence several weeks ago when the COMP was noticeably outperforming the SPX, which was falling off a cliff. Today's COMP close is entirely under the November intra-day low, an intermediate-term breakdown.
Something to think about: during the Dot-Com crash, the COMP lost -83% during 3/00-10/02. If you round up all the S&P financials, they lost -84% from 2/07-3/09.
The "Crisis Map"
As you can see, Africa was so destitute they actually dodged most of the crisis. This is the only time where being dirt poor can be a good thing.
