Friday, November 28, 2008

Gobble Gobble

Previous Day
Well yet again we are moving as expected. I had called for a 50+ move day, we had 46. Of course the ever so important break of the 865 - as mentioned my expectation was a break of this range once we reached it. There was a bit more hesitation due to the Long weekend ahead of us yet the bulls stepped in and broke with confidence. Closing in the upper range will definitly give us the possibility for the 900.

Unfortunately our gap down in the morning made the long side quite a bit more difficult. Here I said that the trade will become very difficult - you could see that based on the hesitation at the 865 after the market had to rally off the lows - created too much of an overbought condition once we reached the 865.

Short day, people on vacation, and a weekend ahead. My call would be a sideways day today with a small trade range, we have the possibility of touching the 900 - if that is to occur any longs should close out.

How to trade this?
If you are long off my recommendation today is close day. We are right at the 20 day moving average that currently represents 890 - here is where I feel we will top out - do not be fooled by a break and reaching 900, this is not a confirmation but a fake breakout that will reverse.

I expect a change of trend to the downside on Monday. As mentioned if we do get to the 900 today the change of trend can occur here but we should remain above our 865 key range. There may be a chance here to stay short over the weekend and carry the risk that can bring you great rewards - my recommendation - wait till Monday and miss out on the 20-30 points and find a short entry from there.

The next cycle on the downside should resolve itself by December 3rd and find a bottom at the 820 range. As we will continue on the upside and hit the 970-980 eventually we can savely average down from here starting at the 845, next at 830 and final position at 820.

Of course I will post more details for the daily trades but including a bit more short term details so you can understand how to position yourself better.

Wednesday, November 26, 2008

Well we smacked him alright ...

Another great day close to what I was expecting. I said we ran a little too fast too soon and yesterday was the breather day the market needed to be able to sustain this rally. The short end of the trade worked out great as mentioned with the retest of the previous days high at the 865 range and of course the predicted sell off - you could have closed out anywhere on this short run with a few gains.

The long side carried risk just as I said yesterday - 845, 830, 820 (being the perfect entry). Since this was a breather day my expectation was at least hitting the 830 range - low of the day was 834, great call again but unfortunately not easily tradable. We had our battle of bears and bulls and towards the end of the day the bulls won and we extended our distance from the important 845 range. Very bullish sign again.

You can clearly see now that the bottom at least on the short term has formed and we are setting up for a strong rally.

We have a decision day today, expect the move to be a bit strong with probably a 50+ point intraday range. We have to battle the 865 that in my opinion will break on the upside giving me the 900 confirmation I was looking for. We have had 3 good tests of this range, it has to happen on the next attempt.

How to trade this?
We have the luxary today to have a very low risk trade right at our door step. The 865 range is very important and I would expect a final test at this range today. Here we will either break to the upside giving us a great long entry or break to the downside, if we break to the downside we are guarnateed 40 points out of this run to go back to 820 at the minimum.

If we gap open below previous close today scenarios can change a little bit and risk increases dramatically. So lets hope for today being the decision day at our key range we need.

Tuesday, November 25, 2008

Smack da bear in ze face

Well, understandibly I am gloating quite a bit. I am pretty stocked that my predictions for yesterday were dead on the money - probably my most accurate day thus far in terms of price, action and time.

I had entered a long position on Friday just before the close that I closed out yesterday in the morning - I did not listen to my own advise. Thats pretty sad.

Either way lets get to yesterdays review. We had our gap open and sold off back into the 807 range. I said that if we are to get to 806 its very safe to go long. The hesitation at the 845 range was clearly visible with consequitive tests - I hinted at this being a possible short, the only short but only if we lack momentum and as you could see here we were unable to short this run down. However, a short like this can be protected easily as you have no losses with another retest incoming. Having formed an ascending triangle it was very clear we would break the 845 - those are the type of scenarios we have to watch. Volume was just a tad above average, I would have liked to have seen some more but I take what I can get.

To top of the day we closed right at my prediction above the 850 with 851 close price on top of the range - as you know me I normally do not post close prices but for a day like yesterday it was very important to close a bit above our KEY resistance of 845. We had 4 days below the big october triangle and now are back above it. This is a very bullish sign.

We went a little too fast too soon. Today I would expect a bit of a breather, if we are to get a breather or a slight down day we are setting up for a run up to 960, if we try to continue to rally today we will have a change of trend either today or tomorrow at the 900/910 range.

How to trade this?
ok today is going to be a bit more difficult. We have many non-believers out there, you could see this clearly in the last hour yesterday with huge positions being liquidated. FYI shorting is allowed again today but only with care - the trend is your friend and its currently up.

If we get our slight down day today this is a great chance to try to go long, however, it is very difficult entering a save position here. The entry range for a long is anywhere from 845/830/820. As you can see there is little protection you have today to go long. Watch momentum carefully once we get to those numbers so you can see if we will overshoot. Of course perfect entry being 820 but it is my guess we will only see the 830 today.

If we get a rally in the morning hours to reattempt yesterdays upside of course expect it to sell off, 845 seems the way to go for a long. Again, a bit more careful here today. Yesterday was an easy day to trade, today will be much more difficult and you have to be ready to assume more risk with the same reward.

On the short side of course we have a great way to trade retracements especially if we are to reattempt the upside of yesterday. Keep in mind those trades are only for retracements, so get out as soon as you get your 10 point gain. This is not a long term short position.

Shorts represent the least risk today as we will continue to attempt the upside ranges giving you a chance to get our at no loss, however your gains are very limited. Longs are very risky today but could pay out very well if you are to hold for maybe 2-3 days.

Monday, November 24, 2008

Is this the bottom?

Previous Trade Day
Well guys, after thursday you could see how frustrated I was with the outcome. We had an extremely bearish sign due to our capitulation - my anticipation was further drops to find the low 700s and possibly 650 as the bottom but I think I was wrong and overly frustrated.

Friday setup just as I was anticpating with my bearish sentiment, a quick rally that was sold off instantly to create a new low. We had a quick retracement that was not able to break the next high - however, here is where it started to get interesting. For the remainder of the day we had a very tight trade range of 760-750, something I was very surprised at, to top if off any break out was instantly matched with an equally strong reversal to get back into this range. Normally during option expiration Fridays you see this sideway action but this was occuring on strong volume. The exitement I had the previous day was coming back to me as I let my emotions and anger cool down and rationalized what was going on - it was setting up to be the potential bottom, I started trading the long side of things in the early afternoon but I still had fear in the back of my mind so I was rather careful and had to exit a few positions. With one hour left and on option expiration friday I decided this is it and closed my computer, just to get a text message 20 minutes later from one of you guys to tell me its rallying. Immediately I turned the computer back looked at what was going on and analysed the situation - This could be the turning point for us, finally, too bad I was off by a day but oh well.

Mid Term
Well the market got exactly what it needed. The promise of new leadership and the bailout of Citi over the weekend will give the market the confidence back - yes some will look at the Citi bailout with a negative view but I think rationale is out the window again - I said 2 days ago that investors need an excuse to go long, an excuse to buy - this is it. You can go back to my previous posts that I made back in October stating that we will now have a minimum of a 2 months rally with a top that could lead us back into the 1100's of the S&P. My final targets will be around 1080 or 1160. I will be able to determine the top by the end of this week so bear with me please.

Having given the mid term outlook first you can expect me to look for a strong up day. I would not be surprised at another 6% day today. It is my feel we will be able to hold on to our gains and close of course in the 800 range.

How to trade this?
Well, the first piece of advise I need to give is DO NOT TRY TO SHORT. I know it looks tempting but this could be a bad mistake. I know the past 3 months any short position you entered gave you the results needed. Be careful here when doing this. Some had asked me on Friday if this is a good short at the 770 range and I highly recommended against it.

There are 2 scenarios today, a very likly scenario is a large gap opening and a continuous rally to add another 2-3% on top with a close at the top of the range. We could be closing above the 850 range possibly. We have some resistance to overcome at hte 845 range so watch action carefully here.

Second scenario would be of course the gap open that would retrace back to either 820 (if it opens above), 810 or possibly 806. If we are to get to 806 after a substantial rally we can safely go long here. Entering a long position at this point gives you a great protection mechanism as a break of the 800 on the downside will lead to a potential retest of the 760-770 range. Again this does not mean we can go short. I know I said it above but short positions cannot be protected. The only trade I would potentially engage in short is the 845 range and this only depends on momentum once we get there.

The Long Term Investor
As my readership is growing I am adding a new section for you guys that are in it for the long run. Many of you guys have experienced severe losses with the promise of holding and recovering. You all know what I believe in regards to buy and hold. Give it another read if you want

The long term investor wanting to stay in this market needs to change his sentiment and become much more active. I am not talking about day trading but at least use the morning of your day to review this blog and some news on CNBC - stay involved and be cautious.

So what to do from here - keep your positions at this point until we have established the first leg of this rally. We should find our top within the next 5-7 trading days and should top out in the 900 range, potentially 980. Here is where you would exit your mutual funds and other long term investments. I would probably go cash 100% at this point. We should retrace back and either retest the lows or retest the 800 range. By now you will have protected some of the gains and have a new chance to go long SSO (the leveraged ETF of the S&P). Holding this towards the end which should be December/January you should be able to recover a lot of your losses.

Of course I am posting this before we have our final confirmation of the rally but I am pretty confident.

Friday, November 21, 2008

Hungover after a wild ride ...

I am speechless, honestly, I have been waiting for this number for 2 months now, preparing myself for the proper entry and exit strategy. I missed my entry due to emotional reactions - bought too soon - caught it half way then missed my exit as I was expecting the rally to continue just to have to close a position in the reds. Lucky for me with the proper protection in place and the head/shoulder reversal I had no choice but to abandon my position.

Yesterday was an extremely bearish sign, not holding the 764-770 range and breaking it within the SAME Day on extremly high capitulation like volume is not good for us. I talked about that 1% chance of a capitulation type sell off yesterday - would have never put this into my considerations in a million years.

Any long trades that I thought could be had to maintain the 2 months rally I keep on referring to are too risky to enter. 3 months from 1300 to 750 - in 3 staggering months !!!!! Half way I was trying to find the bottom and go long just to get beaten up, now it seems I am bound to make that same mistake again - at one point yesterday I was up almost 15% of my entire cash capital - its always easy to say in retrospect but at this point the trade is to take any profits as soon as you can and play a maximum of 30 points on the upside of major support points.

At this point I have difficulties trying to determine the next move, of course I think we are overdone on the downside but everyone else believes the same. Previously, government intervention and other efforts have been able to stablize the markets - this is not occuring anymore. From here we have a decent chance to continue on the downside until we see the 650 in the short term.

Today will be a telling day after our captitulation from yesterday - we had no support or any attempts at the upside after our run down. Of course we are moving too fast too low but that is no excuse to go long. From 1007 to 750 in less then 3 weeks. Thats 25% !!!!!!!!!!!!!!

Thursday, November 20, 2008

Get the Champagne out ... we are almost done

Well I was wrong with my anticipation of holding 845. I really would have thought the market would go through some more distribution before selling off and going into free fall mode. We all know that we are headed lower but breaking the triangle as we did yesterday put our indicators all out of whack again. At least the upper side trade worked out yet again. We had a continuation of our rally that topped out, had a moderate sell off worth 15 points (I said 10 so I was a bit too conservative), then retested the upper range just as forecasted one last time before finally deciding that there is nothing up there.

Now we had a major bearish close yesterday, no rally occured after we had broken the 845. I talked with some of you over MSN explaining what would occur after the 845 break as I did not put that into my post yesterday. I'll try to be more detailed next time =)

Special Event
Well, my heart is beating faster. We are only 40 points away from major support ranges, hitting those ranges will start the 2 months rally I was talking about back in october. I am not going to put any price numbers today, if we are to rally and have an up day in the morning (which I do not think will occur) we will just have 2 days of sideways trading on lower volume.

The most likly scenario is of course the continuation from the freefall, creating the v-bottom and hitting 764 in the smack middle. We should see MAJOR buy volume step in here and a recovery that we have not yet seen during our troubled times. I have been stressing this number over and over again and mentioned to many of you that this is a very very special event.

We are currently setup to have this occuring today, if not today it will be next week tuesday most likly. Of course everything can change, if one of the three auto makers comes out filing for chapter 11 I think even then the 764 will have a hard time finding support - though it should hold. There is always that 1% chance that we will continue a capitulation type sell off event similar or much worse then our october crash. Be mindful, be ready, be careful.

You ask me how the market can rally for 2 months after hitting this low? From a Psychological perspective stocks will be oversold/undervalued with bad news priced in. This is how investors will justify long positons and the market rallying. I honestly feel this could be a 200 maybe even a 250 point run from those levels.

Wednesday, November 19, 2008

On the other side again ...

Well yesterday played out as anticipated, we bounced off our upper trend line and went lower to retest the previous lows - it is very important that we can see our descending triangle being broken now for the second time, we needed to stay above the 846 range to have another chance on the upside and we did not. We have now had 2 spikes below that very important trend line, both of them recovered within hours which is a bit of a bullish sign, the market is trying to avoid the big breakdown to 764 - though there is nothing keeping us from there.

Well both of my trades worked out to perfection yesterday. As I do have a full time job I am not always able to act on those but anyone who read my review clearly saw the test of the upper end. My call was for 868-882 and the high of the day was 865.90. Great short entry here to run down to the next level. Here again my call was for the 820 with the low of the day at 826.84 - closely looking at time/price/volume you would have been able to forsee the early reversal - to top this trade off I called for a 30 point rally ... 826.84 + 30 = 856.85 ... we rallied till 859.12 the close of the day.

Today & Time & Price
The market is going to retest the upper range of the current down trend. This should find its top around the 882 range. We have to be mindful here for a potential retest of this range before the final downturn. If we are to break the 882 which I think will not occur we can see 900's again.

On the lower end I would expect us to stop at the 846 though this may only be a small test. It is my feel that the majority of the time will be spend on the upper ranges today.

How to trade this?
Well today we have to remain a bit more cautious. Of course look for the continuation of the rally with a top anywhere between 871-882. This would be a great short entry but needs to be monitored closely. The important thing to watch for is the sell off from this range and the first peak - if we are to re-test and possibly go all the way to 882 (in case we topped out too soon) the sell off should not exceed 10 points. Do not be scared of this retest. With the proper stop losses right above you minimize your risk exposure by quite a bit.

Tuesday, November 18, 2008

On the edge

Current State
Sorry again for not posting updates ... been slacking. Well Thursday we had our perfect V-bottom, if it would not have been for work related meetings I would have been able to get a nice entry price, instead I had to buy in half way. After our october lows we have created a long term descending triangle, as you all know this is a very bearish pattern that ultimately will result in a continuation of the primary trend. With the new low from Thursday and closing right at the lower horizontal edge of the triangle yesterday we have to brace ourselves for more lows to come. We have gone through the proper distribution and now have seen our shift in trend on thursday last week by creating a new low for the year without being able to sustain a rally. We have nothing to stop us now to hit the 764 which should be the bottom. The upper end of the current narrow downwards trend is right at the 880 range - something to watch out for but this is key resistance that I believe should not be broken.

As you remember back in October I had made the call for two scenarios, either a hit to 764 which seemed difficult due to our heavily oversold condition or the 2-3 month slow rally - with bad news in the market place it has to get worse before it gets better. After hitting 764 we will then hit our 2-3 months rally that should lead us back into 1000's possibly low 1100's on the S&P.

Today & Time & Price
Due to a very bearish close yesterday we have to be mindful of a small rally. Of course those will be sold off as the primary trend is down.

The upper end of the current trend line of course is in the 868-882 range. Watch volume, price and time carefully here to determine if this is going to lead to a break or a fall.

On the lower end of course we have our 820 that we all know will eventually be broken, though I would expect some support here.

How to trade this?
Trading on the short side seems a bit more resonable now, I would wait for the rally that can occur in the morning or afternoon and should top out at 870 or overshoot at 882. If we are to see lower volume as prices increase this is your sign for the incoming reversal.

If we are to get lower in the morning we should see some support off the existing 820 range, however any rallys should be short lived and carry quite a bit of risk - I feel we could get a 30 point bounce if we are to reach 820 but be ready to exit fast in case you go long.

Tuesday, November 11, 2008

Dropping like a rock ...

Past Days
Well my friday trade setup worked out perfectly. We had our short rally, then retest of the 900, then the large rally and the pull back just as anticipated. I traded after my own recommendation and had what looked to be a perfect entry for a nice run. However, after the trade had played out we hesitated and were not able to reattempt a decisive break on the upside. As mentioned you need to be aware for change and this is exactly what occured - the hesitation and narrowing around the 922 range was a clear sign of weakness and increased the risk by a substantial amount. I exited my position with no gains which was a wise move - after my exit we got the whiplash I was talking about and jumped by 20 pts in both directions towards market close.

From our Monday top and last week we are now yet again in another pattern. We have formed a decending triangle that is looking for a break on the downside. Rallies to the upside at this point should be short lived and correct itself within hours with no more then a 20 point move. If we are to violate the pattern we need to see a decisive break of the 930 range, if that were to occur we can move up further.

Time and Price
Of course our ever important 900 range, this could manifest itself anywhere from 907 down to the 895. If we are to reach 895 expect a bit of support there of course.

Next numbers on the downside are 891 and 875.

Mid Term
I am still confident of the lows for the year being in but signs are showing more weakness. We need to evalutate the action in the next few days with great care. If we are to create new lows we will see a fairly strong run down that will find its bottom right at 764 - yes thats a lot of points.

How to trade this?
Today a short term trade on the downside presents less risk as we are in a bearish pattern formation. We have clear upside boundaries to adhere to - those boundaries for the current pattner are around the 930 range, a break here would violate our decending triangle and go higher.

As we are opening low I would hope for a bounce of the 900 range (907-895). This should find its top at 912 or possibly the 922 range. Depending on volume and momentum the 912 would be my first short entry at 50% , expect a small retracement back to 907 and a possible re-attempt at the 912. If we are to break wait for the 917-922 range to enter the other 50% on the short side. Your average price could be at 915-916 depending on entry giving you a great position for a run down to the 895 range.

Friday, November 7, 2008

Long time no talk

Sorry buys, between getting ready for the big move and traveling I did not have time to post any detailed updates. Regardless I have shared some of my thoughts with some of you over the past few days.

Past Days
As you know I had called for the drop we experienced the past 2 days before hand. We had a bearish rising wedge forming that we broke out of 2 days ago. Prices had increased on lighter and lighter volume giving clear signs of a reversal.

Unfortunately due to my travel I had my stop loss set a bit too tight for the short position I had entered around 1000 on the S&P - missed out on all gains of the past 2 days - as I had entered a very large short position I was too concerned on the upside and tried to remove any risk from the trade which ultimately cost me a fairly large amount. I did not follow my own rules of a 1:4 risk/reward ratio. I assumed ZERO risk to be able to make huge gains - does not work, I knew it but for some reason I was too afraid - This has happened to me quite a few times now so this time, I better learn my lesson.

As many remember the lows for the year are in - I know many are saying now we will go lower, and we will but not during this cycle. I expected the downmove to stop at the 922 level, stopping at the 900 (899 low of the day) is a bit more bearish then I like but that can be acceptable considering we had a huge sell off without any upticks. We closed at the 904 level, a bit too low for my taste but I am confident we will hold at least on the short term. The next 2 days will decide if we can sustain the lows. If we are trading below the 890 range for an extended period of time (at least half a day) and close in the 890's we will create new lows. There is a slim chance of this happening.

Time and Price
922 of course my exit number I had anticipated after our 1007 downturn
900 very important support, a bounce here should be expected
~896 this number could come into play as the support. If we are to get a bounce here it has to happen fast and should trade at least 10 points higher within 30 minutes. If we are to get sideways action around this point we have to be very cautious and careful

There will be more numbers coming into play today but those are the important ones to remember. We are oversold now and should not see a 40+ point day on the downside.

How would I trade?
This is a new section I may start to add to give advise on what I am looking for to enter positions. Please keep in mind that anything can change and needs to be monitored closely. There are many type of patterns and signs to look for before entry that are to complex to address here. So I am giving a bit of an idea on what to look for and how to protect your position.

I would expect a retest of the 900 range in the morning hours. As I am posting very early (differnet time zone) I am unable to include the morning pre-market action. My expectation though would be a bit of a rally that would find its top around the 922 or maybe a bit higher. We can either continue from here which makes the long side trade too risky to enter or retest the 900 - here is where we can go long with low risk accompanied with a tight stop loss around the 890 range. If you are to go long start off your position with a smaller amount to be able to average down in case it overshots - I would put my second target at the 894 range with a stop loss at the 885. If we are to rally and bounce right off the 900 wait for the first pull back and then add to your long position at the 912 range (where I would expect the pullback from the previous bounce).

Again I would not try to short at this point as the risks are extreme and stop losses won't help you as you as much on the downside due to the whiplash that can occur.