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.

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