Thursday, January 22, 2009

Jump Market Jump

Can someone say ranges are back? ~70 point range yesterday if you include the gap open. That should account for the 60+ range days I hinted at. We violated the 820 in the morning and dropped straight to the 800 support and formed a double bottom. Look at both charts on the 15min from yesterday and the day before - you can flip them on top of each other and they are identical. Now I mentioned that 800 should provide quite a bit of support and we rallied without any turn into the close - almost 40 point rally. However, while we had a strong day yesterday I did not see the volume I was looking for to make me feel a bull again - but as mentioned from now on no more bull/bear attitude. Most of this rally was spured by the severly oversold financials - this was the driver and nothing else. Looking back at the past 18 months you can easily see how any rally in financials was very short lived - nothing has changed for them with the exception of new 52 week lows.

The lack of sell volume and drops off any of the support ranges was a clear sign that the short was best left on the sidelines. I did attempt a short at the 822 range and quickly got stopped out. After this was broken we continued strong on the upside without any more hesitation.

My anticipation is a continuation in the morning hours to get back to our key support at 848-852 (potential of a 857 run up). Keep in mind we have not given this range a proper test as resistance after we had broken it. Even if we do not see a continuation in the morning we should retrace with a max of 50% or maybe only the 38% mark and then reattempt the upside of 850.

So watch volume carefully as we sell off and continue as this will be a clear sign.

Special Note
I wanted to thank "tr" for the link he provided with the analysis of the VIX. A very interesting way to analyse what we have stated already. It definitly supports what we are going through and will go through. The site clearly identified that we can either create the double bottom of our lows in November or enter a very drastic down move as I had outlined yesterday in my long term review. The financials have given us a sign by having had severe losses this year already. Also yesterdays rally fits perfectly in with the VIX analysis. As we are widening the range of the VIX we need to retrace back to create the higher low. This was clearly done yesterday and supports the sites point of view. Even more so it is a great piece of information for us to analyse the rally that occured yesterday and put it in perspective.

How to trade this?
Well todays review already shows what my expectations are with the most likly scenario of a continuation to the 850 range. Here we have a great protective trade ahead of us again. Also, with ranges coming back I cannot stress the importance of stop losses enough. You do not want to end up on the wrong side when we have a 30 point move. Cut the loosers and let the winners run out. The other thing you may want to do on those range trades is trailing losses.

Place your order, enter the stop loss, once you are in the proper trend and you have your first greens change your stop loss into a trailing order starting at break even price. This way you can maximize your gains, limit your risk to break even and remove the emotion out of the trade "ohhh I am up let me sell" - there can still be some left as was clearly visible yesterday coming off the 800 range - something that even surprised me.


  1. You are very welcome for the link, I find that Marty Chenard provides some very useful insight, much like yourself.

    I wonder if the pre-market drop is just a retracement of yesterdays rally or just an appetizer for the main course… I’ve got 809 as the final fib-level – I'm inclined to think this is a retracement but I'm not trading that hunch.

  2. my call was for this to be a 50% retracement with a final rally either at the 850. Though we have to watch out for the double top from yesterday as it could end there or 3-4 points below. Volume will tell the story.

  3. Are you seeing a double top at S&P 840? Seems like major resistance at that point - yesterday's high and today's high.