Wednesday, January 14, 2009

Sigh ....

Well the market tried its best to make a decision yesterday - highest volume day this year. On Friday morning I had called for a change of trend between 10:30 - 11:30. We did change trends into a sideways trend yesterday - however this is something that normally does not happen. I had posted on 11:31 saying that the breakout and trend change is imminent and 5 minutes later volume picked up. If you look closly at the 1min bars at 11:45 you can see some nice wide ranges with volume - this is where the market needed to break to the upside and it almost occured. While I am glad this call worked out it does not provide a great trade opportunity. Many times sideways action is distribution to absorb buyers/sellers (depending on trend) and then enter a continutation pattern.

Yesterday was a classic bull/bear fight - volume on both sides was equal and we closed the day the same as before. This is a classic sideways sign. As I said we needed a breakout to the upside that did not occur which is a bearish sign. The market lacked the momentum to create the uptrend. To top it off we did not reach my 850 range either - my feel is that the market needs to hit this important support before it can create an upside swing.

Trade Lesson
This one today is just for me. I had a rough day yesterday and regressed in my trading to levels I never thought would re-occur. I was a total beginner yesterday - overtrading, chasing trades, completly ignoring entries, stop losses. I reviewed my trade log at the end of the day, something I do on a daily basis to ensure I trade with proper risk and money management and was sitting just amazed at what I did.

It started off with opening the day with a bad beat. I had entered an alcoa straddle just before close anticipating a strong move just to find both the call and put deep in the reds at the open. That set the tone for the day and for some reason the typical beginners attitude came back "let me try to recover my losses today" - we all know how deadly this attitude can be. No matter if you have a loss or gain - after every trade you start fresh over as if it were the first trade after a 3 months vacation. I had recovered most of those losses by getting lucky trading the ranges (yes lucky as those trades lacked any dicipline). I was almost break even and wanted to close out the day in the greens - I got more risky, used more money and higher leverage and of course got beaten down. Had one of the worst days in 2 months yesterday.

So the advice out of all of this - stick to your trade style at all costs. If you do not get the entry you are looking for have patience and stay disicplined even if that means not trading. And the most important lesson - every trade you enter is a new trade that has no relation to any previous trades you made. I hear many people saying "let me just do this, if I loose its ok as I made money on the last trade" - very wrong attitude - what will you say if your last trade was a loss and the one before, and the one before? Every trade you enter you start with a clean slate.

Ok this lesson was really just for me as a reminder ...

We had our stop yesterday to the downtrend we had created off the 945 peak. Not rallying at our change of trend point yesterday has me a bit concerned and is a clear indication that we will not reach the 945 again on this cycle. The bulls have waited patiently to make their stand and stepped in yesterday just to end the day in a draw. This shows immense selling pressure in the market place with anticipation of further declines.

While I anticipate we will see the 900 range again in the next 6-7 trade days it should remain as the top there and then decline again.

How to trade this?
Due to our draw yesterday I would recommend sitting this one out to see if there are any bulls left in the market place that can push the market higher. If we are to reach of the 850 range we have a great long chance again. 862 yesterday was very close to this range so watch volume carefully as we break yesterdays low. On the short side - we could see the resistance levels as we have stepped down. 871 and 877 are key resistance areas that could provide short term shorts - the key here is on volume and how we arrive at those numbers. Both of those shorts carry a bit more risk then I would like so be cautious at those levels - technically we are still in a bit of an oversold condition.


  1. Pre-market we are already in the 850's. Be careful on the long side as this could put us into the 848 range.

  2. today is either going to be very ugly or a v-bottom with a nice gap fill. Watch for a 10 point drop off the gap open and strong buy volume - if this is to occur we will have a nice rally. Wait 15 minutes first before the market found its tone.

  3. This doesn't look like a V-shaped recovery, so do you see an ugly day?

  4. you are 100% correct, a v-bottom should have already occured off the 848 range (low thus far 847.92). While I would not short this I see further declines with a possible 4+% down day today.

  5. Take a look at the following daily analysis by Marty Chenard (as a supplement to Chaugner's excellent analysis) - it may put today's action into better context.

  6. the more information the better and yes a great addition to what we have been stressing. An important decision ahead of us. I am just about ready to provide another long term outlook update. However I need to wait for certain information to take place to. Because I am very afraid of the curreny cycle we may be about to start. I had mentioned that the second decline should be more orderly and we are currently on the edge of jepordizing this and going into a very bearish formation that could lead us to new lows very quickly.

  7. Where is the next support line on S&P after 840?

  8. 818-820 range which we should see soon. I would expect a retest of the 850 or possibly 860 range before we head there. Unfortunately at the moment we have to be a bit careful with how we trade as volatility is coming back into the market place.

  9. by soon I do not mean today but in the near future unless we have a surprise waiting for us. I will of course provide a more detailed post on new support and resistance numbers tomorrow.