Monday, January 12, 2009

Still no decision

Previous Trade Day
Well I have to admit I was quite surprised at Fridays trade action. We had a very strong move in the morning hours as anticipated but the remainder of the day remained very tight. We absorbed the unemployment which turned out to be a number many expected - that by itself can be a good thing sometimes. However, after the initial drop nothing happened. I would have expected much stronger moves throughout the day but we did not see anything that would resemble a decision for a trend.

As you saw in my note I would not feel comfortable holding over the weekend - I guess many others thought the same way and started pusing the sell button just before the close. We closed right at the 890 range which is my confirmation for a break for the downside - however we did not break it - we had a few points below at the 888 but went back into the close. The market is trying its best to avoid a breakdown off this range as it will accelerate selling.

Earning season starting again with many expecting horrific numbers. This in fact could help the market in case any - even if its just one out of five will report numbers that are better then expected - kind of like "I only lost 3 billion this time and not 3.1 like last time" =)

Just as we rallied off our lows in November the market is looking for any excuse to buy. I still feel we have one last push left in the cycle, however we have to account for the fact that the top may already be in.

Mid Term
As we have a few new readers here I would ask you to read my older posts as well. This one was done back in October giving you a long term outlook

The other one in November when we had created the lows

When looking at the daily chart of the S&P we have a very strong reversal signal building. While we are creating higher peaks our momentum is dropping and creating lower peaks - this is a very bearish sign and considering this is a 1+ month pattern we have to be cautious for a rapid drop back to retest the lows.

The market is currently setup to give us one last push. This is also driven by Obama with the hope of changes and leadership that could help us out of this crisis with a black eye instead of broken legs. But I think many of us know this one will break legs - denial sometimes is the best thing you can do after severe losses. Consider this - you have lost 50+% of your money that you have worked very hard for in the past 5+ years - poof and it went away. Many do not want to accept those realities and continue life filled with false hope. Ok back to technicals as we could be sitting here for hours analysing how we will continue.

How to trade this?
We will have an opportunity with great protection to go long at the 885 range as a break into 870's would signal a run to 857. However, as you can read in my mid term review it will be difficult to justify holding this for long. On the short side I would be cautious as we have dropped quite a bit quite fast. We have some very short term opportunities at the 900 and 911-912 range but those could be broken if we get the hope of better earnings results.

Lets try one of the hardest things to do - patience. Wait it out and see where the market will take us before entering positions. Maybe I have become too cautious of the enviornment but please bear in mind where we currently are time wise. We need to know the mid term direction of the market to be able to properly hold positions - and at the moment we have none so waiting on the sidelines and staying small in your trades is the best advise I can give.


  1. Looks like 872.5 is the final fib-retracement level before the multi-day uptrend is invalidated. Your mentioned level of 890 corresponded with the 61.8 retracement of 887 which is exactly what the market hit (867.75 – march emini contract) before bouncing. We may see today if 872.5 will function as support after a break of the 887 level.

  2. Sorry I meant 886.75 and not 867.75

  3. yeah we are very close to key ranges here. We need to break out to the upside soon or we are done. If we are to hit 857 its the last leg for the uptrend to exist.

    I feel we will see quite a bit of support in the 885 range today possibly overshooting it to 880 but not lower. If we are to go lower we will head for 857 - so watch for volume as we approach this number.

    We can have slight violations of the 50dma and closing one day below this range is still acceptable for the uptrend but as mentioned we are on the last leg here and we need to make a decision.

    As mentioned last week I forsee a change of trend tomorrow in the early hours of trading so lets see if this will hold to be true.

  4. "As mentioned last week I forsee a change of trend tomorrow in the early hours of trading so lets see if this will hold to be true."

    Chaugner, when you say "change of trend" in the last paragraph of your comment above, tomorrow, is this change of trend to the upside or change of trend to the downside?

    To follow on with the main blog, I am under the impression the market is going to test new lows 740, for a double bottom or new bottom.

    If we do this before the Jan 20-Feb 5, it might set us up for the 'last-gasp' rally referred to; up to 1020-1060 or maybe 1120.

    Appreciate your commitment to technical analysis. Enjoyed reading your October 29, 2008 perspectives. Regarding two crash scenarios. A second question, how do you view November 20-21 lows, as fitting into 1st crash scenario and are you looking for a more orderly sell off in 2009?

    Simply looking for more understanding.

  5. My Friday morning review included the change of trend statement – I was just referring back to it here as a reminder. We will have to wait it out and see what will occur but the current cycle is coming to an end tomorrow morning. We can either accelerate our current downtrend which is less likely or change into an uptrend which is the more likely scenario but the market gives us signs and once time is up we can make a call on direction.

    Regarding the longer term posts I had included today. As you saw in the October post I made the call for the obvious 760 range bottom and it occurred (though it did overshoot by a few points) and then rally to follow. The October post is still valid and holds true in terms of the description of what we have gone through and will go through. The November was merely meant as a more precise update for the October post which of course was referring to the first “crash” scenario.

    Regarding possibly hitting the 1000+ range – the decision for this trend needs to happen this week, not meaning we will hit it this week but we need to stay above the so important 857 range – reattempting the lows should not bring us back into this range but give me some time until we have made a decision here and I will provide another long term outlook post again. As you can imagine its not easy making those calls and we need to wait for the market to tell us what will happen – at this point it is difficult to determine what our next 3 months may look like so please understand that I cannot give this information – we do not have all the sign in place yet.

    I am glad you like the blog and hopefully it can help you in taking in information you would not have considered otherwise.