Yesterday
Surprisingly yesterday turned out as expected. I had hinted at the 918 now being support with the low of the day at 919.53. Many of us went short yesterday with the anticipation of a breakdown - something I advised against but I did not listen to my own words either. We now had quite a few tests at the new high at the 935 range, this makes this trade a little easier however there is still room at the upside with a 945 final test.
While we closed in the reds we were able to hold on to gains, close above the 50dma and close above the important 918. All those signs make me blieve we have one last run left in this rally before breaking down.
Today
We have one last chance at a break of the 935 which should occur in the morning hours. We are right on the edge of a break to the downside as momentum is making lower peaks while we are creating new highs. If we are to only get a test out of the morning action we should see ourselves further in the reds today.
How to trade this?
Well, as mentioned I could not resist the temptation and entered a short position at the 927 - considering we have a chance at the 945 its not a great entry but will pay out over the next 2-3 days - however gains now are limited as we could have a better entry for the down run.
Anyone who is still waiting on the sidelines has a great short opportunity today with half position at the 935 and leaving some on the table for a potential 945 run. Of course the long play carries way too much risk with very limited potential so stay out of any long attempts.
Mid Term
Going back to my posts at the end of november I am glad the overall market did exactly what we thought it would - even as far as calling an ascending triangle with a final break of the upper range. I admit I was a bit hasty to call the rally over when the first GM bailout failed but it shows even more the markets committment to rally besides the bad news. We have broken 9000 on the DOW which is a fairly sentimental number - you can see the appetite for bargains coming back in - many have asked me "Should I buy this? or this?" and I refer them back to my previous posts - people are believing this is over and looking for opportunities to not miss out on this up run - be careful as this is a short term rally that will come to and end soon. My calls at the bottom were for this rally to last towards the end of the year and possibly into January with a potential peak in the 1000's of the S&P. We can now clearly see how this is possible. Use this as a mechanism to minimize your exposure to stocks and other riskier long term investments and try to preserve capital as much as possible.
Welcome back and a Happy New Year to you as well! I enjoy reading your blog and want to thank you for posting your insight on the market.
ReplyDeleteGood call on the 945 today! Broke the 935 early morning, and I was able to take positions in SDS and DUG near their lows of the day.
One question: What analysis did you use to get 945 as resistance? Perhaps 38.2% Fib retrace using Sept high and Nov low?
Happy new year to you as well =)
ReplyDeleteThere are many ways of making those calls. Some are related to moving averages (primarily the 50 day and 20/21 day), some to bollinger bands at specific points in time or previous peaks/lows before then and of course fibs.
The more often you use different type of indicators the more you see how easy (or not) they can be used based on the situation - I have to admit its not a sience but more an analysis of the situation.
For the 945 I actually did not use Fibs as my main reason, it was a combination of 50dma and Bollinger bands - Fibs in this case would have been a great way as well.