Tuesday, January 13, 2009

Time is up ...

Well another steep down day. After breaking the 885 range in the morning hours the market continued its slide without any type of rally. I did try to play the long side yesterday at the 880 range and had to close out in the reds after it was clear we were not going to rally. As I mentioned a break of that range will bring us back into the 857 range - however keep in mind this was not a shortable down run as we are quite oversold at the moment.

Well time is up for the market and we need to make a decision today. On Friday I had called for a change of trend in the morning hours today so lets watch the morning action carefully. One thing to look for today is volume. Yesterday it was very clear and easily visible how the market traded - looking at the 1min spy bars you can see how every strong move was only apparent in the down bars and any minor rallies were beaten down as they occured on lower volume. So watch for those signs today and wait for momentum to step in here.

Looking at the daily S&P chart we have 0 divergence on the MACD, 45 on the RSI (which is pretty much 50/50) and momentum pretty much in the smack center as well. We have spliced through the 50dma and 20dma so we need to make a move above this range in the next 2 days.

We are technically still in a mid term uptrend so we need to make a decision here today or we will continue on our slide back and resume the primary bear trend.

How to trade this?
Of course the short side carries tremendous risk here so stay away. On the long end I have to emphasize again that we have a great chance if we are to reach 857. Even if the market is done on the upside we should see at least 20 points off this range. We had hit the 864 as the low of yesterday which is only 7 points away from my target - yes we rallied into the close but this was short covering as many shorts want to look in profits before alcoa earnings.

Keep in mind we can overshoot the 857 so my final call for the low would be in the 852 range so watch volume as we step into the 850's to see if we have buyers step in.

Good luck today for everyone. I am pretty confident we will get to see a great trading opportunity today with a very high risk/reward ratio. If you have any questions during the days trading please post them up in the comments and I will try to answer them as quickly as possible.


  1. With so little risk to the upside, why take the loss? Why not hold through and ride the upswing? Isn't that a matter of managing your trade, and trusting your analysis? I think you are right, and I am looking for a very short ride up to 890-900 range, before we test 800. What do you think?

    Thanks again for your blog, I really appreciate your time and insightful analysis.

  2. Keep in mind that if we are to overshoot and head into low 850's the best case scenario for me is break even if we get back to 880. Thats 30 points of risk to carry overnight into the start of earnings. Yes we are heavily oversold but technical indicators are not always right.

    My entry was around 880-881 and exit at 877. Thats 4 points of loss only with a chance to get a better entry - even if I miss the entry properly I can always re-enter at the 877 range but now am better protected.

    So taking the 30 points of risk would require 120 points of gains to follow my risk/reward ratio. A bit too optimistic in this environment.

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  4. breaking 885 (at the 880 confirmation) will lead us back to 857 as mentioned and I am still looking for my change of trend today giving me another chance to re-enter.

  5. Time is almost up. Looking at the trade range you can see we are getting narrower and narrower for a breakout in the next 15-30 minutes. Lower highs and higher lows. Watch volume carefully as we break out of that triangle.

  6. Looks like you were right! Excellent call – I may be early, but Ill take the chance and praise you for an excellent call. Low of the day today was 857 precisely! Now we’ll see if the bounce off that level can hold, I'm inclined to believe it will – but we’ll see.

    Looks like we have an ascending triangle, and lunchtime volume seems to keep a lid on volume until around 2pm (avg) so this may turn out to be an end of day breakout (to the upside hopefully)

  7. keep in mind that 857 was for the futures contract. I was referring to the S&P which has the low right now at 864. So not quite there ;)

    And yes we have had 6 consequitive tests on that upper range now. We shall see if we get a late hour breakout on the upside. At least volume has picked up nicely today.

    Regarding the change of trend. If you look closely at the time of 11:45 you can see a great deal of volume there - here is where I thought we would break out on the upside which almost occured - off by 15 minutes. Though nothing happened and we were brought back down in our trade range.

    While we did change trends thus far it did not go into an uptrend as I anticipated but rahter into a sideways trend - which is a trend as well but not one that occurs often.

    Lets see what the last 2.5 hours bring us.