Wednesday, January 21, 2009

The turn has begun ...

Guys, sorry again about the short post yesterday but I was quite busy with work (yes I do have a full time job that does not involve trading)

Yet again another Obama reaction so it seems. First the sharp drop we had off the 1K range when he was elected and now another 5+% down on his first day. Great track record thus far - though lets not be hasty and blame it on him - financials continue dragging down the markets and more and more talk of nationalization of banks brings even more fear into the economy.

As you could see we broke through the 820 range and never looked back. I anticipated some support of the 812 range but there was none and we headed straight for the low 800 range.

Support and Resistance
Well as we are entering new ranges let me give you some guidance here as well.

820 = We all remember our key support at the 820 range, this should provide strong resistance now but expect that it will trade back into this range. So be patient and do not chase the short from here.

798-802 = the market likes round numbers so expect this to be the bottom for the last rally to the 820 range

782-784 = while there is quite a gap this should provide some short term bottoms and great way to take some profits off any shorts to re-enter at previous level

764-770 = yeap this is major support as the 764 represents our dot com bottom

739-742 = the lows we have established thus far

Mid & Long Term
Well unfortunately I was not able to throw this one into the bin. I have talked to some of you about the 5 wave theories in technical analysis and not rallying off the 850 range unfortunately puts us in a very negative pattern.

Of course we will reattempt the lows from here and there is a potential of a double bottom but this should be short lived. I expect us to re-attempt the lows very soon and could reach it by early/mid next week. From here we have a quick bounce but do not expect more then 40-50 points. Once we break into the 700's we shall remain there and below for some time to come (exception of course the bounce off the 798-802 range).

We will be creating new lows in the next 8-12 weeks and should find it around the 620-640 range - by new lows I mean at least 50+ points away from our current low. Be prepared for wide ranges and instant snaps in the market place into any direction - we should get back to having 60+ point range days which are perfect for us to trade.

From here we could also be setting up for the final bottom, something I do not expect before summer but we have to be cautious - the market had a chance and did not make it - we could be in the 460-480 range by June/July which should represent the final bottom in the market. If you go back to my long term posts in October 2008 I had stated that the bottom should be towards the end of 2009 so this is a correction due to our current conditions.

Special Note
I wanted to explain my bullishness over the past 2-3 weeks. As you can see I have been hoping for the market to find means to continue on the upside and unfortunately my trading attitude has suffered as a result. In the past I have looked at the markets in a very neutral fashion and always had both sides of the trade as a 50/50 change every day. However my bullish tendency has caused me and us to loose great trading opportunities in the past weeks. Yes as a trader I do not care where it goes I just need to know the direction and you make money - however, as a person that is dependent on the economy to make money I am looking at a pretty negative picture. As I stated yes we can make money off those ranges but what good will it be if the world economies will continue on its down path. I will try to remove those emotional aspects yet again from my posts as we now have our confirmation.

How to trade this?
Well as you can see the short represents the best chance at gains here so watch your entry carefully. If you want to trade a sure thing stay on the sidelines until we have hit our bottom. No need to always trade. If we do have a chance to get back into the 820 range watch volume here carefully and we can enter our short from here.


  1. as we already are at key resistance - up your level one to 829-830 just to be safe. Always give the market 15 min before entering even if that means "your potential" gains are going to walk away from you.

  2. Did we just fail the 820 support? Where do you see the rest of the day falling?

    Also, are you anticipating an Obama speech-induced rally?

  3. any rallies will be very short lived. We need a bit more than a speech at this point to continue on the upside. The market will be retesting the lows before there is any chance for us to make another attempt at a rally.

  4. some very interesting supplemental insight in this post - may be of value: