Wednesday, February 11, 2009

Back in town ...

Well I arrived back home again in Miami. Definitly loving the weather over the cold UK rain and snow. Slowly getting back into it and wanted to give a little bit of an update.

So where are we now? The market has been very disappointed by the bailout as it lacked any type of direction or detail needed. Hearing Obama on TV is very scary. There is only a small percentage of people in the US that really understand the severity of what we are going through. I remember when I had talked about my long term target of 400 12+ months ago - I was laughed at. However, Obama is painting a picture that is much more severe and graphic for the normal consumer to even understand.

- "catastrophe"
- "tanking economy"
- "worst recesssion"
- "unreversable downfall"
- "worst crisis in our generation"
- "[insert strong graphic word here] since the Great depression"

Those are just some of the words used by our new president. I understand this is also a lot of politics, trying to paint a bad picture to put pressure on congress to allow him to do the things he feels are needed, showing a bad picture so once the economy recovers by the end of his term he can take credit for it. I think he is walking a very fine line between using the proper words to his political advantage and causing damage and fear to the average consumer that does not have a full understanding of economics. All we hear now is that it will get worse, a lot worse - people have to understand after bad comes good - that is being removed now. Yes it will be difficult but everyone else is having the same problems. This is not like Japan in the 90's (a reference our leaders like to take to get their plans approved) - its a world crisis of credit, debit and liquidity - it will turn around. The average consumer needs to hear that and they don't.

Ok enough of my rant - I am not trying to turn this into a political debate, our new leaders are having one of the most difficult challenges ahead of them, I do not wish to be in their shoes and I give them credit for trying what they feel is best for everyone.

Back to the markets - we have had a severe drop yesterday on one of the largest volume days thus far. Yesterday goes into the top 15 days in terms of volume we have had in the past 2+ years so it is definitly a strong sign to where we are going. I am going to state, even before our confirmation, that our trend decision is in and we will be moving towards the downside - a scenario I had described earlier. From here on out we have 2 scenarios, either a break of our very important (and very weak) up trend line that the bulls have worked very hard on, or some distribution and retracements after such a strong down move yesterday. The market has failed to break key resistance areas at the 20 and 50 moving averages and that of course is very bearish. Volume has lacked on any of the upside attempts and only became apparent on strong moves either at the bottom or towards the downside.

In terms of trading - we know our direction now, its Wednesday today - the middle of the week. I would recommend staying on the sidelines yet again with the only exception of entering a short at specific key retracements if volume and time work out. At this point the most simple things work best so I am just going to state the Fibs that I feel will come into play.

834 = this is something the market should break towards the upside, if this is to remain the top we can see a break of our uptrend line by this week

842 = yet again a key resistance number we have seen in the past. This should be the top today and could provide the last peak before heading down.

848-850 = this would represent the 50% retracement off the past 2 days. Reaching this could be a bit bullish as I would not expect more then 38%.

So watch those numbers again, volume and time. Being on the sidelines is the best thing to do at this point. I did not trade at all yesterday but was watching the market with my fingers itching - we do not gamble, we want to get our trend in and then get in on moves that have great protection and follow technicals.

3 comments:

  1. Welcome back! It looks like we have broken the weak uptrend line in premarket; ES touched 815 so far. Is there any significance to breaking the uptrend in premarket on lower volume? In other words, is it normal to probe 1-2% below a major stop-loss level only to snap back in the other direction (the path of maximum frustration according to Todd Harrison of Mynianville)

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  2. premarket data is very important, however, for significant support and resistance points I prefer seeing normal trade hour breaks. Whenever you see this type of action you either see a v-bottom which should confirm itself in the first 15 min off the open making a 15 min bar close above the 820 or continue lower confirming a break. Remember on gap opens we are looking either for a fill or a reverse gap the next day.

    We will most likly trade lower and then attempt to retrace back to the upside. Once you trade in that gap range volume and time become very important to see what will happen.

    As you can see from todays post I am confident the trend is in and any retracement on the upside is a great short entry. Bulls have been too weak and we MUST fill the gap in the first 15 min or we are done with any chance on the upside.

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  3. and as you can see this is not looking like a GAP fill after 3 min in the open. We should see a STRONG down day today based off this open and could be yet again down 4% with our first break into the 700's that should find a bottom in the 785-790 range

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