Wednesday, February 18, 2009

Call me crazy?

No need to say more. We broke major resistance (EDIT: I meant support, sorry about confusion) with a huge gap open on extremely high volume yet again - there was no looking back. I had mentioned the 790 number in the past a few times and considering where we were I anticipated it being a short term bottom but would have assumed a break considering the large gap we had on the open. I had mentioned that once we break the 800 on the downside we should not see it again with the only exception of seeing it as resistance - this occured yesterday and gave you some great signs of where the market will head. The morning played out again as I expected but the afternoon - had me puzzled.

Now if you would have told me 3 weeks ago that our breakout day would look like it did yesterday I would have called you crazy - but you would have been correct - a 30+ point gap open with a trade range of 10 points on extremely high break out volume. Something I have not seen ever. On decision days normally you see gaps and strong moves, and if you do not see strong moves you see a sideways type action but on much lower volume. Gap to trade range ratio of 4:1 on this volume - quite surprised and something for me to consider and look back too once we play this out till thursday.

Well we got our break - but for the readers that have been following me for a while we have seen something similar before, we broke a major market point in afterhours and did not give it a decisive break/test during normal trade hours. You know how I like to see this type of trade action especially around our 804 range during open market hours. What does this mean for us? There is a slight chance, and I mean very minor that we could revisit the 811 and possibly 820 range - this would go against what I have been stressing over and over again that we will not see the 800 again but the market must follow rules and it may have skipped an important step here. I do not feel this will occur because I believe that once the first 7XX is in, it will be very difficult to get back above this range. Only way for us to attempt this is before a break of 785, a break here and this chance should be gone.

So how will we continue today? Not an easy call I have to admit, but a very likly scenario yet again is another 3+% down day. With a potential for more. On the bullish side we could be setting up for an intraday test in the 809-822 range but sell off quite a bit after reaching those peaks. If we are to see a break of 800 on the upside watch my comments for price and time targets.

I just wanted to reiterate what I had said yesterday, in my long term update and many times before - once we break this number the market will behave very different, not like you have seen the past few months when we traded in this 800-900 range. Be careful please and do not take hope into what occured the past few months when you hold your positions. Risk management now becomes more important then ever.

Support and Resistance
We are entering new ranges so let me recap what our numbers could look like.

820-822 = will not exceed this top

809-811 = if we are to get a rally before we break the 785 range we could potentially come back here

799-803 = pretty much the border line of border lines.

790 = bottom yesterday which should only provide short term support as it will be broken

764/774 = now this is something we have to watch with care here, many are saying its the retest of our previous lows to form our double bottom. You know I do not believe this to be the case and we should blow right through it to create new lows but we need to be mindful of support. This could provide a bit of a stronger bottom. It is possible that this will be the final target for my change of trend call on Thursday afternoon.

741 = our previous low point. if we are to reach it expect it to overshoot by a few points and bounce of the 837-838 range

724-726 = this in my opinion will be the first real stop for us and I do not feel we will break this number in the next 2 weeks. So lets see if that holds up.

How to trade this?
Yesterday setup to be a great day for traders, ended up being a wash due to this narrow trade range. While I am confident of the lows knowing our administration I am not going to hold overnight. I entered a short during the morning hours and ended up closing out break even for the day. At 3:00 I turned off the system as it only gave me a short time window with big risk, we did not make a move during the day after this gap so I was not going to risk chasing it in the last hour. While this turned out to be a great short it was barely even 10 points worth of gains with quite a bit of risk. Maybe I am trying to justify my non-trading here a little because I was a bit frustrated with yesterday. (sorry for the rant)

Considering this narrow range I feel we have a chance to get back to the 800 one last time. This again could give shorts a great entry but keep in mind what I said today about the 800 break, we have to assume a bit more risk now.

Am I going to say it again? "I would remain on the sidelines?" - well I am tempted to advise to stay out today, we do not have clear enough signals and while we are in new ranges, the market is not going to run away from us. So be careful and good luck.


  1. it seems sidelines is the best place to be today. Keep in mind we will have a change of trend tomorrow as mentioned before we started the week. I will confirm the time window in tomorrow mornings review but the change of trend in the afternoon is still the most likly outcome. It may shift a bit earlier towards 1:15 but need to see the day play out today.

  2. watch the 3:03 mark for possible turn around or break to sell off.

  3. ok almost, posted at 2:52, call was for 3:03, middle of both was 2:57 - thats when we changed trends. Lets hope it stays up.