Tuesday, February 17, 2009

Keep on trying ...

Previous Trade Day
The morning hours setup just as predicted. We did get our continuation, topped out at our predicted 840 range during morning hours including retracement. Here is where the bulls needed to continue on the upside and failed. As I had mentioned previously any attempts we have had on the upside has been weak and on much weaker volume compared to previous down moves. You all know what I think about weekends, and I keep on stating the dangers and risks, the market pretty much fell over in the last 4 minutes of trading.

So summary, DOW closed at the second lowest point ever during this recession, S&P on the trendline and failed the previous day reveral candle.

Looking at pre-market we are at our lows already. We have been waiting and waiting and I have been trying to anticipate a market move out of our range and on every decisions, whether it was up or down we have been brought back into it - no more. Finally here ....

I have said last week that the trend change is in even before our confirmation, while we did have a big move off the lows on thursday, you could sense in my frustrating review that this was yet again another jump without any strength behind it.

One of the things we have not talked about yet is what will happen once we enter this new range. We are now entering trade ranges we have not seen in a while and are only 60 points away from our previous bottom, so I would be using this as my first target. I think many will be surprised at the strength of the down moves, bringing back memories of october 2008. The market has gotten used to bad news and narrow range with recoveries giving you a chance to get out of bad trades - this should not occur anymore and many will be struck by surprise.

I see a change of trend on Thursday around 2:45-3:15 so watch it there for a possible short term bottom - if this call holds true you can see that we have quite a few days of down moves.

How to trade this?
Well, time has come, now how to properly trade this, keep in mind we have to follow our trade rules, no trade in the first 15 minutes, your finger will be itching in the morning and I urge you to wait yet again until we are into the market for at least 15 min. We are going to be fairly oversold once we open due to our after hours action so I would be a bit careful, on the other hand a break of 804 is sign enough regardless of time but has more potential of quick 4-5 point snaps that will minimize your protective abilities. I had traded with that mindset on thursday and lost quite a bit of money as I had aggressive positions with much wider stop losses then I liked due to the snaps to be expected. I normally would say remain on the sidelines - not today. I feel we have a great chance of 30+ points on the downside today.

Keep in mind probability of longer term change of trend calls are not accurate enough to use trade signals by itself so don't go short blindly with an exit order on thursday afternoon =).


  1. Thursday was a painful day for me as well... I too had wider stops than normal, and the afternoon "WTF rally" also caught me off guard. :(

    I did, however, open a small short position on Friday afternoon around SPX 832. I rarely hold over weekends (I don't even like holding overnight), but I couldn't resist. Well the futures are pointing much lower, hovering around 800. So it seems we'll be gapping down at the open. I'm thinking of closing my position in the 805-809 range if we don't break lower.

    What are your thoughts on short entry point for today? I was thinking somewhere in the 820-825 range, or do you think we'll get back to 834-839?

    Thanks again for your insightful blog!

  2. Yeah I did not have the guts to go short over a long weekend either. As you remember from the past I kept in hinting at the 790, a number I kept repeating. This should provide a bottom at least on the short term. I do not think we have any changes to get back above the 800 range. I said in my long term review that once we break the 800 we shall only revisit as a resistance retracement so my short entry would be in the 799-801 range. Having broken now with strength we finally have the confirmation we have been looking for. Its scary especially since we are heavily oversold, but remember technical indicators only tell one side of the story, a deep understanding of markets is what we need to add here to know that we can short even in those type of conditions. Be mindful of the 764-770 range but I think it will be a very short lived support, less then a day. The bottom should be in by Thursday at least short term wise for a day or two.

  3. Just want to say thank you for such an interesting & informative blog! I only wish i had come across it earlier before i'd embarked on my disasterous stock purchase just over a week ago when the SP was at around 860! :(
    I should have waited :( My dilemma now is either to hold onto the stock or to sell this week possibly tomorrow and then buy back early next week? in order to make up the losses i've incurred. Would love to hear any thoughts on this...any suggestions welcome. Thanks in advance.

  4. What type of stocks did you purchase? Yes it has been a rough week since that time so I can understand the frustration. Since you are just starting out I am assuming you did not use high leverage or any of the ETFs that carry a bit more risk. it is difficult to make a call now from this point. In my update today I mentioned that we have a chance of a break above 800 - but this is very minor and I do not want to give you false hope.

    It is difficult for me to give advise when I do not know your trade style, risk and money management and other factors - so please understand that there is no easy answer to your question.

    Not that it makes you feel any better, thus far anyone in the markets I know that started at one point started with loosers. Its unfortunate but nothing to beat yourself up over. Now with your current position. Adding a hedge at least gives you the comfort of not loosing more then you have already but it is difficult to recover from for beginners.

    Let me know the positions you have (not quantity) just symbols and we can see if there is some more to do. The other thing many others do as well is close out half at lets say 800 to protect yourself from further losses.

  5. Thank you so much for taking the time to give me your comments,really appreciated. I purchased a stock called Metalico Inc(MEA).Purchased it at 2.60 and its at 2.17 today. You're absolutely right i did'nt use ETF's or high leverage mostly because im new to the whole stock market scene...as you quite rightly observe im a beginner. In terms of trading styles,risks etc i'm not keen to buy and hold onto stocks long term and would prefer to buy and sell within days or weeks of the initial trade...probably because of my lack of understanding of the markets and my wish to reduce the uncertainty. Thanks again for your blog which is the only one ive come across which honestly conveys the complexities of the market in an way that i can understand.

  6. I am glad you can make sense of the markets a little better with the information provided here. I do my best to go into deep technicals when needed but to also give a broader picture to make it easier to understand how it all fits in. Regarding your position, its a though call but being down 17% is not all that bad. Yes of course it hurts but consider this - you paid for education. You are doing all the right things by seeking out information to help you understand why certain things are occuring. My blog is not easy to find and the fact that you ended up here somehow shows that you are trying your best to not only recover but also learn to be better the next time around. If I were you I would probably sell half of the position and see if you can recover a little from it. Think about it a different way. If you had a fresh start now, would MEA be something you would buy now with the anticipation of it going up? or would you stay away? if your decision is to stay away why hang on to a looser just to hope it will go up? The most difficult thing in trading is managing your loosers, its the MOST important lesson a beginner needs to learn, and you are already on your way of learning it. We have all been there, so do not be discouraged, in 6 months from now you will not remember this. Since you are beginning, I hope you went in small and did not put in all your cash. Also consider this, the money you are investing today, is money you will most likly not need for a few months at least to pay bills, so its a loss that is very affordable, one because you are learning from it, and two, the next time around you will be better prepared.

    Again I want to add its difficult for me to try to give you advise or tell you what the best thing is from here on out. 17% hurts, but if you lost 17% in a week, you can also make 17% back in a week. Protect your capital, minimize losses and then figure out how to put it somewhere that will give you gains.

    Sorry that I cannot be more direct or precise but I would hate to tell you to do something for it to turn out against you. If you need some more help send me an email at chaugner@hotmail.com.