Monday, April 13, 2009

Almost done ...

SPY 120 min
I have updated our trade channel that we had identified two weeks ago. This time I made it as a 120min and included after hour trades as well to make it a bit easier to see the GAPs. Also this is on SPY and not S&P500 but its the same principle, just easier to see the after hours action. As you can see we continue moving up on our channel and respecting the upper ranges as we continue. Also you can see how we are trending down in volume as we increase in price. This of course is a strong reversal pattern as well so we have to be ready for the turn.

S&P 500 120 min
While we are now operating in a fairly defined channel the overall setup of the rally could be wedging as well as some have suggested on other blogs. Keep in mind that when looking at wedges they normally come to completion around the 20-25% completion range and every wedge, if properly reversed, will cause significant retracements of at least 50%. Here is a potential chart for the wedge build up with targets for top and retracement marked in blue. If we do end up getting our retracement here we will not be able to reattempt the highs we are currently trading in. The yellow would indicate continuation in the trade channel to continue chopping back and forth.

From a trade perspective both of the above scenarios will give us great guidance and let us know what direction we will take.

When looking at this rally I have to admit it has quite a bit of strength. Every single retracement been on average on the 23% levels, only once we overshot it slightly and saw a quick reversal. That is quite significant considering we have moved almost 200 points on the upside without any stops. Keep in mind 200 points in our range is quite a bit more percentage wise then it used to be on our previous rallies.

More updates tomorrow. Retail numbers and of course getting a feel on how the market likes the GS numbers. The first major financial component WFC reported last week with their new cooked up books, GS (yeah yeah the govt's buddy) came in second and did extremely well (no comment). Under normal circumstances you safe the best for last - not here. Thats all the positive financial news we are going to get. Lets get ready from some surprises that are not priced in. The bar is set high.

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