Monday, April 20, 2009

Blow off top or first leg of new bull cycle?

As always I spent some time looking at charts again. Additionally I went through my normal blogs I frequent and was very surprised what I found on many of them - bulls all over. Everyone is calling for this move to enter a short retracement to continue higher. From one perspective I can understand where this is coming from, we have broken one of the trendlines I had outlined a few weeks ago and it seems we are in the process of breaking out of a bullish lowering wedge (9+ month time frame). You can find charts left and right at this point to validate any type of mid or long term pattern, bullish or bearish.

So what do you do? How can you make sense if all this and where will it lead. Lets assume for a moment that we are not going to make a new low below the 666 range on the mid term. We will retrace slightly and rally towards the 200dma, by the time the retracement is done and the rally continues that average should be below our 945 range (my 912 target I had referred to a few times). However, for this to happen, the past 3 weeks should have played out very different. Forget about patterns for a second and get back to basics. Look at the trade range we have experienced, low volume, huge GAPs, choppy behavior and a total lack of momentum. I keep on hearing people saying "do not stand in front of this bus" - what bus are you seeing? you mean this guy on the bicycle? Thats all I am seeing, there is no buss, not even a fiat pinto. I gladly stand in front of that knowing it will crash into the wall.

Now on the flip side, something happened on Friday that has me a bit concerned on the bearish side. GE reported good results, yes they were good results, this is not one of my sarcastic comments I make, I was very surprised at this. Many have always said GE is a measure of the overall economy due to their exposure to all industries. Earnings of GE have led the direction of the market in the past and this time around, we have to take this into account.

As a result of the GE results, I will approach my current shorts with a bit more care until we break 724 on the downside. Meaning I will take some off the table at important support points and place the stops closer then I normally would (~2 day closes). Once we get below the 724 range we are good for a new low but anything above needs to be traded with care.

Today
We have had 5 up weeks in a row, showing a great amount of strength in terms of price however volume has dropped significantly, something we need to take into account. Is it possible to make another high this week? quite frankly it is, but only a low chance.

Futures wise we are already a bit lower here, so there are 2 easy signs to look for. the 856-858 range here, an open below 853-854 will lead to more sell offs today, an open at 860 will most likely allow the market to maintain the current narrowing up trend to re-attempt the upper ranges.

If we are to get an open below the 854 and will get some sell off, we need to be watching volume very carefully as it will give us great signs. We will have many long stops to worry about on the way down, other retail investor longs that have been told over and over a retracement is coming, those will sell at the first sign of drops, and of course new shorts with many bears averaging down on their current short exposure or bears that were on the sidelines entering after a confirmation has been in place.

Good luck all !!!

37 comments:

  1. Thanks! great analaysis as always, appreciated.

    ReplyDelete
  2. do you think its a case of ...mark the low for the day in next 15 mins and then maintain the up trend to re attempt the upper range??

    ReplyDelete
  3. nope, more along the lines of marking the high in the morning hours with a GAP fill attempt or retest of the open price before we continue lower and close in the high 830's

    ReplyDelete
  4. market needs to come in STRONG now on the upside or the wedge reversal has started. Target for this is within the 741-780 range within the next 2 weeks.

    ReplyDelete
  5. expect a bounce shortly. 846-847 for about 5-8 points.

    ReplyDelete
  6. lol! good job i asked! thanks very much.

    ReplyDelete
  7. chris, how do you see this going?...just a 5-8 point bounce here before trending down again?

    ReplyDelete
  8. yeap, I went long with a small position for a day trade, and will day trade this short again once we see a decent retracement. We had quite a bit of selling here so we need to let the market calm down a bit first. Possible to get back to the 846 where I had expected a bounce earlier.

    I think we may test the 82x intraday today, close would be anywhere from 834-838 if we continue like this.

    ReplyDelete
  9. thanks, will look out for the retrace,... im not expecting a full gap fill today but hoping we can make at least 855

    ReplyDelete
  10. Looks like it was just distribution to continue lower without retracement. That's one of the things with wedge breakouts, by the time you see it, they are over.

    I had described last week in the comments why we are shorting into a up rally, this is exactly why. Yes we were down on our position once we started building it, but looking at it now, we are sitting pretty good and can protect this position a lot easier.

    If one were to go short now you have to assume a very wide risk margin as we can retest the broken trendline as resistance.

    ReplyDelete
  11. the chances of a gap fill attempt are close to zero. I would not expect us to break the 846 today (2 point error margin).

    Did you end up going short last week at the top there?

    ReplyDelete
  12. waiting for 838 for another long attempt.

    ReplyDelete
  13. sorry just got back....thanks for this chris, its really helpful.
    No unfortunately i missed the chance to short at the top last week :( but hoping to get another chance to short(although not at the top) this week.

    ReplyDelete
  14. How much of a retracement are you looking for chaugner? I am wondering, if I should cash in my Friday's short.

    ReplyDelete
  15. not very large. Too much breath today, may only be 5 points worth. FYI I am keeping this SDS till at least 780. Not planning on selling anytime soon, actually considering adding more over the next week. Will have to do some volume analysis tonight to figure out exactly what happened today in terms of money flow.

    I am still doing intraday trades using my futures account, got to get my trade fix in at least once a day =).

    836-838 will be very interesting once we get there. Since this is the low of the previous wedge lower line. I do expect a bounce there, question is if it can fight the current trend for more then 5 points. Wedge breakouts are tricky to trade if you do not have a position.

    ReplyDelete
  16. very possible that we see a breakout to the upside now. the last hour has been spent in a range getting narrower (bullish lowering wedge). I think it has one last push left in it to the 837 range. Here is where I would go long with 3 point stop.

    ReplyDelete
  17. I meant one last push to the lower end to hit it right at 837 before we see any bounce. How high the bounce goes I have no idea. Will put a trailing loss with 3 points on it and see where it takes me. All the way to 900? lol

    ReplyDelete
  18. just went long. Short term trade. Tight stop.

    ReplyDelete
  19. a bounce off from 825-830 to 845 50 EMA line ffor SPX? that should scare some Bears and create rush of profit taking by bulls. What do you think? I am not a TA person but just gut feeling

    ReplyDelete
  20. Support points at the moment are:

    836 - strong
    827 - medium
    822 - strong
    814-15 - very strong

    ReplyDelete
  21. thanks chris, i went long too (for a short trade) keeping an eye on it.

    ReplyDelete
  22. I too just went long and cashed in Friday's shorts. will get back in soon

    ReplyDelete
  23. I'm hanging on :-/

    In the following since Friday:
    SDS
    SRS
    FAZ

    I've got some stops in place for SRS and FAZ. Otherwise, no plans for selling.

    btw, great posts lately, Chris. Mad props to ya!

    ReplyDelete
  24. I see 842-843 as a bounce top. If it goes to 845-846 watch out for bigger move upside.

    ReplyDelete
  25. stopped out. Not going to risk it.

    ReplyDelete
  26. going to pick up some dinner. Based on what I am seeing, get ready for a 828 intraday test. Should be back for the last hour of fireworks !!!

    ReplyDelete
  27. yeap skipping dinner, eventhough I am really hungry. Went long again at the bottom there. 832 on ES. We should get 10 points out of it and then make a new low in the last 30 minutes of trading today.

    ReplyDelete
  28. and stopped again. At least I get to stop around break even on every attempt.

    ReplyDelete
  29. I got stopped out of SSO for ten cents loss too. I will just wait for dead cat bounce to get in short. may be tomorrow gap open high

    ReplyDelete
  30. dingdong, thx for the props. As you can tell been a bit more active. I am currently in the UK again (been here for 6 weeds). Due to timezone it makes it a lot easier to trade and update comments here in the blog.

    And yes I do plan on holding on for a while. I have no stop set on my SDS position, I may even hold this all the way to my final target at <500. We'll have to see what will happen over the next few days and of course our important target at 741-780.

    ReplyDelete
  31. Chaugner your 832 is holding well. do you think a bounce here?

    ReplyDelete
  32. Sam- you musta made a killing on those entries last week! Good stuff. You still holding?

    ReplyDelete
  33. I did all right. I sold them at SPX around 836. I am looking for a bounce to get back in. I have been burnt both ways before -- not taking the profit or taking it too early. Let us see how this one plays out. If we get a bounce -- retracement, sell off will be even stronger. All bulls who missed profit taking will jump the sheep.

    ReplyDelete