Thursday, May 7, 2009

Bullish Hammer?

We had a nice hammer form on the daily yesterday. While under normal circumstances this is a bearish sign I had warned yesterday that a close above 912 is bullish. Well here we go, futures are already higher with everyone waiting for the jobs result today. Regardless of the data it should be interpreted as a positive sign. What is really concerned to me is the upper breaches on the bollinger bands, as the band widens we are staying in the upper ranges and may have another up day yet again according to futures. This is a key difference from previous rallies and tops.

While we had a typical breakout pattern off the 870-880 range with a STRONG break in terms of price we have not confirmed this move yet with volume. However, proper bullish confirmations have not worked very well in the past few weeks, but the end result is up. We continue moving higher on lower volume and there seems to be no stopping this train. I had made a joke about this bull bus not being a bull bus - well here we are at 920+ premarket, with me in front of a loaded bull bus.

I have to admit I am a very frustrated bear, close to capitulation. Not only did I miss the biggest rally there was, we had very clear signs for this. As you remember I had mentioned over and over again that the 800 range is a key range - there is trading above 800 and trading below 800. Never around 800. Here we are more then 100 points away from this key range with me having been short most of this run.

I had mentioned it in the comments but this rally has cost me a lot. My current draw down is substantial and the total cost in terms of my capital has been a little under 100 points at this point. In the big picture of things I could say this is acceptable on a risk reward ratio of 100 to 300 points (risk 100 to make 300, assuming a move towards the 600 range), however this seems like too good of an excuse for improper money management. Just so you know, my long term targets have not changed and this rally is still inline time wise with our beginning of march forecasts.

In terms of my trading this rally had 3 phases for me. Phase one with the mid 700 range with me trying to short and of course failing. Sense finally got beaten into me once we reached the 800 range with a break. From here on out I started to take it easy on shorting and focused more on day trading and small swings - I did well there and recovered a lot of my previous losses. However the past 3 weeks my primary focus yet again has been on building a long term short position. The problem with that type of move is that your primary focus is on protecting this position and the constant need to micromanage the short as I am going against the trend. For each 10 points up I have lost around 3-4 points on average - painful.

So where are we now? Futures have inched higher and higher and we are preparing for yet another GAP up. At the moment we are trading at the 928 range on the S&P500. My final "this is it" target was 912 on the S&P. A range we hit this week, and a last attempt from me before I capitulate. From a risk reward perspective, regardless of how high we go on the short term, we will get back to our rising 20dma which in the worst case scenario will be at the 900 range even if we visit 945+ before this week. Having broken 912 also increases probabilities of a move higher to retest the 200dma that has been dropping as we trade higher - I am unsure how much of a retracement we will get before this move, but to be quite honest it should be minor without breaking the current uptrend channel.

The ironic thing is that we have been right on many of the calls. As you remember the debate a few weeks ago (not just on this blog) our weekly chart had a bearish candle and we had a strong assumption that this was indeed bullish by creating a base to take out the high. Did I put a trade against this? Nope I did not.

I know hindsight is 20/20 and its easy to sit here stating whatever case after the fact. In all honesty, from a long perspective, this rally has been the easiest pattern to trade - 200+ points of it.

So in summary, I have been very wrong during this phase of the overall crisis. My overall bearish sentiment has hurt not only me but also my readers to clearly see what is occurring. In the past it was black and white for me stating both sides of the story, recently it has been justifying my short stance. Maybe the addition of twitter has hurt me as well trying to justify my public trades and coming up with defensive facts to support the position - regardless I would have done the same.

Yes - this sounds like a capitulated bear which means the top is in.


  1. Chris,
    Take heart that you have not hurt all of your readers. I have been pretty bullish since march and your analyses read from that perspective continue to be relevant and helpful.

  2. Chris, a lot of us have been very wrong since March -- at least in the short-term and IT time frames. You'll get it back. No doubt. Too skilled not too.

  3. Chris, dont underestimate the value and positive impact of your work here. Being new to the market, I for one have benefited from the education youve provided and continue to be grateful regardless of which direction this crazy market goes. Please keep up the good work.

  4. Chris,
    You're being too hard on yourself. We can't win 'em all.

  5. thats quite a bit of sell volume there. A bit surprising to say the least. The good thing out of all of this, regardless of price direction. Volume coming back in we will have much better confirmations ahead of us.