Wednesday, December 9, 2009

Consolidation to go higher?

In order to remain flexible for short term trades one has to look at both bull and bear side. At this point I am in slight favor of a bit more downside however we have a good risk/reward ratio for being carefully bullish at this price range.

I outlined the chop zone range breakout confirmations in the long blue rectangle. As long as we remain in this range we cannot be sure of direction. We can even go all the way down to the close on Nov 9th and still be considered in the chop zone.

Now here is whats interesting. After entering the zone of naked option holder death we had seen a repeated pattern.

3 days on the upside, 2 days on the downside. Now on our 3rd attempt we remained in the upper range for 5 days and attempted to break out. We failed to make that happen through an overnight GAP above resistance and reversed lower but did not sell off right away. We are now back on the lower end and its closing on the second day.

So the question we have to ask ourselves.

1) was this a failed breakout and we are done? (done short term wise)
2) or, we did not have enough distribution at the top of the range and needed to come lower one last time to be able to break the overhead resistance.

Both are still very valid and even if we break lower here towards the 1070 range, this still has enough power to push through the upper ranges as we will be quite oversold once we reach 1070.

No decision yet ... but as mentioned I am 51% on 107X first. If we do breakout higher tomorrow then I think we can be confident of higher prices and a break of 1120. But let the market the market show us where it wants to go.


  1. Hey Chris,

    I've actually been trading in this range for the last month with a moderate amount of success since it seems we keep bouncing back and forth.

    I still think it will make one last attempt to go to 1020 for the year, and then I see things trailing off. I guess I'm still cynical and think the big money wants to lock in gains and show a good "up" year...but still motivated to get prices to drop to re-enter next year. I wonder where the profit takers all have gone ... can't believe everything thinks we are all good now.


  2. Kat, yeap I agree, I went back through the past few years on index charts and have not seen any significant highs/lows during that month. I am going to go back tonight and do some more detailed research for that but I do not see us moving significantly lower before year end.

    As you said many want to have a monster year on their books (and lets be honest, many bulls will) so I doubt you see much profit taking especially with the VIX this low and put insurance so cheap now.

    We have been in this range for quite a while now so a breakout is very likely and I am still not seeing any edge for bulls or bears here. We have to give a slight edge to the bulls but the only reason for that would be previous months performance and direction. On the other hand we have some important resistance above us as well so one could argue that it will take a bigger "event" (not saying news) to push through that.

    At this point we have done the proper consolidation technically to give this level (50% and many trendlines) a real try.

    And to be honest, I think most traders/investors/funds know that we are not doing much better, I mean looking around in our daily lives things got a lot worse especially now towards year end then they were 12 months ago. One can argue everything is lagging and we have begun the road to improvments as the market and economy are 6 months appart. Is it possible that our economy bottomed in the last 2-3 months and we are on our way to better pastures? Who knows ... I'll share a link tonight of some data for banks that I got on another blog - its bear food thats for sure but maybe just because we are skinny and looking for anything to feed at this point.

  3. XLF and USO stops slightly below LOD
    EURUSD stop at low of yesterday

    all 3 are small positions so not risking much.

  4. added more USO here still with tight stop ... either breakdown and get stopped out or move higher.

  5. stopped out of full USO position ... stop may have been too tight and this was the bottom here but not going to risk it.

  6. holding out for a new high today and will most likely close all longs (XLF, ES, EURUSD).

  7. out of all longs (manual exit on EURUSD). Break even on XLF, small loss earlier on USO, break even on ES, some gains (to balance out USO) on EURUSD.

    Break even day and a lot of work lol what a bummer