Weekend Special: Do I see a bull in the woods???

Well guys, I promised to be more objective yet again so here we go. I have spent some time looking at what we have gone through in the past few months and made an interesting observation. At first it seemed we were creating a descending triangle however after the strong support at 800 I went back to the drawing board to determine why this may be occuring.

As you can see we have a typical long term falling wedge reversal pattern forming. We have some slight violations, one on the RSI level with the breakdown below 850 however our MACD, volume (not shown), price peaks and lows are giving us signs of a strong reversal. As you can see from the trendlines I have drawn we are at the edge of a breakout point to the upside. I also added a second trendline that ignores the christmas action as this was quickly reversed and occured on very low volume - it was meant as a reference only but it aligns perfectly with our lower highs.

The market cannot sustain this wide range sideways pattern for long so I am looking for a decision yet again. I had mentioned that the 800 should provide a short term bottom and it has done so much stronger than I anticipated. The breakout can be confirmed using 2 possible scenarios. Either 2 very strong up days on big volume or the second more likly scenario is a strong day towards 857, followed by a distribution day possibly retesting the previous resistance range (840) and then a third followthrough day breaking the previous 857.

So it seems that after the bull has been beaten out of me it suddenly reappeared. I had updated my long term outlook this week and this still holds true if we are to break the 800 by next week - so do not count this out - one thing we can definitly take out of this, by Friday next week we shall be at least 60 points away from our Fridays close price.

Additionally our 50 and 20 dma are at exactly the same points now giving us another confirmation of a decision at our door step. The last week of december and first of January represents the first time since June 2008 that we have spent more then 3 days above the 50 day moving average - now this was occuring on very low volume so its not enough of a confirmation however something to be considered.

Here is a longer term graph. I drew an interesting trendline marked with white dots - this would play in greatly with the upside reversal. The yellow dots are 20 and 50 day crosses whereas the last 2 support further drops in the market place. The redline indicates a potential setup for this uptrend with a top in the 1000 range.

Also take a look at RSI/MACD. We are trending down on the S&P while we are trending up on both indicators.

Decisions Decisions ...

Yesterday
Yet again another strong range day however there was not much that was easily tradable. Sideways action after a big gap down, indecisions around support and resistance points and an attempt at the 850 that fell short at yesterdays top. While we sold off we closed slightly above the gap open. I would not consider yesterdays action a proper fill off the gap as we closed below the previous open but it was another attempt at key resistance.

I had mentioned that the market needs to reattempt the 850 range before it can properly break down further, something that I feel will occur in the short term.

Today
We have friday today and as always weekends carry a lot of risk for us and many other traders feel the same way. We have to watch action carefully in the last hour of today - a rally even if its below the 850 will confirm that we will get our retest next week. A sell off will give us confirmation for retesting the november lows. I do not feel we will see a 850 test today but we have been trading rather sideways the past few days. The market is either trying to create a base here or absorb buying pressure to drop further.

You can clearly see that the market is preventing the big breakdown to come as a break of the 800 will lead us to new lows. While there is one last chance at a double bottom I feel it will be too late.

How to trade this?
Today is probably best spent again on the sidelines - yes we have wide ranges but no current trend - we need to get out of our sideways action and continue either on the upside or downside. If we are to reach the 850 between 11:30-12:30 we have a great trade on the short side. If we get to the 850 in the late afternoon after 2:30 I would avoid this short trade as you may have to carry it over the weekend to get your exit.

Jump Market Jump

Yesterday
Can someone say ranges are back? ~70 point range yesterday if you include the gap open. That should account for the 60+ range days I hinted at. We violated the 820 in the morning and dropped straight to the 800 support and formed a double bottom. Look at both charts on the 15min from yesterday and the day before - you can flip them on top of each other and they are identical. Now I mentioned that 800 should provide quite a bit of support and we rallied without any turn into the close - almost 40 point rally. However, while we had a strong day yesterday I did not see the volume I was looking for to make me feel a bull again - but as mentioned from now on no more bull/bear attitude. Most of this rally was spured by the severly oversold financials - this was the driver and nothing else. Looking back at the past 18 months you can easily see how any rally in financials was very short lived - nothing has changed for them with the exception of new 52 week lows.

The lack of sell volume and drops off any of the support ranges was a clear sign that the short was best left on the sidelines. I did attempt a short at the 822 range and quickly got stopped out. After this was broken we continued strong on the upside without any more hesitation.

Today
My anticipation is a continuation in the morning hours to get back to our key support at 848-852 (potential of a 857 run up). Keep in mind we have not given this range a proper test as resistance after we had broken it. Even if we do not see a continuation in the morning we should retrace with a max of 50% or maybe only the 38% mark and then reattempt the upside of 850.

So watch volume carefully as we sell off and continue as this will be a clear sign.

Special Note
I wanted to thank "tr" for the link he provided with the analysis of the VIX. http://www.stocktiming.com/Wednesday-DailyMarketUpdate.htm A very interesting way to analyse what we have stated already. It definitly supports what we are going through and will go through. The site clearly identified that we can either create the double bottom of our lows in November or enter a very drastic down move as I had outlined yesterday in my long term review. The financials have given us a sign by having had severe losses this year already. Also yesterdays rally fits perfectly in with the VIX analysis. As we are widening the range of the VIX we need to retrace back to create the higher low. This was clearly done yesterday and supports the sites point of view. Even more so it is a great piece of information for us to analyse the rally that occured yesterday and put it in perspective.

How to trade this?
Well todays review already shows what my expectations are with the most likly scenario of a continuation to the 850 range. Here we have a great protective trade ahead of us again. Also, with ranges coming back I cannot stress the importance of stop losses enough. You do not want to end up on the wrong side when we have a 30 point move. Cut the loosers and let the winners run out. The other thing you may want to do on those range trades is trailing losses.

Place your order, enter the stop loss, once you are in the proper trend and you have your first greens change your stop loss into a trailing order starting at break even price. This way you can maximize your gains, limit your risk to break even and remove the emotion out of the trade "ohhh I am up let me sell" - there can still be some left as was clearly visible yesterday coming off the 800 range - something that even surprised me.

The turn has begun ...

Guys, sorry again about the short post yesterday but I was quite busy with work (yes I do have a full time job that does not involve trading)

Yesterday
Yet again another Obama reaction so it seems. First the sharp drop we had off the 1K range when he was elected and now another 5+% down on his first day. Great track record thus far - though lets not be hasty and blame it on him - financials continue dragging down the markets and more and more talk of nationalization of banks brings even more fear into the economy.

As you could see we broke through the 820 range and never looked back. I anticipated some support of the 812 range but there was none and we headed straight for the low 800 range.

Support and Resistance
Well as we are entering new ranges let me give you some guidance here as well.

820 = We all remember our key support at the 820 range, this should provide strong resistance now but expect that it will trade back into this range. So be patient and do not chase the short from here.

798-802 = the market likes round numbers so expect this to be the bottom for the last rally to the 820 range

782-784 = while there is quite a gap this should provide some short term bottoms and great way to take some profits off any shorts to re-enter at previous level

764-770 = yeap this is major support as the 764 represents our dot com bottom

739-742 = the lows we have established thus far

Mid & Long Term
Well unfortunately I was not able to throw this one into the bin. I have talked to some of you about the 5 wave theories in technical analysis and not rallying off the 850 range unfortunately puts us in a very negative pattern.

Of course we will reattempt the lows from here and there is a potential of a double bottom but this should be short lived. I expect us to re-attempt the lows very soon and could reach it by early/mid next week. From here we have a quick bounce but do not expect more then 40-50 points. Once we break into the 700's we shall remain there and below for some time to come (exception of course the bounce off the 798-802 range).

We will be creating new lows in the next 8-12 weeks and should find it around the 620-640 range - by new lows I mean at least 50+ points away from our current low. Be prepared for wide ranges and instant snaps in the market place into any direction - we should get back to having 60+ point range days which are perfect for us to trade.

From here we could also be setting up for the final bottom, something I do not expect before summer but we have to be cautious - the market had a chance and did not make it - we could be in the 460-480 range by June/July which should represent the final bottom in the market. If you go back to my long term posts in October 2008 I had stated that the bottom should be towards the end of 2009 so this is a correction due to our current conditions.

Special Note
I wanted to explain my bullishness over the past 2-3 weeks. As you can see I have been hoping for the market to find means to continue on the upside and unfortunately my trading attitude has suffered as a result. In the past I have looked at the markets in a very neutral fashion and always had both sides of the trade as a 50/50 change every day. However my bullish tendency has caused me and us to loose great trading opportunities in the past weeks. Yes as a trader I do not care where it goes I just need to know the direction and you make money - however, as a person that is dependent on the economy to make money I am looking at a pretty negative picture. As I stated yes we can make money off those ranges but what good will it be if the world economies will continue on its down path. I will try to remove those emotional aspects yet again from my posts as we now have our confirmation.

How to trade this?
Well as you can see the short represents the best chance at gains here so watch your entry carefully. If you want to trade a sure thing stay on the sidelines until we have hit our bottom. No need to always trade. If we do have a chance to get back into the 820 range watch volume here carefully and we can enter our short from here.

Turn around?

Short Post Today sorry guys ....

Previous Trade Day
As mentioned I expected a retracement however more along the lines of 50% or even 32% - retracing back this much is a fairly bearish sign - yes we did make up a lot in the afternoon but we should not have traded back into this range after having hit the 820 range.

The one thing I am glad at is our ranges. The past 2-3 weeks have been difficult to trade unless you were totally short or totally long. With ranges back we can easily justify entering short term positions for a 10 point gain.

Today
Well we have Obama in office, we had a day off and closed in a fairly decent range - in my post on thursday I had mentioned that the top could be around the 880-885 range. The trade day on Friday confirmed this assumption as we needed a follow through day that we did not get.

How to trade this?
We actually have a great short term trade ahead of us right around our upper range from Thursday/Friday. Watch volume as we re-attempt the top of Friday and either go long or short. This will give you a great protection and some nice gains of at least 10 points.