Monday, September 12, 2011

Cry Wolf Market

A fantastic squeeze into the close to end the day with a gorgeous green candle.      It’s hard not to get excited by such action, especially considering we gapped down below the trend-line.   But we’ve heard this story now multiple times in the last month.  Take a look at the following chart of the $SPY and the blue circles and note how many close at high candles there have been in this period:
Note that there was even follow through on some of these green candles, only to get it whacked down again and again.  We have no idea whether this is IT, and for day-traders it doesn’t really matter (we’re long $ES_F overnight ourselves), but if we were swing traders we’d put out a few tester longs, have a lot of dry ammunition (cash), and accept that we would pay up in price in exchange for more evidence/confirmation.