March 2009 TrendLine's calling

An updated “The only chart that counts” posted 8 days ago — trend-line’s still holding and still calling our name.    We’re not fans of making longer term bets as a few contra-trend days down the road can completely change the picture but the obvious look is test and bounce on the trend-line, and then through for lower prices.    Short-term is our game though and we’ll be looking to play day-trade bounces on the trend-line, currently at $SPY 125.   Note we’ve become much more cautious than we have been in buying support and are picking our spots very carefully.    This is an unforgiving tape and one has to adjust accordingly.

$QQQ trend-line near 53

The Russell is hanging on better than the other two and trend-line farther away here on the $IWM at 74.5

The Russell has the added advantage that the trend-line coincides with horizontal support (the other two horizontal support are further down) and for this reason is our favorite:

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IPOs from Hell

You won’t find traders who hate chasing more than we do and it’s probably a reason why we avoid IPO action. Good IPOs that want to move higher always set-up at a later day without all the insanity of the first few days.
The market is in a bad mood and no better way to understand the scope of its wrath by looking at the price-action of a few recent 2011 IPOs.    Three recent issues that have been popular on the streams: Pandora ($P) down a cool 48% from it’s highs from two days ago,  the first social-media IPO LinkedIn ($LNKD) down 47% from its highs from last month, and have to throw one Chinese IPO in there — QIHU 360 Technology ($QIHU) down  52% from it’s high from two months ago.
From our May 19 post (the first day that LNKD went public)  we wrote:
“And for those young bulls who think that old-schoolers don’t understand the new paradigm of social media…. you’re wrong.  Earnings are still earnings.   We learned that lesson the hard way (via fiber optic stocks) back in the last tech bubble and now you’ll learn your lesson in the new social media bubble.”
IPO’s have always been risky but the latest price-action in recent issues is taking it to a further level of danger.

Being aware of the foolishness of the chasing game is part of our trading strategy (fading tops) and we have a decent eye for it — two recent ones we’ve talked about on the StockTwits stream — the silver top call and our Osama top call made at 1372 $ES_F.   We can’t think of a faster way to exit this business than to chase parabolic moves.   We assume most of our readers are well acquainted with the saying “Bulls make money, Bears make money, but Pigs get slaughtered” — there are no bigger, fatter, juicier pigs in the trading world those who buy parabolic moves away from any base.
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200 SMA history

It was a perfect technical bounce — market hit $SPX $RUT 200 SMA and bounced perfectly.   Traders were desperate for a bounce and they found a perfect reason for it — but it’s hard to believe that this will be THE bottom.    Why?  It’s very rare to have a perfect, neat and clean technical bounce on an important area to bottom a market.   Bottoms are most often messier affairs.   We looked through the SPX to look for the last time we made a technical bottom on the 200SMA (the most important moving average) and we had to go back all the way to 1997.

Click to enlarge:

Perfect bounce on the 200SMA today — excellent for short-term traders but not so important for longer-term traders.

The last time the 200SMA had any actual holding power was in 1997.

We grinded on it in 2009 but we were coming in from the underside– different scenario:

Enjoy it while it lasts, be it one day or one week,  but be nimble.  And if you are a swing trader, remember if the bounce/move is real (i.e. the second time in 14 years that we have a bottom on the 200SMA)  then there will be a plethora of good set-ups that will form over the following days/weeks.    Patience young Jedi.

Traders having 200SMA fun

First we had the 200SMA test of the $QQQ a few days ago:
It worked well for 2 days and then failed miserably.

Today we had even more fun with the simultaneous test of the 200 SMA on the $IWM and the $SPX.    Click to enlarge:

SPX support held perfectly:

It’s all too neat and clean for us to think that this is THE bottom but it should be good for some short-term fun.     If the bottom is indeed real then expect a plethora of long set-ups to emerge in the next few days.

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Buy the first test, never the second

We have a saying in our newsletter to “buy the first test, but never the second”.  We explained this in our previous $QQQ 200SMA test post.  Today was the second test of the 200SMA in only 2 days — and not surprisingly it didn’t hold.  Next big support is near 53 on the trend-line.

We wrote in the newsletter last night “Bulls finally got their big rally day — however, on the big picture it looks like it’s just a pause before we go hit the trend-line (or chop around until trend-line catches up)”

Trend-line currently near 1240 — that’s our next big support spot.

We only made 1 trade today (the $SPY trade we tweeted) and we have no interest in being active in this market until we see better edge.   A wash-out to the trend-lines could bring that edge.

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