Friday, September 09, 2011

All about the levels

We are bouncing from one gap fill to another. Yesterday we reversed off 120.8 resistance, and today we bounced (thus far anyway) on 117 support. If your time-frame is short, this isn’t chop, this is excellent opportunity. Here are the important, short-term levels on the $SPY:

#1: gap fill resistance we reversed on yesterday. #2 support gap fill that held today. #3 next support which is around 115.9 . #5 trend-line support near 115. Bulls don’t want to go to trend-line support so soon as one more test this early would probably break it this time. Soon one of these range-bound levels will stop holding (next trip to either side of the flag will probably do it) and then strategies will have to be shifted, but for now, enjoy the range.

Thursday, September 08, 2011

Middle of Nowhere

We rallied almost 7 points in the $SPY in 3 days from support, hit resistance today, and reversed.   Nothing too surprising here — and also nothing to draw conclusions from except that range-bound strategies are still ruling supreme.
120.8 gap fill — our short alert from yesterday’s newsletter:
We’re in the middle of the flag/channel,  basically in no-man’s land for anyone who is not a day-trader (for new positions anyway).    Next support in the SPY near 117-117.2.

Wednesday, September 07, 2011

How NOT to trade

Some things never change in this business and panic/euphoria will always be one of them.    Click to enlarge $SPY

Bulls won a mini-battle today but the war is still raging

We wrote this weekend to our subscribers that the first test of the bottom of the bear-flag, $SPY 115 zone, would likely be bought.    The first test of support/resistance coming from extended daily is usually good for a trade.   The second test, not so much.
We gapped slightly below the bear flag and then went up all day almost closing the gap.  Well done bulls.  Small victory, but important one.      Today’s action takes us one step closer to a scenario we laid out this weekend, that instead of a bear flag break down to next support (102-104 on the SPY) we would carve out a new range.   If we base around these levels then the bottom of the flag will lose some relevance.
To put it bluntly, we’re still deep in bear territory, but it could have been worse.     The bottom and top of the flag are the big areas to trade against, everything in the middle is no man’s land belonging mostly to day-traders.   Bulls need to get away from bottom of range as soon as possible and bears need to break us down through $ES_F 1136 weekend low.  For our type of trading, it’s one day at a time with no anticipatory trades.

Monday, September 05, 2011

The Big Road Map

Here’s our road-map for what we imagine will be the next quarter:
Let’s start out with the most basic line, A, which was as we called it this summer, the Big Kahuna, the March 2009 trend-line (we posted around a dozen posts on this) .   Once we broke that line sentiment changed and traders like us who had confidently bought the dip for 2 years now ceased to do the same.
B represents the  current $ES_F low of 1077 and the bear flag we find ourselves in — too early to see how this resolves.  A break-down to the next big level of $SPY 102-104 is of course one possibility (lower blue box at C) but so is the idea that we will create a new trading range (upper blue box at B).    Note that on the $QQQ the recent rally went all the way to test the underside of the 2009 trend-line — one that was immediately sold by traders fading resistance.
D represents the hope of the bulls which is the possibility of the creation of a new range and eventually a break of the recent trend-line down.  

Click to enlarge.
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