Friday, October 14, 2011

Game Time

Very bullish close for the market as it easily closed over 122 resistance on the $SPY.   Next up is 123.5 which also coincides with 100SMA, daily resistance and as a bonus, $TLT will likely hit support at same time.  Game time!

Thus far from the October 04 bottom there have been two good day-trade short opportunities; the first was the jobs data pop last Friday, and the second was Wednesday’s 122 reversal.    Will the third be 123.5?     We’ll definitely try it short  (we usually wait for 10 -20 cent reversal before we enter and then  stop on high — and it often takes 2-3 tries to get it right but we always have stop on high –no hero trading).
As for longs we’ll be focusing in the basic material sectors for new opportunities even though the close of the $OIH extended into 50SMA makes us think we’re not going to find too many good set-ups without some further basing.   Melt-up market indeed.
Have a good weekend everyone.

Wednesday, October 12, 2011

Our time frame is short

We’re realizing, through comments left on our previous post, that there are readers of our posts who do not know our time-frame.   We are primarily day-traders.    If we short a stock at 100 and it goes to 98 we call victory.   If it reverses and then goes to 200, great.  Hopefully we caught some of that too.   Our job is to trade against  levels which we believe will offer good risk/reward, be it short or long.   If we have a 20 cent stop on the $SPY and we bank 1 point then that’s the same to us as traders who have 2 point stop and bank 10 points.
Day-traders who shorted against 122 resistance on $SPY, a level we’ve written about for days, did very well — (after-hours sitting at 120.5).    Number one rule for financial blogs/social media — know the time-frame of the writer.
We have no idea which scenario plays out (hoping for the late year rally one –  but will trade accordingly to whatever happens).     As we posted before the most bullish scenario would be a pull-back/base under 122 and then rip higher.

Watch who you fade

We can’t remember a time where levels worked so well –  anecdotally speaking — it seems to us that market just keeps getting more technical.   Praise HFTs?   Since this rally started we have had only 2 fade spots on our newsletter (and both were posted also on stream) .  The first was to fade the jobs number pop last Friday, and today was 122 $SPY resistance.

Pretty amazing how these “obvious” spots are working.   Also a note of caution for those who we have heard  like to use the stream as a contrarian indicator — we were pleasantly surprised to see the short bias today.    Watch who you fade!

First gap fill is near $SPY 120 and second support is near 50SMA (and second gap fill near 117.25).   Let’s see how much the bears can push.       The most bullish scenario for us would be a fade to around 117.5 to put some fear into the bulls and then a reversal higher out of this range.

Monday, October 10, 2011

Hysterical Market Needs to Chill

V type markets can be tough as they don’t let the “wrong side” traders out to breathe — when we went down the poor longs couldn’t get out on any bounce, and now the  shorts didn’t have a chance to cover as we ripped through the 50SMA.     These can be vicious markets for contra-type traders.
Perfect V in $SPY — looking for mini Ws to come next.
However, that being said we had 8 out of 9 alerts (all long) trigger today from our newsletter– often when that happens and we run out of alerts it also coincides with a consolidation period in the market.    V type moves never last — the healthiest thing for the market would be to enter a consolidation period near the 50SMA.    Any such basing would set up many new longs, while continued running would create a higher probablity of a sharp move down.

Sunday, October 09, 2011

The easy trade, the fade, and now what

We always regret not calling ourselves “Base Trading Group — BTG” instead of HCPG.   Everything in our strategy circles around how we trade around the base.     Friday was as text-book bread and butter HCPG trade as they come — short the first touch of the descending 50SMA after extended run.  We’ve written about this for years and we imagine most of our subscribers were involved somehow in this trade.
We wrote on Thursday on our stream to “fade the job’s number pop” and we wrote emphatically in our newsletter to short 118.     The jobs number came at 8:30 –   short the 50SMA on the $ES_F at 1174, or short the pop to 118 on the $SPY pre-market.    For our way of trading–this was as “easy a trade” as they come — what comes after is a bit more complicated.    Is the rally over or are we just basing for higher run?   We have some decent set-ups long that just need a bit of time (3-4 days would make them look fantastic) so we’d be in the camp that would argue that the rally is not over yet — but we wouldn’t put any swing money on that either, we’re still in daytrade mode.
Perfect ES_F touch and fade from the 50SMA.   Very extended run straight into first touch of the descending 50SMA.   This is as essential HCPG type trade as they come and hopefully a lot of our readers/subscribers nailed this trade.
Here is the 5 min chart — note how extended it was from the 20EMA — again, lay up as it follows everything we teach — extended from base on every time-frame we follow.
And $SPY in pre-market short against 118, text-book.   These are the types of opportunities that don’t come often — when they do they deserve much more aggressive type of size positioning.

For weeks we wrote in the newsletter that we were looking for a bounce scenario in which the August $SPY lows would be broken and the 1077 $ES_F overnight lows would be tested, hold, and bounce.   That’s exactly what we got with a 10% bounce that was sold into the 50SMA.   Both these trades, in one week,  were easier to predict (because of their extreme oversold/overbought nature) than the range we have experienced for the last two months and we imagine what will come in the next several months.      What we are looking for now is a flattening of the 50SMA — a multi-day base under the 50SMA would be ideal– and then a rip higher (and we have multiple long set-ups already setting up giving some credence to this scenario) out of the range.   Note the taking of the 50SMA would be quite important technically as 1) it has not been overtaken since the correction started and 2) it is steep slope descending, making it quite strong.
(If you want to learn more about fading first touch of 50SMA, and waiting for flattening of the SMA –again, critical to how we trade—- google “flattening”  or “first touch” in the search box of our old blog at )
New lows of course are always a possibility — and the action in the banks are probably the biggest argument for this scenario.    Long term visibility is low meaning conviction for longer time-frames is low — we’ll be sticking to day-trading until we return to a trending market.