Monday, November 21, 2011

Weave your way

The only sense we’ve made out of this market is to go reversion to mean.    At the bottom of the range today we had many support longs trigger — and they worked.   Last week bulls excited for break-out got killed on the reversal.    Range trading at its best.
For tomorrow we have a nice mix of resistance shorts and support longs –  traders are confused, investors are confused, politicians are confused, everyone is confused.   And when everyone is confused they become weak holders, thus reversion to mean reigns.     One day we’ll leave this large multi-month range but until then either stay in cash or shorten your time-frame.

$SPY broke the range lower only to reverse into the afternoon and close over trend-line.   Ball is still however in the bears camp until the bulls distance price away from bottom trend-line.

Bear Trap?

Usually if $SPY is trending down our support alerts don’t do well.  Today there has been an astounding divergence as our support alerts have ROCKED while SPY has done nothing but trend down.

These are the support long alerts that triggered from our weekend newsletter (QCOM COP gapped below):

$XOM 76.3
$USO 36.8
$VMW 91.2
$APC 74.25-74.6
$CLR 64.6 — if base,  64 were instructions
$ALGN 26.8
$ULTA 64.4-64.5
(and two shorts $EOG 96 and $WLT 70)    Take a look at how well they worked for bounces.

It’s ridiculous how well they worked (and so is the divergence from our PnL and the opportunities in our own alerts as we didn’t have the faith considering SPY action).
We can’t even remember the last time we saw such divergence.   Not sure it’s enough evidence to call it a bear trap but it sure is one point for the bulls to see dip buyers under the surface buying with such conviction.

Sunday, November 20, 2011

Slaughterhouse Won

Last Friday as the market was heading back to the top of the range we wrote about how it was do or die time — we would either break-out of the range or fat pigs were going to the slaughterhouse.   On Tuesday we really didn’t see an edge for swing longs and wrote Not Good Enough Risk Reward which indeed was true since the market proceeded to dump later that week.
Our tells of Euro ($6E_F) lagging, combined with lack of good set-ups,  and Ags ($POT $MOS $AGU $CF)  underperforming helped us and our subscribers stay away from swing longs BEFORE the down move.
For the last 4 months the golden rule has been — the more the bulls get excited, the more you go to cash.   We broke the mini triangle down but we’re still in the bigger channel which has support around 119-119.5 on the $SPY.   Note that the trend-line moves every day and target needs to be adjusted.

Our favorite “tell” sectors are completely broken.    However, SPY will probably offer a decent short-term trade on the bottom of this channel.   We like the idea of an overshoot of the 50SMA (120.8) to bring in some panic, and then a bounce around 119 zone on bottom blue line.
If the bottom line of channel breaks (currently around SPY 119-119.5) then it’s going to get a lot dicier to navigate.   However, we’ll worry about that if/when it happens.   Have a good week.