That sign posted at our local Wendy's drive-thru window looks a lot more tempting tonight than it did yesterday. I sure have to wonder when trading will become easier once again. Haven't we waited long enough for predictable market conditions to return, or is it just me? The days of buy & hold lie somewhere ahead but it wasn't this week past.
I felt confident of the trading plan for IndexSkybox heading into Friday. More than two hour's tedious chart study left me with some conclusions. Market action had weakened recently, especially in the Dow. Several attempts to break 10,900 were thwarted and that seemed formidable to surmount.
Ascending trendlines of support dating back from April 3rd lows on daily charts were clearly broken on Thursday's close. That itself wasn't enough to short, but further weakness on Friday would suggest the uptrend is finished for now. Such a steep line ramping up is technically weak to begin with. A 45-degree slope or less is stronger when formed by steady gains instead of price explosions.
Next we had daily-chart "cup & handle" patterns that confirmed on Tuesday & Wednesday's close. However, there should never be a price break below that "handle" again or it warns of a failed pattern. Failed bullish patterns are very bearish, of course.
Then we had Thursday's action posting very clear "Evening Star" bearish reversal patterns for all major index daily charts. Pile grossly overbought stochastic values on those charts for good measure as well.
Altogether, it was easy to deduce that further downside risk existed. I decided to enter put plays on a break below the ascending trendlines, cup & handle support, 10 DMAs, recent session lows and significant Fibanocci retracement values. For good measure I backed off entry triggers a few ticks to avoid getting "head-faked" right at support on a sudden reversal.
Two hours of charting boiled down to this: if something should cause markets to break below all that support I want to play the downside from there. If support holds on a bounce, I'll look to 60/30-minute chart signals for deciding on call plays instead. If support is broken and price action recovers from there it's best left for day-traders. Failed rally attempts intra-session was high odds and I didn't want to lose on both puts and calls during whipsaw action. Let's play the break below support if it comes, widen stops to reduce overall risk and go from there.
The Plan Comes Together!
Apparently equity markets agreed because S&P futures went from 5+ points above fair-value to -17 below within minutes. Dow futures plunged and NDX went limit down as well. The idea that a quarter- million workers are not drawing a paycheck obviously means discretionary spending will follow suit. Logical deduction?
I thought so until CNBC began their usual spin. "These figures are merely a lagging indicator, not leading". OK, same can be said for the Q1 GDP everyone trumpeted and ramped markets up on last week. Why let viewers climb a Q1 indicator's back and not shout from the "news" desk that it's a lagging indicator right then? That data was from January to April 2001, not merely April only as NFP was. What if Q2 GDP is currently in the gutter as we speak? Did CNBC "experts" warn their legions of that? I missed it if they did.
Needless to say indexes gapped down, traded cleanly through our bearish triggers and hovered before reversing near 10:00am after determining all shall be well. Word that the Q1 GDP will be revised down had Fed-Fund futures rise to 80% chance that the Fed cuts another 50-basis on May 15th. Rally ho!
Can anyone find the error of my deliberate assessment, other than bulls want to buy? I'm sure scratching my head over two wasted hours from here. Easy solution if we could just shuck all the pre- planning stuff and simply call 'em as the market delivers. "Short, cover, go long, let it ride... sell!" would have been about all we needed to know Friday piped through Market Pulse. Scrap all the chart study & pre-planning for endless hours. Day trade momentum as it comes, go flat at the bell and sleep 8.5 hours each night in blissful slumber.
Just spend 30 minutes in the charts at night jotting down key points of resistance & support, wait for price action to reach them next session and pull the trigger. Mistaken entry? Bail out on a dime and head the other direction if market action dictates. No delay. No worries about who's following in or out. Just focus on trades! Hey, that sounds a lot like my life prior to running a website (including the bit about watching GH). If only it was still that simple today.
We've all recently heard the old rehashed phrase of "trade what you see, not what you know". Catchy & cute, but what happens when what we see is false as well? What happens when we see significant market weakness right in front of our eyes, trade the downside and get hammered? What happens when we buy calls on Thursday's dip and get hammered on Friday's open? By the time we see, the vision test cost us four-figures or more!
Personally, I don't care to trade GDP or NFP fundamentals at all. Fundamentals make zero sense as witnessed today. By the time we determine how the herd digests such news the move is over. But for those who love fundamentals (Buzz) it must drive you crazy to see markets celebrate massive declines in employment.
Will these people celebrate falling interest rates by purchasing new big-ticket items or might they bury their credit card balances on $2.00 per gallon gasoline while looking for jobs? That exalted tax cut promised to stick a cool $500 cash right in each taxpayer's pocket between this August & Christmas 2002 (federal wheels grind slowly) ought to push us over the top, wouldn't you say?
Please. That's chump change, although it will soon buy a high end Dell or Compaq computer when their stated price war kicks in. What will those plunging prices do for DRAM & chip makers reliant on box makers for Q3 & beyond earnings?.
Crude oil futures appear poised to break out in a bullish rally, taking energy prices with them smack-dab into the summer season. New SUV, anyone? Natural gas contracts are trading at a premium with front-month higher than back. That means big producers are willing to pay more for natural gas today than later. Why is that? Would they want to lock in higher prices now if they thought it was going lower in the future? That's not how the hedging game is played at all. Giant consumers are paying more right now because they expect a price increase later.
But I don't concern myself with such. All I want to do is buy strength and sell weakness today and do it again tomorrow or the next time. Why markets go up or down isn't important: where they are going definitely is.
This is less a problem for very short-term traders who follow 10/5 minute charts or so. Trying to trade from one session to the next in technical fashion is tough. Day trading is grueling, takes great focus minus all distraction and requires instant decision- making skills. It is my least favorite method of trading but right now seems the most viable way to profits.
(Daily Chart: Dow)
Friday's Dow close above 10,950 from deep session lows was a major boost for the bulls. Again I think it was more short covering than buying at first, but regardless the catalyst results add up the same.
(Daily Chart: NDX)
The NDX actually broke below a wedge (last white candle) Friday before rallying back inside to coil again. It could run up another 250 index points before meeting twin trouble near the 2175 area, but first things first. 1,984 level held twice over the past eleven sessions and may do so again.
Daily Chart: SOX)
We've got enough clutter in this chart to give us a headache! (I also drew this Fib scale upside down so please reverse the % figures) Let's dissect it together:
1. 62% retracement from the low up to high near 650 held firm.
2. Broke below and closed outside of neutral wedge formed over the past thirteen trading sessions. Bearish.
3. 50% retracement and 20 DMA merge at 610 area. Offered support over four consecutive sessions.
4. Stochastic values made bearish cross and are decidedly weak.
(Daily Chart: SPX)
The Big Index closed higher but has congestion above & below. It will take quite a market catalyst to move it decidedly in one direction or the other. 1307 area is strong historical resistance from here, based on weekly chart analysis.
There's what I see... what do you see? I begin each charting session with clean templates, objective outlook and paint in the canvass from there. When the artwork is done, I just can't get excited about loading up on bullish plays right now. Perhaps I've felt that way for too long, but this just does not fit my criteria of high-odds rally extension into the next several weeks & months.
But that's just what I see. What I know and what I see added together have offered little in positive results via any method other than quick hits in and out
For those who prefer a few days of live interaction with renowned experts and also we contributors to OI & IS, you're in luck. Right now a series of regional seminars are being planned for various parts of the country for the summer & fall. Dates, locations, speakers and agenda have not been determined. Due to overwhelming request, rumor has it you see Jim Brown at some, most or all for a rare appearance on the road. If I promise to behave he might even tag me along.
These seminars will run several days and be information intensive. Modeled after the unsurpassed Denver events, your mind will be fed with a fire hose.
For a more topic-specific study from the comfort of your own home, HQ is setting up webcast seminars that allow you to link up your computer & phone line to our central location. From there we can spend about two hours together looking at the same charts, slides, web page locations while talking on the phone or instant messaging questions & answers.
This will allow a modest group of participants to interact while the speaker presents information, draws on charts, looks up option information and answers all questions as they arise. Next best thing to being in the same room is being online together with full access sharing!
Topics I intend to cover alone or with company are as follows: Day Trading Swing Trading Spread Trading Covered Calls & Shares ABC Technical Analysis Evening Market Analysis & Trade Preparation Setting Up And Using Qcharts
There exists the possibility we could offer an all-day session during expiration week (say on Wednesday) where we all link up, watch the charts & markets together and analyze trade setups right while they happen. How's that sound? This would leave us fresh to trade the next two sessions with lessons learned on Wednesday. Just thinking out loud here.
Again, that's the framework. You will have details and schedules for upcoming & recurring events such as these and many more real soon.
P.S: A Personal Message from Wendy I just wanted to thank ALL of you for the wonderful birthday wishes. I prefer to have the day go by quietly and unnoticed, but with a husband as wonderful as Austin that's a little tuff these days. I truly appreciate everything you all bring into our lives with your notes of encouragement and gratitude for what Austin does. I am his biggest, most loyal fan and admirer and am happy to share him with you. Again thank you so much for the Happy Birthday emails! Wendy P.
Best Trading Wishes,