Narrow Range Continuation (Kinda)

We are still forming narrow range days which suggests a continuation in the prevailing trend, which is “up”. As long as this pattern holds, it is bullish and a breakout is imminent in 1-3 days.

A string of narrow range days means that the buyers who bought since the breakout two days ago are still holding their positions. There is significant accumulation and money flow, even though it’s not physically being seen.

As long as we stay better than -1% down on the market, it remains in the control of the bulls, despite the fucking whipsawing and perceived weakness going on.

The VIX is being dropped like a motherfucker and the lower Bollinger band is widening. If the VIX get’s one more major down day, this could trigger band expansion that will follow a cascade of declines in the VIX. There is support at 45, so watch yourself.

Bears…you guys need to drop this fucker way below 900 on the SPX and break this bitch in half.

UPDATE II: We broke some key short-term levels as we broke to the downside of the triangle. We are failing the 50-day MA. If we close below it, then that’s pretty bearish, even though we’re still in the Range of Death. In this case, I’ll give the market one day to redeem itself. Certain stocks are showing significant breakdowns. The best bet is to be hedged. The close is the most important.

UPDATE: We are forming a symmetrical triangle. The market is obviously waiting for some type of catalyst to remove itself from this consolidation. Probably the auto bailout?

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Yesterday was definitely a corrective day as evidence by the rounding cup in the morning. And then, after failing the near 920 level, the SPX dropped like 12 points and is now in a holding pattern. Technically, that’s an intraday breakdown, however, if you look at a multi-day chart, it’s a blip. We’re back in the neutral range that formed since last Monday. Take a look at the 10-day chart.

We formed an “almost” inside day. I say “almost” because the entire day’s range is not within Tuesday’s range, but it’s close enough. You can also call it a “spinning top”, a candle with no bias toward either direction. Following large up moves, it’s not uncommon to see a few spinning tops/doji before another move up. They are typically continuation patterns unless there’s a major breakdown. This smaller-ranged days form the “measured move up” pattern.

What do I not want to see? A -2.5% day or more. In addition, if the SPX closes below 890, there is cause for concern. We must break out of 920 on SPX quickly (1-3 days) to keep the uptrend intact. On the 2-month chart, we can see that 920 has provided significant overhead resistance. Today was a test of see if the 50-day MA would hold up as support, and it did. As a result, the market is bound by both 920 and the 50-day MA (@900), creating a tight 20-point range. A major move is imminent.

As for the longer-term chart, the collective pattern can be summarized as either a 1) wedge, or 2) an ascending triangle. In my opinion, we’re in an ascending triangle. If we break out and move past 940 on the SPX, then we would continue a wedge pattern. My initial target is 920 to break the triangle. 940 won’t be as difficult to achieve.

As for the bears, the only chance they have is if the entire move on Tuesday is nearly cancelled out. Being up 360+ points and then correcting -100 points is not a reason to celebrate. A correction like that is normal, it’s just a correction. If the market gave away half (or more) of Tuesday’s gains, then bulls should get a little nervous because that would mark a total breakdown. If we correct subsequent days from there, the volume should decrease each passing day not to exceed the volume of the previous day.

I am anticipating additional upside movement. If we break out, volume should be equal to or greater than yesterday’s volume. If we close below 900 on the SPX, then I’ll have to hedge my long position equally. Enjoy the rally while it lasts, but like I mentioned before, be ready to bail out if things turn ugly. Flexibility is the name of this game. I know that many things just simply do not make any sense, but you really have to trade off of the market’s reaction to these news events.

We have the usual weekly Jobless Claims at 8:30AM, but also the Leading Indicators and the Philly Fed, both at 10:00AM. We also have DFS, FDX, LEN earnings pre-market. PALM, PIR, RAD report during the day and COMS, ORCL, ZQK, and RIMM report after-hours. The consensus for the Jobless Claims is 560K with a range of 530K-600K. I’m pretty damn sure the whisper number is higher than the consensus. Last week’s number was 573K. Aren’t states running out of money to pay for this stuff?

UPDATE: I’m watching CNBC’s “The Money Chase” on Harvard Business School. Given the number of failures all over the place in 2008 and the people running them, it seems like it doesn’t really matter where the fuck you came from. What good is going to Harvard when you’ve helped create the worst global financial crisis in history? lol good fucking job. (Street smarts > book smarts). P.S. no offense to HBS grads.

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Finally…some direction in the market. I didn’t expect the market to extend so far into the close. I know this tight range has been pissing a lot of people off. We accomplished several things today that are very important:

1) We broke out of the narrow range and formed a Rising Five Method, a knock off of the Rising Three Method (I don’t know if that secondary continuation pattern exists, but I just gave a name for it).

2) Today’s volume exceeded the volume levels for the past five days. However, it’s nowhere near the breakout levels that I wished to see. The volume must be maintained in subsequent days. I do not want to see a fall off in volume.

3) We re-entered the 880-920 range after having threatened to breakdown the past 2 days. This is considered a neutral move, but more bullish for today’s action.

4) We are above the 50-day MA on all three indices. The SPX and DJIA are clearly above while the COMP is 2 points above the 50-day MA. However, just because we closed above it doesn’t mean that it gets easier from here. There needs to be incoming momentum to fuel this rally or it’s dead.

5) The ascending wedge (COMP) and the ascending triangles (SPX, DJIA) now have the highest chances of breaking out (920+ SPX) to the upside. As long as the market doesn’t drop -2.5% or more, the bulls should be ok.

6) Financials led the rally. The banks were the big buys today. (3:09PM – Add 25% financial longs order issued). Of course, they’re going to benefit the most from the Fed’s actions, now and in the future. The 2nd best sector was the industrial/materials sector combo.

Some Concerns:

1) Oil lagged. I’d like to see oil move in tandem with the market to support the rally. A further decline in oil will obviously impact the strength of the rally. Massive volume spikes the past several days suggests that a decline in oil may come to a short-term halt.

2) This is still a bear market rally. Don’t get caught with your pants down.

Interesting. You know how CNBC started those “I am CNBC” self-promotion commercials? Well, as I write this, I heard that Melissa Francis is a “a Harvard grad…an anchor…a frustrated hip-hop artist?”. Please. That’s ridiculous.

In other news, I think Rebecca Jarvis looks like this warrior elf:

Similar?

Anyway, the possibility of a pullback to 902 or even as far as 882 on the SPX is possible. If we break above 920, we would have cleared almost every major resistance level until 950. Looking at the 10-day chart, we can see that the SPX is sitting right on near-term support at 910. I have no idea what to do until I see the first 15-30 mins of the open. If we get a major gap up or down, that could change my assessment.

The bottomline is that a move like this cannot be ignored. This was obviously a powerful move and technically pleasing to my eyes. This could be the beginning of a measured move up. Don’t forget that we have earnings from MS, CAG, GIS, CMC, JOYG, APOG, NKE, PAYX, TTWO, and a few others. Before we get too excited, keep in mind that the auto bailout has not yet been resolved.

Support levels for the SPX are 909, 905, and 887-900. Near-term resistance is at 920, which will be tough to crack. Enjoy the rally, but be ready to bail if things look bad. This is still a short-term trader’s market. Remain flexible, or you will lose money and end this year empty-handed. Not good for the Christmas spirit.

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Today was a day for running errands. At noon, I was just sitting and watching as the market just became this convoluted mess of volatility, failed patterns, and low volume that made today’s trading futile. Unless you we’re day trading (bordering near scalping), there was no way to trade it. I didn’t trade it. Instead, I watched CNBC, just like you, to see the latest development in the Madoff scandal. The whole thing is probably going to get a lot more interesting.

A great way to figure out if the risk/reward is favorable is if the market fulfills the definitions of its most common patterns, such as a common consolidation breakout. The risk/reward is not present if there are continued failures in the most basic patterns. It’s best to stop immediately upon finding this out.

A technical reason for the major whipsaw is because the market is bound by the 20-day, 30-day, and 50-day key short-term and intermediate-term moving averages. These, along with heavily-established support and resistance areas, are keeping the market in trading hell. Today, we opened at the 30-day, bounced off the 20-day + support since the Nov low. Your day was better spent going fishing.

There needs to be some major catalyst to either break this market out of the 50-day MA and continue an intermediate trend, or bring the market to it’s knees and breakdown to 750 SPX. Everything else is just bs – news, emotions, and scandals adding to the already confused market. After all, that’s what the whipsawing is try to tell you…that the market is too confused to make a solid decision, sort of like a teenager at GME with the option of picking either Grand Theft Auto IV or Gears of War 2. It’s tough, but hurry the F up and pick one.

How about volume? Yes, the volume is light on the uptrend, but the market appears to be in a corrective mode in the short-term, which is fine. However, looking at the 5-month chart, the rally appears to be unsustainable on continued declining volume. Since the Nov bottom, volume slowly cut in half as the rally progressed. The only bullish characteristic is the fact that there is more volume on up days than on down days.

Important levels for the SPX is a breakout + close above 905 or a initial breakdown below 850, then anoter move closing below 840. Everything else is stuck in this range. The 20-day MA is at 857, the 30-day MA is at 878, and the 50-day MA is at 905.

With the Fed meeting coming tomorrow, expect another choppy, indecisive day until 2:15PM. There’s no point in making a serious decision until after the reaction (if any) to the Fed’s decision. Why get whipsawed to death? It’s best not to trade at certain times and this is one of them. Instead, go finish running your errands and come back after 2PM.

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Bulls need to breakout of 910 SPX at the 50-day MA (even a close sightly below is considered ‘ok’). Bears need to break below 850 and close around 840 or less. This will complete the bear flag and ‘officially’ break the ascending wedge. In the meantime, we’re still hanging out in this zone of nowhere.

None of this may not happen in one day, but it’s getting pretty tight up there. The only difference between the last 50-day MA failure and this one is this time we’re edging up and forming a very volatile flag (technically, we’re still in it). The previous MA failures occurred in 1-2 days…and that was the end of it. The market went down.

The volume has been an issue for some time now and the rally is moving on lighter and lighter volume. I remind both bulls and bears to not become complacent, even if the market has been discounting bad news on a consistent basis. This is not a market where you just buy/short something and leave it alone to go run errands for the rest of the day. Even if you use frequent stops, you’ll get stopped out so much that you’ll rack up significant losses.  Only active traders will prosper at this point in the market.

I still can’t believe it’s taking this long to sort out the GM/F mess. As long as this fiasco continues, expect the market to act like some double heroin/coke addict on withdraw. The longer this drags on, the more difficult trading will be.

The Madoff scam shows how incompetent our SEC is in regulating anything. Come on now, $50 billion in losses? How in the world do you hide that? Nothing is reliable in this market as any one “black swan” moment could change the course of the market more than it’s already been changed so far.

Also, don’t forget earnings from key companies coming out this week including, but not limited to: GS, TITN, ADBE, HOV, GIS, CMC, JOYG, NKE, TTWO, PAYX, FDX, LEN, PIR, RAD, ORCL, RIMM, DRI, and many others. We also have several economic reports/announcements coming out this week: FOMC meeting, NY Manufacturing, Housing Starts, CPI, Jobless Claims, Leading Indicators, Philly Fed. There’s no question that the market will be gut wrenching with volatility.

There’s too much shit that’s going to happen (or not happen) this week. Trading this market is not for the faint-hearted.

Be careful out there.

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As it stands, it looks like we’re going to gap down pretty close to the 820 level.  We may slightly drift down and bounce off of 820 (835 on a smaller gap at the open) and bounce to the 850 level or 835 in the case of 820, or a combination of both. After that, if we don’t start filling the gap within 30 mins, the market is in some serious trouble.

820 is the key support here. After 820, there’s nothing that will hold back from the market from re-testing the 750 lows. The worst thing that can happen is if the market sells off so hard at the open that we cut straight through 820 immediately. In that case, start scaling in short positions immediately.

Otherwise, I suggest waiting at least 20-30 mins to see how the gap will shape up (look at the blue lines and watch if the market is getting boxed in). I would add significant short positions on the first failed bounce. If you have longs, this would be your opportunity to sell out at a slightly higher price.

I would not dump all my money all at once into short positions, but rather scale them in.We could form small flags/wedges, triangles almost immediately for better entry points.

The possibility of a major rally is present if Bush/Hank/Ben decide to manipulate the markets. A surprise press release should be expected. Therefore, it is important to have enough reserve buying power to hedge in case of unexpected bullshit Magic Jack trickery.

If we do appear to be rallying non-stop, then, well, stop shorting lol. If this gap fills, I would be shocked. If you can’t be at the computer all day, then you probably shouldn’t trade. Today is not a day to be casual.

A gap down at the 840 SPX level will immediately break the bear rally’s uptrend. If we continue the momentum, and the market closes down over -6%+, then this gap is likely be a continuation gap. I also expect considerably larger volume today. Obviously.

The difference between this -3% down day is that the market is no where near the lower Bollinger band. We could see an acceleration of sell which will expand the bands, giving room for several days worth of selling.

I already have SMN and SRS, but I’m going to be messing with those 3x ETFs. I think they’ll do well today.

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