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If you have been a regular reader of mine, then you know by now most assuredly that one concept I often talk about is the idea of a prior resistance level turning into current support, and vice versa. Looking across a variety of time frames to identify these important price zones is crucial to gaining the correct perspective for your shorter term directional bets.
The weekly chart of the homebuilders is a pretty good example of a certain price area that has acted as both important resistance and support at various times over the past few years. On the $XHB, the $14 zone provided very strong support, as the buyers aggressively stepped in during the summer of 2008 selloff. After that, the buyers tried to defend the $14 level in the October 2008 crash, only to see it give way in the post-election day swoon. For the next several quarters, $14 was a brick wall of resistance, where bulls scurried away and bears came growling back in to short the homies into the mud.
It was only in the late summer of 2009 that $14 was finally recaptured again by the bulls. For the next several quarters, the homies based out just above the big 1-4, before (briefly) breaking out this past spring. Ever since late April, however, the bears have been back in the driver’s seat, and we now find ourselves at $14, yet again.
Now, even if you are longer term bearish on the homebuilders and housing in general, I believe it would be incorrect to not cover any short positions right here, right now. The probability of a bounce from this key level is very high, and I would suspect the savvier bears who shorted the homies in late April are taking some near term profits here.
Price has memory, and the $14 level is sure to be a tough battleground, yet again, with some of the late to the party bears on the cusp of being trapped. This is a heavily shorted sector, and some of the short squeezes here will be violent. If the broad market can follow through from last week’s hammers…buckle up.
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(WARNING–Rated R)
[youtube:http://www.youtube.com/watch?v=2hvNi0VZwc8 450 300]
I just wanted to tell all of Chess’s readers: he is lighting up the iBC ratings charts, with more than 7% of traffic, making him the 2nd most read blog here. I’d imagine a pay increase is in the works.
Good work Chessy.
Quality content + regular posting drives traffic
Indeud!
He’s among the best. His clarity and teaching skills are very helpful!
smiling here in oregun- very very happy for my friend
Congrats CnW….very well deserved!
Nice job, from another satisfied iBC reader.
Definitely some quality stuff here – I only check 2-3 iBC bloggers on the regular and this is one.
“I knew it was gonna be a loooong summer”
Indeed.
chess is a playa!
ps.
also, like the possible squeeze in the “homies”!
Pretty work Chess. Keep it up, your stuff is informative, even for a shit-for-brains like me.
@Lindsay – going to Oregon next month for a bit of biz and Pinot. A few years ago stayed at the old asylum = Edgefield. My wife thought that I never looked more at home.
Menace to Society, classic.
NYSE % A/D not participating in this rally. Filled the upper gap from Friday, created a new one today which must be filled to the downside sometime soon. Opening bar left a “specialist” sell signal as well. This will be an interesting day!
Thanks Fly & everyone else for the kind words.
Chess is da man! Keep up the great work! Love your charts… dawg!!
NYSE A/D trying to fill opening gap which is still a ways away. After that, we may get a buy signal. First sell signal came at 11:14 the second at 11:40. Interesting tape, I figured we’d “ramp and camp” rather than pull back much.
congrats, cNw! your thoughtful, calm and well-reasoned posts are a huge asset to iBC…
today’s action further illustrates your ‘don’t buy in the first 1/2 hour’ policy!
a weak tape… looking for the SPY 104.00 region to hold or this could be the shortest rally of the year! failure=more aggressive shorting
Exiting shorts, not going long yet. Be surprised if we receive a buy signal today (daytraders)
If we have a higher close but close below the opening, I’d be concerned about the downside within a day or so.
Russel getting crushed. What do you think? I know you have been watching it.
Hey Chess,
I guess this tape satisfied everyone……those who thought we were due for a huge rally and those who figured we continue to drop….seems we filled both opinions….at least intraday, which is my domain.
The specialist gap was filled on the downside a few minutes ago and one higher was left about and hour or so ago, so we may see a pop up before the close, but I’m not seeing any intraday entry points yet.
I think this is perfect so far. Still negative sentiment, frustration, agony. but the hammers not negated.
True. My favorite buy “hammer” was defined by Tom Demark, I believe.
It’s simple, lower open, close higher than the open but still down close from yesterday. See February 25th (SPX) for a good example. They don’t occur too often in SPX or indexes, but can be pretty reliable in high volume stocks. I sometimes use them for a very short term long trade.
The reverse is what I’m worried about today. Demark would call it a ‘camoflage” sell, which means a higher open, close lower than the open but still above yesterdays close. See 6/21/10 FCX for a good example. The wouldn’t portend good results for the short term. SPX may carve out that bar today.
excellent–really appreciate all of the feedback and input, philsy
My pleasure. Your work is much more beneficial to traders/investors than what I do. I went to cash a few months ago; sold out of everything and developed these intraday techniques to stay out of Geithner and Bernanke’s way for the time being. If John Hussman is right, I’ll be daytrading for quite awhile!
BTW, we’re trying to build a long entry point here. Still a few minutes away if it arrives at all.