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.
John, I’ve been doing some preliminary research on volume during historic bottoms. My early conclusion is that you are right, and we will not see a bottom until we see, at some point, a surge in volume.
Good post as usual.Thanks
I caught it. I checked the spam filer for the first time just now and there are 111 sexually-explicit/Russian or eastern European spam comments lol.
Wood, I tried to post of your DeMark post, but nothing happened.
GS going to take care of this shit one way or the other..
I like the before and after coin charts, easy to understand!!
Finished running all my errands!
Nice. 50-day is broken though on the DJIA and SPX. COMP lags.
So now what?
trade up to the next swing point….SPY 92.38 you want volume to be gretaer than 450M. Take that out on volume then we set up the trade to Nov4/5 at 100.86.
___________________________________________________________tricky right now with holidays upon us the volumes are skewed to light side.