After a sharp gap up this morning to 1090 on the S&P 500, the market is now chopping around after a bout of profit taking. So long as there is an underlying bid, we should begin to stabilize and follow through on yesterday’s hammer. If we are going to improve to a healthier market, then you should expect a fair amount of backing and filling. A “V” shaped exuberant bounce to heavy resistance levels would likely invite significant profit taking, and allow bears to confidently reload their short positions. A slower, steadier stabilization process will give many charts time to heal and also help to form a sound base.
I am seeing some enticing setups for breakouts, such as $SNDK and $ORLY. However, keep in mind that in corrective markets, many setups break your heart and fail at the very last minute. For now, we will let the big money bulls do the hard work for us, in terms of trying to provide a floor under this most recent selloff. Our best risk/reward entry points will be if and when we see benign consolidation after a strongly bullish day or days.
Finally, here is an updated monthly chart of the Euro ETF. I am now expecting many of the savvier shorts to begin covering and taking profits, seeing as the steep decline has more of less filled the gap dating back to 2006. Given the sharp decline we have already seen, combined with main street news media declaring the death of the currency, it is important to remember that greedy bears are just as prone to being “bag holders” as are greedy bulls.
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nice post, c&w!
Thanks duane–don’t be a stranger around here.
Love your style chess.
Being patient here like you said even thought I was tempted earlier today.
Thanks.
Thanks BigRagu. It is very tempting, and I may very well be missing out on some profits here. However, I am always trying to manage risk, especially in a market like this.
Aren’t you concerned you might be chasing in a couple days?
IF the charts start to reset, it won’t be chasing. If we fly higher up to resistance, I would be more inclined to put on shorts than anything else. So, I am not so much looking at what the market is doing, as HOW it is doing it.
It seems like in the past 5 trading sessions the S&P 500 has topped out at 1090 multiple times intraday creating some strong resistance. Not only are we under the 200 day MA, but that 1090 mark is like a brick wall. I’m not optomistic on the market rallying until we can push through 1090 and hold it, or even moreso the 200 day MA at around 1102.
What you think Chess?
Very good point. 1090 has been tough resistance. It is all the more reason why I think several sessions of consolidation will help to stabilize the market and reset charts.