Sunday, March 7, 2010

Weekend Update

Okay, so it is time to take a step back take a breather. Consider these facts:

- The market completely ignored all resistance levels yesterday and grinded through them.
- Volume was uninspiring, but that didn't seem to matter.
- Price action was completely one sided (max pullback in the 3pt range and not considered healthy).
- Even with all of that ATR on the day was only 17/18 pts, hardly the 20-30 pt range expansion day the market should be moving towards after such tight consolidation.
- The market is highly overbought on every time frame from dailies on down.
- We have new highs on the Russel, will the other markets follow?
- Of the four key S&P sectors (XLE, XLF, XLK, and XLV), two are at their 61.8% retracement, one is in between 61.8% and 78.6%, and one is at 78.6% while the S&P itself closed above the 78.6% retracement. Clearly this latest move is driven by the minor sectors (which explains the new high in the Russel) and isn't what we would expect in a strong bullish move.

Now, we can anticipate a bearish move until we're all broke, but without confirmation on price action, then we will all be broke. So, here is what we need to confirm that p3 has indeed begun:

1. Close below the 60 min 34 SMA (currently at 1122).
2. Close below 1115.
3. Close below 1085.
4. Close below 1040.

Anyone looking to trade this, here is what I suggest. Start with a conservative position once #1 has been achieved with a stop above the current high. Add to the short once #2 has been achieved. Add on when #3 has been achieved and then again when #4 has been achieved. Certainly your own entry and stop techniques should be employed.

I also decided to go out and put together what a bullish chart might look like if I was completely wrong on this. Here is where it would start. Of course, it will need one more rally on every index and then a 3 wave move down on the weekly charts to confirm a new bull market. Until that happens, I'll still be a bear of Grand Super Cycle degree ;-).

Best to your trading!
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