The stock market continued another wild week with two massive down days after Monday's largest rally ever. Today, the Dow was down 400 points intraday, and although we didn't make a perfect double-bottom on the Dow and S&P that I was referring to in previous posts, the NASDAQ did make a perfect double bottom. When prices hit that low again, the market abruptly turned around and soared higher with huge gains for all of the indices. More importantly, these "hammering" candles put in on the charts today came on massive volume, which finally indicates that buyers are coming into the market. There is still a lot of technical damage on the charts, but now that the double-bottom is in place, we have a line in the sand, and can begin to trade to the long-side in the hopes of a counter-trend multi-week rally. I will be skeptical until we regain important resistance levels, but I did buy double-long ETF positions in the S&P (SSO) and NASDAQ (QLD; about 10% of portfolio each) at around 2:30 today, and for the first time in weeks, held positions into the close and overnight (I've been 100% cash otherwise with only occasional intra-day daytrades).
13 comments:
two questions:
1) if you are still skeptical (until we regain resistance levels), why the leveraged etf's (as opposed to non-leveraged)?
2) what is your time horizon on your entry yesterday?
i made an entry last friday during intra-day trading, very long on that. unfortunately, had a lot of chips in the game already (i envy your cash position).
Hi Elsquid,
Great questions.
1) I went with the leveraged ETFs because I have been sitting on cash and I have a gambler's mentality. I don't know how far we can push through resistance, but this will maximize the gain as we get there. I have been running my technical analysis every night, and not everything is lined up perfectly for a huge rally (for example, there is only a weak, if any, positive divergence on MACD on daily charts of S&P and DOW). But, we are more oversold than we have been EVER (maybe since 1987 and 1929), and we did perform a "sucessful" retest yesterday, thus I think the other indicators will lag and I just had to go for the gusto. I added to long positions this morning on the pullback (bought UWM double long Russell 2000 small caps).
My time horizon varies depending on what I see in front of me. The thing I've learned from technical analysis is that it can never predict, but it defines your risk and benefit. You can never fight the charts. I know that the lows of the day yesterday are my support line. If markets stock falling today, Monday, Tues, I am out. It doesn't matter when it happens. If they go up then great. There is also strong fibonacci 61.2% retracement support at 919 on the S&P, which I will use as support, because if the S&P falls below there, then it will likely retest the lows again.
As I write this we are trying to clear a down-sloping trendline on the 60 minute charts. If we can break through, next resistance is 1000 on S&P and if we can clear 1100 then 1050 is where the 20 day moving average will be.
so if the market drops, you are saying you would be out because it would have dropped below our current support levels, correct?
do you choose to do this via sell stop orders?
Yes, I always put in stop loss orders the minute the trade executes, especially in this highly volatile environment.
Right now I have my stop to sell SSO if the S&P falls below 918. The fib retracement is at 919. If you look at a 5 min chart, you will notice how 919 served as resistance in the first 30 min of trading and shortly after Noon. Once it broke through that level in the afternoon, I went long. Also, the 50 period moving average on the 5 minute chart is at about 926 right now. If we break below it, then this new mini-uptrend is over. I would have put the stop at 924, but the fib retracement seems to be more important as it was twice resistance yesterday and it was support on today's downdraft. You will noticed that the S&P bounced perfectly this morning at 919. Technical analysis is amazing! If you want to know some sites I use to learn about this, let me know.
absolutely. that was going to be my next question for you: what sites you go to.
i am also a firm believer in technicals and am familiar with the basics, but would love to have the tools to learn more and be able to look at it more in depth.
My favorite sites are:
1. Stockmarketmentor.com: great chat room with trading ideas throughout the day and more importantly 15-20 minute videos every night on technicals of overall market and individual stocks/sectors. memebership fee.
2. Theinformedtrader.com: Great chat room with charts and nightly wrap ups with discussion and charts (no videos). Also issues trade alerts via email. Membership fee.
3. Cobrasmarketview.blogspot.com. He does decent updates, and more important he has great links to other trading blogs on right hand side of his page (free).
I would start there. I also subscribe to "Themarketmessenger.com" and it's OK, and also "investedcentral.com" which provides a nightly update on all the technicals, has daily live chats with charts up and issues trade alerts. Their performance hasn't been great lately (they kept trying to call the bottom too early). Of note, the first two websites were key into keeping me in all cash for last two months (except for daytrading).
Best,
Steve
Note:
I do not like the price action in the last hour one bit. I have raised my stops significantly, and I will bail on all positions. do not want to hold going into the weekend if we can't close strong.
I'm out of every position. breaking support on 5 and 15 min charts.
They always say never trust a bear market rally. Today is a great example of what can happen.
and still no one has even bothered to ask whether I'm starting the Pats' or Broncos' defense this weekend. answer: I have no idea.
Elsquid,
Wow...I was busy most of the day and could not follow as closely as I usually prefer, especially in this crazy environment.
I actually made an error before on my post at 11:09 AM. The markets were at the downtrend line visible on the 15 minute charts at that point. They subsequently cleared that hurdle.
However, the indices stopped dead at the downtrend line on the 60 minute charts. Go to a 60 min candlestick chart. (You must use these types of charts for all tech analysis, not line charts. Get a subscription to stockcharts.com if you don't have one...it's a must).
Next, connect the highs from Oct 3rd and Oct 14th to today's high. Perfect, right on the money. I am pissed that I was zoomed into to the 15 minute chart and didn't see that big-momma of resistance coming into play today. I need to quit my real job. Anyway, I got out in time to capture some profit, but much smaller than I could have had at that peak. In fact, if I wasn't busy at the time and I saw the market stall like that at the 60 min downtrend line I would have gone aggressively short for the rest of the day.
Now, also looking at the 60 minute chart, keep that first downtrend line, and then draw the uptrend line from the lows on Oct 10th and 16th. You can see we are forming a big symmetrical triangle. These are USUALLY continuation patterns, which means when we break out of it, we will probably go down the distance of the move leading into the triangle. Anyway, not trying to predict, but define the risk. The triangle is now well-formed, and 984 is heavy resistance and about 880 will be support. We will probably go back down to 880-900, and then we will either bounce back up, or fall through. Watch it play out!!
Got some QLD on Friday and was searching for charts. I thought it was really going to take off on friday and it was up 8% at one point. I was looking for some charts and your double bottom is a great one. Thanks
Whats a good stop loss price ?
Hi Anonymous,
Thanks for the interest.
Unfortunately, if you read my "Market Update" piece from the 18th, I think we have a fairly decent-sized swing down from here based on the 60 min charts.
You can play it two ways. First, the low (2nd bottom) on the 16th was 28.27 on the QLD. You can make your stop 27.99, so that you don't get taken out on just a slight retest beyond the recent low. I definitely would not place a stop anywhere below 27.99 on QLD.
However, if you can watch the market a little closer and make quicker trades, I actually would place a stop just below the 50 period SMA on the 15 min charts, which currently stands at 33.15. So, my stop would be 32.99. Why? Because if it breaks below there, then it is in all likelihood going to the recent lows again. The difference between 32.99 and 27.99 is 5 points, which is about 15%. I would not want to incur a 15% loss to know that I am right about the double-bottom holding. I simply have become VERY conservative in this VICIOUS, and I mean VICIOUS, bear market. In a bull market, the stops can run loose because the trend is up. But, for now, with down-sloping moving averages on every time frame (10, 20, 50, 200 day), the bias has to be to the downside until proven otherwise. The goals of my QLD and SSO positions were to catch a bear market rally, but not to catch the start of a new bull market. See the two fundamental pieces I included (one linked and one in the comment section) to Market Update. We could have a lot more downside to come. This simply is not a buy and hold environment. Not until some stability comes into the market, and with the VIX (volatility index) near 70, there are going to be wild swings in the near term.
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