September 13, 2011
Uncategorized
By Geoff Bysshe
Monday's Focus list had two main points:
1. Weakness would be bearish because of the clearly defined bearish flag pattern, and
2. If you consider more than just the SPY's, you'll see a much different picture. Both were important today and will be important tomorrow.
A gap lower had us wait for the rally to short and that worked well (shorting the SPY's OR Reversal by buying the reverse ETF, the SDS). Unfortunately for that short position, the market didn't fall apart. However, if you followed the rules then you made money on half the SDS position by selling near the high of the day, and then broke even on the balance as the market rallied at the end of the day.
The short bias was the right one to have all day, but the market could not break down through its low of the day. The key in seeing this coming was in point #2 from last night's Focus List. The Q's have been much stronger, and in fact, they didn't even break their daily wedge line highlighted in last night's Focus List (see chart below). Combine the resilience of the Q's with the SPY's holding the key level of support at the 9/6 lows (see chart below). And the bear trend could not break down.
So what's next?
Whenever a market trades below a key support level and immediately trades back above it you should watch for signs of a snap back rally. The big picture is still negative, but today we tested support and bounced. Tomorrow the Q's pivot will be equal to today's pivots which is indicative of what we saw today - consolidation.
As I've been saying, I'll look for long trades in the Q's and shorts in the SPY following all the rules that dictate our bias. So an O.R. breakout over the FTP in the Q's would be a good long. The SPY's could be shorted below the FTP or a small position long over the FTP, but clearing R1 would be better.
After a day of consolidation at the bottom of the range we could easily see opportunities both long and short tomorrow. Today's market was weak so I did not want to be long anything other than CBOE which I highlighted as a long candidate even in Friday's market rout. Tomorrow's Long Focus List has a better chance of being worth trading than today's, but that assumes we see the market watch trade above their FTP as well as the stock you are considering as a long.
On the short side, we'll look for reversals and break downs as the major trend is still down.