October 19, 2011
Uncategorized
By Geoff Bysshe
If you follow our rules for determining bias based on pivot stack, S1 and R1, and/or the 3-day pivot along with the opening range, today was a tough day. Don't be discouraged.
The trading room has had a 3 week run of being right on about 70% of our trades. During that time we've had a day or two when every trade was a loser and still maintained that record. Of course there were also days of 100% winners which helps keep the numbers up J. Nothing works perfectly every day, and if it works well - don't let a tough day change your rules.
So let's look at why today was tough and why our key reference points actually worked very well! They just didn't line up nicely with the OR and as a result it was tough.
Note that the low of the day in all the market watch was a reversal at S1. That key reference point was spot on, and it even lined up with the 30-minute OR Low. On that basis the market put in a bottom exactly as we teach! So why wouldn't we buy it, or cover our shorts there? Well...
There the bigger picture as defined by pivot stack, 3-day pivots, prior day range, the 5-min OR low, and more, all pointed to the bias for the day being negative so the odds of a quick reversal like we saw versus giving the market some room to breakdown favored waiting. And by the time the market was clearly bottomed it was near the OR high. Tough luck. The best way to handle this is to find stocks with good market relative strength and trade them from the long side against a short bias in the market.
As the market moved up, it was a tough set-up also because the OR high, the pivot, and R1 were all spread out. As a result the OR high which is a key risk level did not line up with either of the pivot level so the risk of chasing the market higher was not set up well, and the markets stalled at pivot levels, and stalled at R1 levels so it was not easy to chase.
Finally news (may prove to be more of a rumor) related to Europe led to explosive move to new intra-day highs in the last hour, which could easily lead to more frustration for the shorts or non-participating bulls. Don't let that bother you.
More important than the difficulty in chasing the rally was its foundation. It is noteworthy that the financials took a leading role today. They did not go lower with the market in the morning, and led the way through all key reverence point to the upside. They, XLF and KRE, are now positioned to easily make new daily swing highs over their 50-day moving averages. This would be the first time that has happened in quite some time. Watch out for it. Have you been watching the SMH which was similarly pointed out weeks ago?
Wednesday, is a clean slate!
SPY, DIA, IWM, all have nicely defined 5 day trading ranges now. The Q's are not as neat. All the pivots are stacked, but not by a very bullish margin, and they closed back over the 3-pivot high. The lower end of this 5 day range is now well defined by the 10-day and in some cases the 50-day MA. And the high end of the consolidation is right at the multi-month consolidation range high in the SPY and DiA. So the lines are drawn!
The market internals are still overbought, but that is more significant if we start to head lower than if we breakout to the upside and resistance is cleared. Earnings are a huge wild card. They can change the complexion of the market instantly, but it will not change our rules regarding bias! After the close today (Tues.) INTC is up and AAPL is down on earnings so we'll see how that impacts Wednesday's markets. Stick to your rules.