Time to Bail Out before the Bail-Out?

If you listen to CNBC, Henry Paulson, President Bush, even your local radio station you might be tempted to throw your hands in the air for in their terms clearly "the economy is collapsing." Personally, I call their bluff because I truly believe capitalism is superior to socialism and although the road may be bumpy and difficult for a little while, our economy will correct. There is our fundamental difference, I see the economy correcting itself, they see it collapsing. Another word they fail to recognize is "consequence." Indeed there are consequences to certain economic behavior -- we are a country that is accustomed to spending more than we can afford, and our government sets the standard with our nearly 10 Trillion Dollar debt. Unfortunately, the consequences of those decisions are now on our doorstep. I could go on for quite some time but I would rather discuss how this needs to affect our trading strategies for this week

I actually closed the majority of my bearish positions Monday as most of my picks rushed toward solid support ground -- I'm sure Jeremy will be discussing this so I don't want to steal his thunder. Normally I would wait for confirmation of support and begin looking Bullish again. Unfortunately, the market is relatively unpredictable right now -- largely waiting for a re-vote on the Bail Out on Thursday or Friday. So personally, to keep myself from getting bored and to stay diligent with my homework, I have elected to focus on very short term, even day trades through this week. With the amount of attention and volatility the market has right now this is a perfect time to apply your technical analysis to intraday charts at 5 min. intervals. However, be prepared in your strategy for news driven volatility when congress revotes on the Bail Out toward the end of the week.

Oh what will Friday bring?

Well we've been watching the market for a whole week now and unfortunately we don't have much to report.  

Despite huge market moves we are moving remarkably sideways.  To be more specific we're trading into a relatively large triangle pattern.  Give it a few more days and it has to break one way or the other - or of course if we believe Henry Paulson we would read this triangle to say that we are trading sideways until all trading dries up completely and the sky falls....

Seriously nothing's going to dry up completely.  By my best guestimates we can't trade forward in this triangle more than another 6-7 days.  So at least by this time next week we should see a break one way or another.  In the mean time, don't be surprised if we just get to keep going up, and down, and up, and down.   

Also it's worth noting, despite huge moves in the market the last few days, and mighty manipulation by the government, the volume all week has been relatively low.  With that said look to trade the market in the direction of a breakout of the triangle when there's enough volume to push through the moves.  Until then - Consider day trading and hold on tight :)

Happy Trading tomorrow.

Week in Preview (9-22-08)

After an insanely crazy week this past week investors are anxious to see what the market decides to do this coming week.  Fears which were accented by the fed at the first of the week were actually calmed by the fed toward the end of the week.  However after a few days to sit on it and think about it tomorrow could truly bring anything.  In my last post I shared my prediction of the S&P heading down to 1100.  I still think that could happen.  Unfortunately the Fed is trying hard to manipulate the market which makes things much more difficult to predict.  However there are still some thing apart from the fed which indicate the market to be in an overall bear trend.  While I do think the bottom is near, and could be here after the fed's actions at the end of the week, we must approach this market very cautiously.  We must always remember 2 things:

1) Trade the market based on the technicals

2) Be prepared for anything and trade appropriately. 

Let's look at the S&P and I'll show why I'm still mostly bearish on the market.

In my last post I highlighted this classic falling 3 pattern.  Even though we bounced off of a previous support on thursday I mentioned I felt the next level of support is much stronger.  Of course the fed's announcement this past Friday really turned things around so theoretically we could have just bounced.  However, notice Friday's close was just about the same as Monday's Open.  Leaving the week with huge moves, but a virtually unchanged week.  A look on the weekly chart shows we are still solidly in a down trend.  

To accent my feeling of general bearishness check out the moving averages. 

Friday's move traded up to but not through the 50 day moving average.  This is a common retracement for the S&P.  In fact if you look at the last year the S&P tends to acknowledge the 50 day moving average as a pretty good measurement of bearishness vs. bullishness.  

The next reason is a glance at the ADX indicator on S&P. 

Typically when a new trend is beginning you will see ADX moving up, as we did in the move from the last two weeks.  ADX measures the strength of the trend.  On Friday ADX moves down.  While it is an indication that the bearish trend may be slowing, it is not an indication that a bullish trend has begun. 

All this is not meant to be bad news, simply cautionary.  The market can be brutal to those who don't know what's going on, but if you can see these trends and read the market a bit you will be in a position to take full advantage of these great moves.  Happy trading this week and be sure to check out some free classes at The Financial Puzzle.  

Oh where is the bottom?

So the big question everyone's asking after this week of major shake up is "when will the pain stop".  Obviously the market is never 100% predictable but I'm going to go ahead and hit the record saying I foresee the S&P falling to 1100 before the election.  Here's why:

Today the S&P traded down to & bounced on a 

previous support 

from 2005.  But there's a much stronger support from 2004 that sits right at the $1100 mark.  Although anything can happen the older 2004 support will more likely be the ultimate basing ground.  

To point out more reason why a short term bear market is not over, one must consider the appearance of a strong falling three candle pattern as seen in Yellow here:

This classic candle pattern is very consistent in foreshadowing a coming bear market.  Don't be surprised if the S&P trades down to and around 1100 for a while before turning bullish, and don't be surprised if this market continues up to the election.