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Trading Letter

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For December 9th, 2011

The Market Today

Thursday the market gaped down (1) and followed through lower all morning and throughout lunch.  Essentially a trend day until 3:00 which was the first bounce of the day (2), but was quickly erased as 3:30 brought on a sharp fall.  The SPY closed near the low of the day.  Yesterday’s alert to short the first 5 minute downtrend couldn’t have worked out better.

Talk 12 9

With the break below the $125.00 support area, the hourly uptrend is officially over.  The 20 period moving average is now pointing down as the price is currently resting on the 200ma. The daily chart, (inset), bearish red bar (4) is an indicator that the expected pullback is underway.

For today bearish bias, but not at the open.  Seven consecutive red hourly bars suggest that a rally is likely in the morning.  Look to buy the first 5 minute higher low back up to the $125.25 area, or until and hourly sell setup appears. Unless the market gaps over todays high, (a game changer), look to short the hourly sell setup anytime it triggers.  A gap down is a short, but wait for a rally.  Also, there is a reasonable chance that Friday will be a narrow range day as the market digest Thursday’s losses.

 

Trading Letter

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For December 8th, 2011

The Market Today

Wednesday the market opened with a gap down (1) and traded lower until 10:30 reversal time. The SPY then rallied back through the open and filled the gap at 1:00 (2).  After a pullback, 3:00 reversal saw the market rocket through the high of the day and close near the high.

12 8 talk

The hourly sideways range held today as the SPY tested both the low and the high. The daily chart, (inset), shows a small green bar (4), but overall, nothing was decided today.  The SPY is still hanging up near the flat 200ma suggesting a pullback is still likely.  There is nothing that says it has to happen today or even tomorrow, just be on the lookout if/when the hourly range breaks and until then, play the range.

For today, bearish bias at the open.  Yesterdays late day rally was fast and challenged the prior daily highs. If we can gap over the $127.25 area, then pullbacks are a buy. Otherwise, look to short a new 5 minute downtrend to the $125.00 support area.  A small gap down is a short and a large gap down to the $125.00 area is a buy on support.

Trading Letter

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I hope everyone enjoyed a nice Thanksgiving holday. I did and then picked up an awful head cold.  Felling much better now and ready to blog.

For December 7th 2011

The Market Today

Tuesday the market opened neutral and traded lower until 10:00 reversal time (1). The SPY rallied back through the open at 10:30 and then went sideways for the rest of the morning.  Lunch saw the tight sideways range continue until 2:30 when a fast breakout occurred (2).  Then almost as fast as the rally, the SPY reversed at 3:15 and fell back to close near the open (3).

Talk 12 7

The hourly chart shows a triggered buy setup (1) that failed to move higher (2) and now is in the middle of the range. The daily chart, (inset), is more telling as the week long rally runs into the flat 200 period moving average, which is often a ‘rally killer’.  While the recent move is strong, a daily pullback over the next week is likely.  I am waiting for a new hourly downtrend to begin to take a market short.

For today, the morning is a tough call. Below $125.00 we are likely lower, and over $127.20 we are likely higher. But in between, all we have is a not sow well established range.  Based on the 5 minute chart, (not shown), look for the first move up and then either stay on the small timeframe, or just wait for the $125.00 – $127.20 area to break. Small gaps are likely a fade and look for follow through on large gaps.

 

Trading Letter

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For November 22th, 2011

The Market Today

Monday the market opened with a large gap down (1) and traded lower until 10:10.  After a brief attempt to rally, the SPY traded through the low at 10:30 reversal time and set the low of the day just before 12:00.  The afternoon saw a retracement of the morning fall as the SPY touched the open price at 3:50, just before falling to close in the middle of the range.  Yesterday’s alert to short rallies if the market saw a large gap down worked out well.

11 22 talk

The daily chart (inset), gap down below support created a new daily downtrend (4).  Rallies on the daily chart are now a short and there is no real support until the October 4th lows (not shown).   The hourly chart is also in a clear downtrend and also a short on rallies.

For today, neutral to bearish bias at the open.  The market rallied nicely Monday afternoon, and the 5 minute chart is in a current uptrend.  However, the double top high in the $120.30 area may present some resistance, so I would wait until, (if), the SPY can trade over that area and pull back to play long. Similarly, a small gap up is playable long a a pullback that holds above the 120.30 area. The short play is the hourly sell setup which can be entered as soon as the 5 minute uptrend is broken.  Look for follow through to new lows.  A large gap up to the 122 area is a short, as is a large gap down, but wait for a rally of base on the gap down before shorting.

Trading Letter

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For November 21st, 2011

The Market Today

Friday the market opened with a small gap up (1) and quickly traded down to fill the gap at 10:00.  The SPY traded through at 10:30 and then reversed to briefly trade above the high at 11:00.  Another reversal without follow through set the low of the day at 12:00 (2) and the SPY meandered for the afternoon closing in the middle of the days range.  Fridays alert to short intraday rallies worked out well as option expiration day held the market treadless.

11 21 talk

The hourly chart is building a nice base at the low of Thursdays drop.  The declining 20 period moving is approaching from above and prior support is still holing from the first 2 days of November.  The market’s inability to rally is bearish and if this base continues, the SPY is likely lower.  The daily chart, (inset), confirms the bearish bias (4), producing a small red bar after Thursday’s wide range red bar.  What we do not know is when the market will break lower. Don’t assume it will happen today or tomorrow. But if this base continues, a breakdown below $121. 20 a short play.

For today, tough call.  Its Monday morning, so as always caution is advised. Friday’s range is playable as a short into 122.70 – $123.00 area, as is a small gap up to that area.  Beware of a big gap up though, it could be a long on a pullback.  Similar with down gaps.  A small gap down to the $121.00 area is a buy back to the $123.00 area, but a large gap under that area is a short on a rally.

Trading Letter

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For November 18th, 2011

The Market Today

Thursday the market opened with a small gap down (1) and traded lower until 10:00.  The SPY the put on a very weak rally into 10:30 reversal time, but was unable to follow through higher.  12:30 saw a breakdown to new lows (2) and the market held the low for the rest of the afternoon, closing near the low(3)

11 18 talk

A very bearish day for the market as only rally the SPY was able to put together was from $122.80 to $124.00 in premarket trading, (not shown). The daily chart (inset), shows the large drop to the $121.00 major support area. Also visible on the hourly chart as support held the market for the afternoon, at least for now.  This is the area that needs to hold to maintain any bullish bias on the daily chart.  The weaker a daily bounce, the more likely a fall through the $121.00 support area will happen. Keep in mind that the daily chart has fallen several days to get to this area, and if we break lower, there is nothing to say it will happen today.

For today, look to short rallies on the 15 minute or hourly sell setup up to the $123 area, back down to the $121 area and repeat. Option expiration days are often choppy, but usually stay in a range.  Look to play that range once it is set.

Trading Letter

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For November 17th, 2011

The Market Today

Wednesday the market opened with a gap down (1) and traded higher until to 10:00 reversal time.  The SPY then fell to test the low of day at 10:30 and then traded through the high and filled the gap at 11:00.  The market remained bullish during lunch, and rallied to a new high at 2:00 (2) which set the high of the day.  After that, it was all down as the SPY would trade through the low of day at 3:30 and close on the lows (3).

11 17 talk

The afternoon fall below $124 sent the hourly chart into a new downtrend.  Notice the 3 lower highs along the new downtrend line, (solid red line).  The next support area is $123, and after that $121.50.  A move below $123 would officially break the daily uptrend.  Although until that happens, daily support is still a buyable intraday.

For today bullish bias on the open.  The afternoon fall was fast and substantial, and we will likely see an early rally. Look to buy a 5 minute reversal bar or a small gap in either direction.  The strength of the rally, (or lack of), will determine the rest of the day.  Because the hourly chart is now in a downtrend, rallies up to the $124.80 area are a short, down to the $123 area.

No Update Tonight

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Out late at a local traders meet-up.  I guess 14 hours of trading talk for one day really is enough. :)

Afternoon Delight

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Play review from November 14th 2011

The charts below show a nice reversal time play we took today in ALXN.  The chart on the right shows the QQQ, which after failing to break the 15 minute downtrend (1), followed through lower on the sell setup.  We discussed this play for a half hour before it happened today in the Affinity Online Trading Room.  We were looking for was a very strong stock, that was unaffected by the market fall. The plan was to buy it if the QQQ fell to a new low at 3:00 as a reversal time play.

Alxn 11 14

ALXN got the call.  Notice the strong 15 minute base (3) in a tight range.  Our first entry was on the 1 minute chart at $66.72, (4), a few minutes after 3:00 reversal time. The second entry followed after the 1 minute pullback formed a buy setup, and then traded over the prior high.  In two minutes, we were collecting a 1:00+ target (5).

While all 3:00 reversal plays do not all work out this well, and some might argue that we just got lucky. I would maintain that this is a classic example of positioning ourselves correctly for a market opportunity and because we know what to do and when, we were able to collect.


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