The market was virtually flat today and off its highs, closing closer to its low for the session. The short term momentum has been lost with the hourly chart just about to turn down. The daily chart is still holding it momentum edge, but time will tell how it fares going forward.
You can see in the chart I have below, that there is containment taking place in the Dow and it is holding the other index’s back. We may see prices stay inside of the Dow formation until a clear break out is again present. That break out can come in bullish or bearish fashion and does represent a good longer term trading opportunity. For day traders, that may mean two to three days. So, the thing to do is watch how prices handle the edges of that formation. Until then, you could see some consolidation inside the range.
The Dow has shown resistance 9 days, as the red line across the top has proven itself to be clear “TRADING RESISTANCE” overhead. As the bottoms of the chart move up, you have what is called a “Rising Wedge” in a downtrend.
I would have to call the current position of the overall market in a downtrend. The weekly chart is clearly down, with the daily charts trading counter trend to that. Even if the current pattern were to move all the way back up to the old high, you would put in a classic double top, at which time would be met with selling. All the people who wish that they got out at the previous high, will not miss there second chance and have there finger on the trigger.
For those who follow daily charts in stocks and options, this is where you want to watch volume. If the volume is weak as prices rise, that is a pretty good indication that the market is rotating into weak hands and more susceptible to a drop. I just looked at some of the volume figures for the S&P and it at this point it does look like the big up days were on lighter volume and the larger volume days saw little directional movement. In addition, the four big sell off days, (2 & 2) came on very large volume. That is typical for this type of move. With that said, the market can still move higher, if it breaks out of the over head resistance area, but it is possible that it will only be short lived if it does.
All of these issues are taken into consideration when understanding support and resistance. Looking at price structure with support and resistance in mind, will bring a clearer picture for where we go from here.
We had a few nice days up and I would have to say the move that I was looking for is complete. We may move higher, but not until the Dow can break out over the resistance area mentioned.
On another note; I came back from the S.F Bay Area to Northern Cal (close to Oregon) last night. I got caught in a snow storm with “white out” conditions, wow, that was not fun. I was exhausted when I got home. No time to update my blog.
Yesterday I did trade for just a few minutes and took only one trade. I did something from the day before that I don’t usually do. I carried one of the three contracts over into yesterdays session and sold near the high of the day. I took one trade for one point and hit it. When I closed it out, it took the “first in – first out” approach, so the new position had one left over. My stop was hit before the market could turn the corner, which was fine for a 6.50 gain from yesterday.
Today, I had one of those off days. I think driving white knuckled for so long, must have had an impact on me. I just did not have good judgment today. My first trade was a small gain, but I had three losses in a row and stopped. I was down about 2.75 point and could have taken another trade or two to try and come back, but I could see I was not thinking clearly and packed it in. I did not even feel like trading, so I thought, why push it. That is a good lesson for me. If I don’t think I am firing on all eight cylinders, take a day off. There is no rule that says you have to trade.
Well, that is it for tonight, I will have more to say tomorrow as we get new developments.
Good Trading to all.