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Wednesday, November 14, 2012

Daily update 11/14

From last night's update: "Maybe tomorrow will be the day the market will decide whether to break down here or bounce.  I don't think they will be buying a gap down tomorrow based on the look of this 30 minute chart.  A gap up is a little harder to predict.  They might sell into a small gap."

Thank you, thank you very much.  No applause, just money.  Everybody that writes about the market gets lucky once in a while.  It took them all of about 3 minutes to sell into the gap up.  Here is the daily SPX chart.

This chart is exactly what I meant when I said there was no law the market had to bounce when we got oversold at the 200 SMA.  The 1370 level was last year's high.  That was a triple top essentially even though it was a head and shoulders top.  The head and shoulders were not all that far apart.  So SPX broke out of that triple top this year and failed that break out today for the second time.  That puts all break out players under water again.  At least for those that did not sell in the pullback last May.  Margin debt jumped up a lot in Sept. A lot of people piled in there and they are well under water now.  I have a buy signal that works pretty well to detect when a 2-3 day or longer bounce is likely and it did not fire today.  One more down day should do it.  We have a blue bar so price closed below the lower Bollinger band and is extended.  However, we had that same condition at the 200 SMA and did not get a meaningful bounce.  I think it is safe to say there were a lot of people looking for the exits today.  However, there was no sign of any panic.  This was just a nice orderly let me get my profit before the other guy figures out it is time to sell type of day.  Lets zoom in to the 130 minute SPY chart.

The last bar closed near the low and on heavy volume.  We do not have blue bars so price is not particularly extended on this time frame.  We broke that green support line this morning then went back and tested it before caving into the close.  That looks like a clean break to me.  The next support line I have on the chart is 132.60.  The June low would be the next level after that. 

When you get a momentum down move like this you never really know how far it will go.  Does anybody remember the flash crash?  Now that we are below the 200 SMA I like to be much slower on taking profits on shorts.  I would expect they will sell into a gap up should we get one tomorrow.  After an extended day down we may get a continuation crash like day or sideways chop.  These are always kind of a hard call.  Just remember we broke down from key support today.  If the market gets positive at any point tomorrow morning there will be people looking to sell it. They won't necessarily be selling into a gap down though.  They might be hoping and praying for higher prices.  In that scenario, I like to see where the futures are relative to the overnight low.  If they are pretty close I tend to hang on to shorts.  If they are well off the lows I tend to take some profits and look to reload later.  If we get below the overnight lows early in the trading day tomorrow it could crash some more very easily.  When people want out, they want out and don't care about how oversold the market.  I have not heard anything about margin calls yet.  When they start coming in the market can really accelerate down.

Keep a short leash on any long day trades here.  Usually up moves are sharp, but do not last long.  I hope I don't have to still warn people at this point not to buy falling knives. 

Chart practice has been updated with RL the stock today.


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