Archive for October, 2009

Wow… when I said I expected a bounce, I didn’t think it would all happen in one day!  That was a pretty big move, but it happened on light volume.  Again, under 200 million shares traded (spy) equals an up market.  Looks like we might be on our way to about 107.30 to 107.65 (spy) before the selling continues.

So, I’m looking for a flat to up day for Friday.  Remember, Friday’s and Monday’s are usually very light volume days.  That means the markets should float higher.  Of course if we have some good volume the market could continue the downward move.  But, I think a few days of rest is good for Mr. Bear, before he starts attacking those Bulls again.

I’m thinking that Monday could be the high, before a drop resumes toward the major support at 104 again.  However, I believe it will fail this time, and the next level at 102 will be the next destination before another rally will occur.  Now, if 102 doesn’t hold, then we are going to 99.80 – 100 in a big hurry.

We should definitely bounce there as that hasn’t been hit in quite awhile.  I give it an 80% chance of a large bounce.  That means at least a 50% fib. level move back up.  (That’s from the current high at 110.31).  So, just take the weekend off, and be ready to go short again on Monday, or Tuesday at the latest.

I almost most forgot… this is a holiday weekend.  The markets aren’t closed, but many traders will go ahead and leave early for Halloween.  So, that’s just one more reason for the market to have light volume Friday, and also Monday.  Which means… say it with me now!  Light volume equals an UP market.

OK, that wraps up tonight’s post….

Red

Today was a flat consolidation day as expected.  I’m still looking for the 1040-1050 area to be hit before any decent bounce back up.  That area has multiple supports from horizontal and 2 upward sloping trend lines.  And the moving average is also in that area too.

That means that a bounce is almost a sure thing.  Almost being the key here… as some disaster or political event could cause a big sell off.  But, under normal conditions, the market should bounce in that area.  After the bounce is over, the selling should continue until we hit 1020 (next support), at which time I expect a pause before breaking through.

Remember, 1020 has held in the past, but I expect it to fail this time around.  Next will be the 998-1000 area.  That will be the first hit, and has an 80% chance of a bounce.  I would expect around 50% retracement back up from the 1102 high when that area is hit.

The fed has more auctions on Thursday and Friday.  I expect that is the main reason that the dollar has been rallying.  So, you could see one more push up on the dollar tomorrow, ahead of the auctions.  After the auctions are over you can expect the Fed to dump the dollar again.

This means that the market should find a temporary bottom around 1040-1050 tomorrow or early Thursday, then rally as the dollar get sold hard after the auctions are over.  You would think the everyone could see that the government simply props up the dollar before every auction, and then dumps it, which causes the market to do the opposite… but wall street just plays along until the party ends!

Red

That sure was a nice start… Let’s hope that it continues, (unless you’re a bull of course).  Just an update… I sold my short positions for a small profit Friday, and I’m now looking for the next opportunity.  Short or Long, I don’t care… but short is my favorite.

So, what will next week bring us?  That’s a tough call.  Monday’s have had very low volume over the last few months.  Each time that happened the market rallied up.  Once again… light volume equals an “UP” market.  The magic number seems to be around 200 million shares (on the SPY).  Guess how many we traded on Friday?  About 240 million!  And that equals a “Down” day of course.

Above 200 million is almost always a down day and below 200 million is almost always an up day.  Since Mondays’ have produced some of the lightest trading days of the year, I’m hesitant to tell you that the selling will continue.  Yes, the morning could continue the selling… but the midday light volume could erase any gains you make.  So, I’d get out early if the selling continues in the morning, and then seems to slow down and go sideways.  That’s usually about 11am time frame.

If it continues to go lower then we really do have another down day.  That would be really bad for the market.  If a light day can’t get the market back up, then the heavy volume days coming after Monday should produce a hard sell off.  This is one of those things were it’s best to wait and see what happens on Monday morning.

There are no earnings or economic news of any importance on Monday.  Couple that with light volume, and the markets should rally back up.  If they don’t, and instead have a flat consolation day, then look out… the rest of the week could get ugly!

If I had to choose, I would say that Monday would either be a flat consolation day or an up day.  Maybe back to the 1090 area or so.  I could be wrong, and the market just sell all day long.  If so, then there is support at 1060, and then 1040.  But, my gut tells me that we’ll go down a little in the morning and rally back all day on light volume.  Then close basically flat.

If the market rips higher in the morning then I’ll be looking to go short at 1090 area.  If it falls in the morning and rallies back throughout the day then I’ll wait until the end of the day and look to go short then.  If it continues to fall all day, then I’ll sit on the sidelines as I would have missed a nice down move.  I’m not going to chase it down, only to have it hit 1060 and rally back on me.

This are just what I’m looking for on Monday.  Predicting what is going to happen is just guessing at this point.  So, yes… it should continue down, but light volume could stop anymore selling temporarily, and even produce a rally back.  Basically, I’m glad I’m in cash right now.

Red