The period between 3 pm and 3:40 pm was certainly interesting to watch as market participants were dumping with abandon. Around 3:40, market medics arrived and went to work, but they could not get the patient off support lines.
As I am writing this (4:00 pm), I am not aware if any piece of news hit the wire to spook the crowd or not. We are witnessing a market that can easily be pushed around, and the only way, IMHO, to play it is by relying on charts. Do not get me wrong, I am not a pure chartist. And I account a great deal of importance for macro economics, fiscal and monetary conditions. But for the near term, or the intermediate term, what good can the news of the approval or disapproval of a bailout package to some distressed entity do? Or the news of above average layoffs or below average retail sales? I mean other than a knee jerk reaction, does anyone think there is any value in getting hooked to the flashing financial headlines steaming down a news outlet?
Let’s do charts!
This is 5-minute chart of SPY
We said yesterday’s rise looked corrective, and it was duly followed by a rapid impulsive drop after it ran its course. You should be able to say how I traded the day by looking at the above chart. Sometimes, low risk trading positions just present themselves. I covered the shorts into the close.
Index is sitting at support. And that’s all we can say at this point. The correction from December 8 high can be counted in so many different ways. So, I am not gonna get worked up about it and, instead, will focus on how the index behaves off this short term oversold readings and with respect to key levels.
The mid-term buy signals are still intact. Pullback so far has been rather orderly, sideways, and on decreasing volume. Yes, I did not like the action prior to the close. But we had already said that market breadth was overbought. We had discussed our levels. And it’s just a matter of waiting for the market to reveal its intentions.
I am sure I can get myself confused by listening to this expert or that. So, instead, I will play the levels that I have laid on my charts, and shall pay attention to whether any pullback can invalidate the mid-term buy signals or not.
I picked some SPY calls when index was oversold near the close – a little money for a small gamble – nothing more
For a commitment on the long side, however, I still need the bulls to prove their worth, and not to run for the hills before the market closes.
It is amazing to me that many technicians religiously apply the tenets of technical analysis to all sorts of stocks and stuff but when it comes to highly charged and wildly debated issues, they start deviating from the discipline of their trade. Gold is one example where there has been clear uptrend violations but technicians who should know better get into predicting a wide array of whatever-faltions, and make the matter a lot more complicated that it should be.
The broader market indexes are another example.
Had this been the chart of any dingy, two-bit OTC stock, many technicians would have told me not to establish a position until the congestion clears. They would also tell me that if I were already in, I should wait out the pullback and set my stop somewhere inside the wedge or below the trend line, or something. But roam around the blog-o-sphere, or expert-o-sphere, or, especially the news-o-sphere and see how people are being whipsawed (mentally or financially) on a day-to-day basis.
I am not saying it is time to buy or not. As I just mentioned, I just have a small position using call options. And if I had not made good via shorting the day, I wouldn’t probably take the gamble at all. What I am trying to say is if I use a technique to establish (or avoid) a position I should maintain my posture as long as my technique is telling me to do so.
These are highly charged, emotional times. Markets have a tendency to find as many as possible, herd them into a collective opinion or posture, and then rip them free of their capital. Also, we are, until further notice, in a bear market. Without a game plan and the discipline to execute it, I will not last long, and of that, I am sure.
In closing, I will leave you with this daily chart of VIX