It was a bit of data for the markets to digest, but not too much, and not too far out of line. The key to the data is that the bulls have been very excited lately looking for earnings and economic reports to beat expectations because of a few good reports the past several weeks. They didn't get what they wanted, so the futures are trading right about where they left off yesterday.
The flat open means the technical patterns developing in the market will probably play out today, especially if there is no news manipulation.
Here is a chart of the SPX:
(click on image to enlarge)
You can see how close the SPX is to the horizontal support and 20 day moving average, both right at 880. I speculate that the SPX (market) will wiggle up a bit at the open - possibly to about 886, then probably come back a little and test right along the 20dma (where the dip buyers get excited), and then consolidate for a while. If the intra-day consolidation in this area is bullish, then the SPX may try to build some energy for a climb up into the 888 - 900 area. But I speculate that the slightly higher probability scenario is for a drop through the 20dma into the support zone of 870 - 880. If the SPX does drop further into the support zone later in the day, then look for dip buyers to come in again and try to catch a "bargain." Overall, the SPX is still in a short term bearish consolidation, which I expect to continue a bit today before it settles and tries to bounce.
10:55 am MT: The price action has played out almost exactly as I speculated. The SPX wiggled up at the open, touched 889 (I was looking for 886), came back a little and tested 882 (I was looking for 880), consolidated for a bit along the intra-day support zone, the consolidation turned a little bullish, and the SPX climbed into the 895 area (I was looking for 888 - 900, so 895 is right in the middle of that zone).
I also speculated that the short term consolidation was still bearish, so I expect the SPX (market) to drop back down from here and test the 884 - 888 area, and then, barring a news bogey, consolidate a bit more into the 870 - 880 zone today or tomorrow - probably tomorrow.
11:10 am MT: There's not much else to say right now other than watch and see if this little dip-buying bump rolls back down into intra-day consolidation. Today is a little quieter, which is a sign of the reluctance of the dip-buyers to give up the dream more than anything else. It's worth noting because it increases the likelihood of what I speculated earlier about this short term pullback. I still think the pullback consolidates a bit more, but if it does get into the 870 - 880 area the dip buyers will start hopping up and down like a kid in a candy store hollering "ooh ooh ooh!"
11:16 am MT: There's the first sharp intra-day pullback I speculated about just a few minutes ago. We'll see if this drops the SPX back into the 888 area or lower in the next couple of hours.
1:35 pm MT: The dip buyers pushed for a little while longer than I thought they would, but I suppose if I was a big fund manager who wanted to sell, I would wait and let them do their thing too. The selling came in at about 898, so once again within the resistance zone I was looking for today. We'll see if this closes as a fairly flat, consolidation day.
The sellers are coming in pretty hard right now, so this might drop all the way into the 884 - 888 area I speculated earlier. Other than a little more of a push than I expected (although I'm not surprised.....), today looks like it will play out almost exactly as I speculated right from the start, including most of the ebbs and flows intra-day.
Dwight,
ReplyDeleteForgot to ask this yesterday, but was yesterday one of those days when you'd want to trade the market etfs just as much as individual stocks. By the way, that comment you made a while back that you have to identify what kind of day your having (momentum, nibbler, crazy) has really helped me. I feel like I was making this way harder than it was and that's one of the reasons I was struggling. Thanks.
Joe
Joe: Yes, when the majority of stocks are in intermediate term uptrends and the trend is really extreme, then there's not a lot to trade that isn't counter-trend. However, if you play a short, intra-day type of swing on the 15m - 60m charts, you can often trade the index ETF or a few selected underperfoming stocks.
ReplyDeleteAlso yes on figuring out what kind of day we will have. Due to the fund manager excitement the past two months there really hasn't been two momentum days to the downside in a row, especially in the past 5 weeks or so. That, along with the Jobs and WMT data this morning not giving the dip-buyer's fuel to go hyper meant that I was looking for a quieter day today. I expected some dip buyers to get excited just because the data wasn't end-of-the-world bad. But I also expected many fund managers to have lingering doubts about yesterday's data along with the absence of good data today. So all in all, I was able to describe the price action for the first 3-4 hours of the day almost to the penny.
It comes with doing just what I taught you, identify what kind of day you think you're going to get. You may not always be right, but at least it gives you a framework in which to manage position size, how much effort you want to give the day, and how tight or loose you want your stops within the zone of risk you allow yourself.
Exactly. Thanks for the great explanation.
ReplyDeleteI cherry picked 1 SPY put up and around 89.75. Wanted to be in early in case the sellers came in quick. See what happens..
Joe
Dwight,
ReplyDeleteI used to catch your classes a year ago or more. Kinda rusty on your approach. I have a question about diagonal support. I don't think I see you refer to it so much. Is this much less important than horizontal support? I see you brought up fibs on a chart recently. Does that help support your horizontal support or is it even more important than drawing lines across prices that seem to have "memory"?
Steve in Maine