This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

“It’s lights out for the economy; the Fed can’t sit on their hands any longer.”
- Chris Rupkey, Reuters Analyst

Even the most diehard permabulls would find very little to cheer about today. The uptrend in SPY of the past week or so has been decisively broken, with a gap down that never filled nonetheless. And if that wasn’t enough to beat down the bulls, note that today’s down session experienced the highest volume ever since Helicopter Ben’s smackdown on August 17th. There was no appearance made by the PPT today. You would be pressed to find a more definitive statement made by the bears. They’ve drawn their line in the sand once again, and the onus is now on the bulls to respond. The last two places of solace for the bulls remains the 200d SMA, and some significant buying support just under 1440, which most likely will be tested some time next week.

The above 10day chart highlights the support and resistance zones that I will focus on for next week’s trading.
In the 10day chart, the red zone highlights what I have identified as a potential island cluster reversal pattern. The longer SPY stays below the red zone, the more courageous the bears become.

Market Sentiment
Indicies
The Techs (QQQQ) led the charge in the attempted recovery during the past two weeks, and remain the healthiest market. The small Caps (IWM) remain the weakest market, as it has been below the 200d SMA well over a month now. In general, the indices remain in a bit of a sideways mess.

Sectors
SMH and XLE led the charge during the past two weeks. But in the past few days, it has been Gold Miners (GDX) that came out of left field to take over as the definitive leader. Gold in particular ran up to new 52week highs today, although it did come back down near the end of the trading session.

Perhaps the prospects of lower interest rates at the Sept 18 meeting, seasonality factors, combined with the flight to quality mindset in more investors has driven them to bid up Gold and Gold Miners. XLE continues to remain in a healthy uptrend, so these two commodity sectors will be the ones to watch in the next week or so for continued leadership. In my opinion, this week saw the start of sector rotation, as I think the best long trades in the coming week should be found in oil, and especially gold miners.
The financial sector continues to look very sick. Anyone who missed out on the opportunity to pick up BAC with a 5.5% yield might see another opportunity coming up.

Tells:
I like to track IBM, AAPL, GOOG, RIMM, MA, C, GS to give me a pulse on the overall health of the market. Most of them look more or less neutral, with the exception of AAPL and IBM. AAPL broke below its 50d EMA, and IBM looks like it might be putting in a double top. Both of these are bearish tells as I see it.

Indicators:
The BPCOMPQ was looking good up until today. The 10d EMA was set to cross above the 20d EMA, but now it looks like the BPCOMPQ is set to break below both of them. This coming week should provide some answers as to whether the BPCOMPQ can stay above the 10 and 20d EMA’s.
A similar situation exists for the BPSPX, so the same comments apply.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

“I don’t see any impact as yet on the real economy or on the inflation rate …… there is no need to consider an emergency rate cut.”
- William Poole, Aug 15, 2007

A day before the big washout on Thursday (Aug. 16/07), I mused about how there might be some technical reasons for the 1376-1380 to act as support for the S&P500 Index (SPX). Well, lo and behold, the markets touched that area on Thursday, and bounced off of it on a 1 hour rally with no pullback. Now as if that wasn’t strange enough, Helicopter Ben decides to step in with a coup de grace announcement in Friday’s premarket session and laid a real medieval beatdown of the shorts who held overnight. The SPX gapped up to the stratosphere to open the session, and sold off steadily, but stopped right at the gap fill, and that was it for the bears, as the markets trended back up for the remainder of the session.

Thursday’s V-Bottom created a high volume hammer candlestick. The last time a hammer reversal occurred was back in March 2007, which eventually marked the bottom for that mini-downtrend. That doesn’t necessarily mean that yesterday was the bottom, but it could be the bottom, and it certainly sets the markets up for an FTD.
The SPX still closed below the 200d SMA, and the trend is still down, so the market is not out of the woods yet.

In the above 10-day intraday chart, I’ve identified some support and resistance areas that I will be watching out for in next week’s market action.

Market Sentiment

Indicies:
Both the Blue chips (DIA) and the techs (QQQQ) bounced off their respective 200d SMA’s, so they are the healthiest markets. The general market (SPY) and the small caps (IWM) remain the weakest markets, as they are still both under their respective 200d SMA’s. There are currently no bullish or bearish divergences between the indicies. Note also that Japan’s Nikkei Index plunged over 5% on Friday, and their markets are now officially in correction territory. It bears watching to see if there will be any negative spillover effects on the North American markets.

Sectors:
SMH, XLF, IAI, GDX, XLE, they all acted in line with the general markets, so still there is no one is stepping up to the plate to provide leadership. SMH and XLE appear to be the healthiest of the sectors that I am tracking. Interesting to note that BAC had a yield of 5.75% at one point last Thursday. The whole financial sector was so beaten up and oversold that Thursday panic washout really looked like a capitulation to me. If you flip the chart of XLF upside down, it has all the signs of a blowoff top.

Tells:
I like to track IBM, AAPL, GOOG, RIMM, MA, ICE, GS to give me a pulse on the overall health of the market. They all bounced strongly off of thursday’s lows. Other than that, though, there’s not much information that can be gleaned yet from this group of stocks.

Indicators:
The BPCOMPQ dropped to levels that have marked the bottom of corrections in the past three years. That doesn’t mean it can’t go lower, as demonstrated by the BPSPX. However, I think we would need to see a sustained close below 1400 in the SPX in order to drag the BPCOMPQ any lower than it is right now. And if the BPCOMPQ does not go down any more, then I would look for signs that it is moving back up. Note that the NAA50 is already heading back up.

On the other hand, the BPSPX dropped to levels not seen since 2003, when the markets were starting to recover from the dot-bomb bear market of 2000-2002. The SPX is acting as if it is in a bear market, but it is not in a bear market (at least not yet). A sustained close below 1400 (10% drop from the highs of 1555) is the criteria to be officially labeled a correction market. A sustained close below 1244 would be required for the SPX to be officially labeled a bear market. And since we haven’t even had one close below 1400, we are still officially in a bull market.
The SPA50 also moved to deeply oversold levels not seen since 2003 before bouncing back up.

There’s a lot of confusion still in the market. No one really knows what is going on. There are bullish and bearish scenarios that can be inferred from everything that I’ve describe above. But it all boils down to this:
Was Helicopter Ben’s announcement of a 50basis point cut in the Fed Discount Rate on Friday morning, combined with the 40pt, no-pullback rally on Thursday afternoon enough to spark a change in sentiment? That is the question this inquiring mind wants to know…….

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I paper-traded a setup in Baidu.com, Inc. (ADR) (NASDAQ: BIDU) today, since I was out of daytrades.

I was watching the markets near 12:00 , when I saw that the QQQQ’s were smacking into $50 on low volume. I thought it would fail (and it later did). This gave me a short bias, and I noticed that BIDU was breaking below an inter-day pivot point on this 15′ chart:

I also noticed that my HMA/EMA crossover trend indicator was bearish. I would have gone short at the orange line, and the stop would have been at the red line at $213.04 (picked off of the 1′ chart swings). The initial target would have been the $210 level, all as I said on Wallstreak. In the end, with the partialing out, it would have been good for about 2.5R profit, though it was hairy in the first few minutes, moving to about -0.7R at one point!

More things to notice are pointed out in this 5′ chart:

The volume on the down moves was advancing, while the volume on the up moves was declining. This relationship between price direction and volume trend is a key to determining if an adverse move is simply a retrace or is actually a reversal. In general, retraces will come on declining, below average volume, and will be in the 38%-50% retracement range. Reversals happen when the character of the price/volume relationship changes–a volume spike that reflects capitulation buying / selling, a change to higher volume on adverse moves, etc. Note that if you covered the remainder of the position at the volume spike into the pivot point support at about $208, you would have covered right near the best price of the day, even if you waited until the close! Volume spikes like this are important points, where people who are forced to exit puke out their position at any cost. You want to be there to unwind your position through them, whether covering your short with their panic-sold shares, or offering your shares to a freshly-squeezed short seller. You’re actually doing them a service, since if your liquidity was not there, they would have to take a worse price to exit.

My strategy is to enter at inflection points, where a consolidation is broken and a new move gets underway. I want to exit profitably into strong price moves in my direction on high volume, when people who are trapped and wrong rush to the exits. This is how institutions operate, though not as nimbly as a small-time daytrader can; their accumulations and distributions can take weeks or months. I have to give a huge shout out to Jamie, as he has taught me so much about this trading style through his blog. The Tape Reading book I bought has also been immensely helpful, and I recommend it.

Stocks Mentioned In This Article
Stock	Links
BIDU	| |

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Let me start by stating I lost $241.30 (commissions included) in the oil markets today.

Now I’m going to make a statement that I have believed since I began my quest to trade futures successfully. Futures trading is not harder than trading stocks.

My simple proof is these two charts. Pick any day, and the comparable stock index will trade the same as the futures counterpart. The main difference is leverage. If you can trade one, you can trade the other. My advice to anyone interested in learning to trade the eminis is to practice with a simulator, and/or the appropriate stock counterpart. SPY for the ES, DIA for the YM, and QQQQ for the NQ.

I keep reading posts on other blogs that talk about how futures trading is cut-throat, a zero-sum game, or whatever. They are right on both counts. Daytrading is cut-throat if you want to be dramatic. I also agree with the point about the zero-sum nature of the futures markets. However, if your time-frame is intraday, I don’t see how that matters. The only two requirements to trade any market are volatility and liquidity. That creates opportunity.

If a bear flag is printing on the NQ, it is also printing on the QQQQ’s. If you can trade a breakout on the SPY, you can do it on the ES. Leverage is a double-edged sword. The only difference between trading the different vehicles is the amount of money you will win/lose. So if you have a desire to learn to trade the eminis, start off trading 100 share lots of the stock counterpart. Your losses will be limited that way. Once you can successfully identify patterns that offer you an edge on a consistent basis, switch over to futures. If you find that the increased risk is messing you up mentally, then go back to stocks for a bit.

I have the luxury of not having to trade to feed my family. When going through a drawdown, I can always revert to paper trading. However, Phileo made the switch, and he is feeding his family quite well even with the added pressure of being a full-time trader. As far as I know, he jumped in with both feet as I did. Looking back I probably should have traded the QQQQ’s first. However, if you do that and are not a full-time trader there is one major drawback that I can see. Without the ability to claim Trader Status with the IRS, the wash-sale rule will be a nightmare if you make several trades per day in stocks. In fact that is one reason why I have not traded a stock in over four months.

If I’m wrong about my basic premise that futures trading is no different, then its only a matter of time before I’m broke, and publishing a porn blog (with ad revenue). If I’m right, then I will continue to trade the patterns that I see over and over. Any problems I have had trading futures has more to do with me than the instrument I chose to trade.

In no way am I trying to convince anyone to trade futures. However, there is a safe way to do it without jumping in with both feet.

On any given day, they look the same to me. But then again, I’m no rocket scientist. Maybe Prospectus (who is a rocket scientist) would like to give his thoughts. :-)

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Finally a win for me! I thought that the market would move after the Fed Minutes were released today, and as Richard has suggested many times, I decided to play the move by trading the UltraShort QQQ ProShares (ETF) (AMEX: QID). I thought that the move would be to the downside, so I went long QID since it’s an inverse ETF.

As things broke down, I jumped in (I was a bit late to the party). My entry is the yellow line, my target the green line, my initial stop the red line:

It actually traded to my stop two different times, but Zecco didn’t stop me out. Thank goodness!

I watched this chart of QQQQ to gauge my exit:

Here’s the detail:

I ended up taking 1R as the move died out and a hammer printed on the Q’s. I’m just happy not to have lost! I admit I was a bit lucky, but I’m a bit overdue for some good luck…

Trade Summary:

QID Long 80 Shares
Entry: $52.53, Stop: $52.35, Target: $53.00
R: $14.40, Exit: $52.72
P/L: 1.06R, or $15.20

Trade Grade:

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

meh… not a very eventful day. It’s basically covered on twitter…

• I saw GSIC, but passed on it because I didn’t think the 5MA was close enough to it after the 3rd 15min bar. But, that fourth bar shot up so much that it caught the 5MA up to it by the end, which makes me look dumb after the fact. Oh well! Eyal got it, but implied that he sold parts of his position well before the end of the move.

• I was actually going to short GSIC when it finally broke its upward trendline, but by then we were getting close to Fed time, so I didn’t.

• I looked for stocks near their OR highs just before 2:15, and settled on STLD to trade, if the markets went up. I grabbed 1.08 R on it, but at least one big seller was using the move to dump shares (which was smart of them), and made things pretty erratic. DHI and other depressed stocks had much nicer moves, but I naturally avoid bottom-feeding so I missed them.

• I forgot again to just trade QLD and QID and be done with it. I would have made more money than I made off STLD, going that route, without any of the stock selection hassle. I have mentally categorized QQQQ as not worth trading, because its range as % of its price is usually not great compared to faster-moving stocks. But, in market-moving situations, it and QID/QLD are actually a pretty decent choice.

As usual, I’ll only be trading part of Thursday, if at all, due to my super-exciting action-packed social life.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I shorted QQQQ today off a trendline break over last 3 days. I will post my lousy trades on the weekend. I don’t want to face them quite yet ;).
Trade 1: Short QQQQ

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Look at these charts of the ETF’s for the major indicies going back one year:

DIA, aka Dow Jones Industrial Average:
Chart as of 3-09-2007 vs. Chart Today (3-21-2007)

QQQQ, aka Nasdaq-100:
Chart as of 3-09-2007 vs. Chart Today (3-21-2007)

SPY, aka S&P 500:
Chart as of 3-09-2007 vs. Chart Today (3-21-2007)

Do those Fibonacci retracements catch your eye? All the cheerleaders saying “the correction’s over!” might want to curb their enthusiasm a bit. The volume on our “rebound” this last week has not been impressive to me at all. I think that there’s more excitement to come in the near future…

EDIT 3-21-2007: Looks like the excitement was to the upside. I guess you can’t predict ‘em all!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The bad and ugly to follow….
Trade: Short QQQQ

Trade: Short SSRI

Trade: Long SSRI

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Here is a screenshot of the indices I follow to guage market mood. This is the shot at the end of the day, but it was just as red as when I initiated my short position on QQQQ this morning. A good clue there would be no gap fill…..

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The only good setup I saw this morning was QQQQ. It went my way but I tightened my stop too much. I rarely trade index ETF’s, but the QQQQ’s were screaming at me.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

If anyone has read the book Technical Analysis of Stock Trends by Edwards and Magee, you will know to what I am referring. If not, you may think I am nuts. But you would be the nutty one for not having it on your bookshelf. QQQQ had formed what looked to be a perfect head and shoulders bottom on the intraday chart.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

What a tricky, choppy day today. Hopefully something will wake up these markets later. Check out some examples:

QQQQ chop chop chop

GLD chop chop chop (notice how the colors are opposite QQQQ’s, in the standard gold-to-market relationship)

SMH chop chop chop (I was considering trading it, too… )

… and there are plenty more, but I’m starting to feel like Trader Tim, so I’ll stop with the index charts already… :-)

Often, I go take a nap about now, but I usually wake up and find that I’ve missed a move. So, I’ll try to stick around and see if any buying kicks in around 1 EST, which it seems to often do…

Today was pretty good for me. I found 5 different trades I wanted to make. I was alert. I was quick. I traded my plans. Still, something nags me about it. What could it be…. can’t put my finger on it… oh yeah! I lost money again! :-)

Good grief, performance-wise, I think this is my worst week since I’ve been a full-time trader. But before I go give plasma and stock up on ramen noodles, let’s look at today’s trades.

Overview
As I mentioned already, I made 5 trades. I really seem to be getting into stride in terms of finding more trades to make. And, I’m not unhappy with any of them. In fact, the main reason I lost money today was two big market swings, exactly 1 hour apart. They just happened to correspond to two trades I made in the opposite direction.

I decided last night that I would mix my trades up, and do some scalps and some “longer” trades. As has been my experience in the last few months, the scalps worked great. There were two, both profitable. The day trades, on the other hand, were all fairly messy. No wonder everyone in daytrade land is so frustrated! Had I run the daytrades as scalping moves, I would have escaped with tiny losses rather than full 1R losses.

The Trades
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