Tuesday, June 29, 2010
Bears Firmly in Control This Morning
I called for a triangle yesterday and the result was a sharp thrust lower which is well aligned with one of my counts. The fact that the move was so sharp this morning, and not just a meandering move lower makes me feel more confident in the triangle scenario. It was a nice trade since risk was so tight. The only problem is that if it was a true triangle and thrust lower this morning, then that means today's move is a 5th wave at some degree. But the internals don't necessarily support that because they are extremely weak as you can see in the above screenshot. Normally a wave 5 would diverge a bit from what happened in the previous wave 3, but in this case it seems to be sporting the same characteristics. So it's possible this may be the kick off to a much larger move to the downside.
Regardless, if I put in a short term trade based on the triangle yesterday, then I would at a minimum lower my stop to breakeven now, or perhaps take half profits off the table and move the rest to a stop loss at break even. If it is a triangle and thrust today, then the move will be completely reversed soon, and the S&P will rally back to the apex of the triangle rather quickly. The larger trend would still remain down though. Also, watching CNBC this morning it appears everyone is bearish and talking about a double dip recession. So the news is quite negative, which also may be conducive of a short term low forming.
The word of caution I want to stress here in trying to get too cute with trying to catch bottoms is that we might be in a wave 3 of  which means the market can keep going down for a very long time. Exiting too early could cause one to miss a great shorting opportunity. If anything, I'd use the knowledge of a possible rally back to the triangle's apex as mental preparadness in case it happens, so I'd be able to confidently hold onto my larger longer term short positions with more ease.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.