So far this morning we are trading mixed with the DOW up about 42 points and the NASDAQ down about a half a point. This is a shortened trading week with the market closed on Friday for the 4th of July weekend. Does this mean less volume in the market this week? If so I doubt that it will have little if any effect on the trading floor, but remember it all comes back to the charts. The charts will get you in but it is your job to manage your trade once you have entered. The Diamonds look like they want to give us the fresh week to the upside, but it is really fresh and if we get a strong selling wave we can see the trend undo itself. What I really like about the mid term trend on the DIAMONDS is that we are bouncing off support set back on the week of May 18th through the 26th at around $82.30. We could see ourselves test the $88 level and then hopefully break through $90.90 the next level of resistance on the long term trend of the DIAMONDS.
Looking at the mid term chart on the Diamonds you can see that the trend line has been broken. The trend line is a line that you can draw using tops and bottoms of a trend. So when you are looking at the mid term chart on DIA you can see how this trend has broken down and started to break its previous patterns. For several weeks we have made higher highs and higher lows but that trend has since reversed over the last 2 weeks and the trend line has been broken. What does this mean to the investor? Well it means the market is reversing and we could test some support levels. We saw heavy volume on the 200 point sell off yesterday on the Diamond’s and today we are trading flat with a little lighter volume ahead of the Fed tomorrow afternoon.
After losing over 500 points from the recent peak on the Dow Jones Industrial Average, I think the question on the mind of many traders is "how much are we going to pull back?" I know there are a lot of traders out there wanting to know because they have been waiting for a pull back to occur before getting long.
Based upon what I see in the Wizetrade charts, I think it is possible for the Dow to test the 7800 level (or lower). If you look at intervals 12-14 on the mid term trend of $DJI, you can see that we were building support in the 7750-7800 level before the recent break out. Now, if you go to the long term trend of $DJI and look at interval 16-18 you will notice we were building support in the 7449-7882 level prior to the market breaking down.
I think there is a very good chance that we can test those levels based upon the inverted head and shoulders pattern that is forming on the long term trend and because the market was due for a pullback. Now, just because the inverted head and shoulders pattern is beginning to appear, it doesn't mean it will complete itself. I am just using it as a guide to help me in my thought process as to determing where we could be going. The funny thing about the stock market is that this pattern could look totally different in a week or two. We may see things in the charts that lead us to believe something may happen, but due to the forces of nature, the stock market will do whatever it wants to do. That's why it is so important to always have a trading plan and use good money management. Our charts and our instinct may tell us one thing, but the market may do something totally different.
Kipp
So we are up today after a couple of days of selling and breaking support at 86 on the DIAMONDS (DIA) on Tuesday. That support level is now resistance, we are about 20 points away from that level today with the market up about 65 points as of this writing. Today's high was 86.05, i would like to see the market close above that level and continue to push higher for the next couple of days to get us back up around that 89 level. Just remember there is still news out there that can effect this bull run we've had, we have come a long way off the lows already. A retracement is healthy for the market, just be ready and watching your charts.
The DIAMONDS (DIA) have been trading in a channel for the past couple of weeks now. Three days ago we tested support at 86 (DIA) and blew through it yesterday with a strong red short term chart taking us into the close. It looked like were going to rally into the close yesterday in that last half hour of the market but the sellers stepped in and and pushed the market lower in the last 10 minutes. Today we are trading flat but i am watching a lot of stocks getting crushed today. POT, MOS are down over 9%, GS down 3%, RIMM down 3.5%..... FDX is helping push the market lower this morning after its fiscal fourth-quarter loss widened and the package delivery company projected earnings for the current quarter well below Wall Street forecasts. Results for the shippers (FDX, UPS) are often seen as a important economic gauge.
What started the morning looking like a possible bounce from yesterdays 187 point sell off was quickly eroded into another triple digit losing day for the Dow. What looked like an end of day rally similar to what we have seen several times over the last few weeks hit a brick wall this afternoon as the Dow Jones Industrial Average dumped 50 points in the last 12 minutes of trading today. The Dow ended the day down 107.46 points, to close at 8504.67. The S&P 500 lost 11.75 points, to close at 911.97. The NASDAQ finished the day down 20.20 points, to close at 1796.18.
We have bounced off lows and tested resistance up around the 9000 level on the DOW. The S&P broke above 900 and made new highs as well. And let's not forget the Q's rocking since the beginning of March and the mid term cycles still look great on the Q's. But where do we go from here? I really like the Q's out of all the indices, the trends look good and the thing with the DOW and S&P is that the mid term cycles are getting shorter in length. The first rally off the bottom lasted 5 weeks, the 2nd rally lasted about 3 weeks and the last run up we had on the S&P and DOW lasted just a little over 2 weeks before they both pulled back on us. With the trends losing momentum around these highs this may not be a good sign for the overall trend, this also may be a signal for those longer term traders to start tightening up their stops and protecting their recent gains.
Can we catch a break....? A break out that is. This market is choppy and hard to trade right now. We get some good looking charts with fresh crosses and then the next day the market pulls back on us. We can’t get any follow through, you have to have patience and trust your trading plan and the trends at this point. But it keeps you wondering if this is the day the market falls apart. We keep hearing this economy is worse than anyone can imagine there is no rhyme or reason the market is moving higher. WHY, WHY, WHY??? If we wait to see what happens, then we miss the move. We can’t let fear keep us out of the market, so we need to have a very specific plan to trade these choppy markets. I can’t tell you what that plan is for you, we all have different trading styles. Maybe you like to buy and hold stocks; if that’s the case then you should learn about selling calls or puts against your positions. If you’re a swing trader this market just makes it tougher to do your job, you keep getting whipped sawed around and stopped out early just to see your stock turn around a couple of days later and make new highs. This is why I say it comes back to your trading plan, maybe you go in with less shares putting in wider stops to keep you from getting stopped out or changing your trading style to adjust to market conditions. Don’t force a trade, the market is not going to do what you want it to do, it’s not going to change just for you. You have to change with the market and adjust your strategy to its conditions.
Remember, plan your trade and trade your plan.
Yesterday we had a late afternoon rally that took us into the positive after being down 140 points. People were short the market and short the U.S. Dollar when the market just took off and stopped a lot of people out of their positions. We were hoping for some follow through today but the market has pretty much remained flat all morning long. Keep your eyes on the banks, it looks like they are going to give a few of them the chance to pay back their TARP money early so we may see some action from GS, MS and JPM. Keep those stocks on your radar.
We had a nice run last week on the DOW breaking out of some resistance at 8600. We pushed up into the 8800's and now we are chopping around sideways once again, But that is what the market has been doing over the past several months. We will trade sideways in a nice range and then break to the upside....trade sideways and break to the upside. This makes it a little difficult for the longer term traders but that's what you have to deal with when your a position trader. You take the ups with the downs or in this case sideways choppy market. What will help keep you in these longer term trades is taking on smaller positions that allow you for a little wiggle room so these stocks can move around.
