This is for Friday’s post May 22nd, which I did not write.
In Friday’s trading, I did not have a very good connection, I was traveling and not in my home office and my data was freezing because of that, so I elected to just make a few calls on direction but not trade at that time. Later in the session, I was able to link into a faster data connection and took a few trades to a get double daily goal.
I was trading small, but picked up my points with no problems. I remember taking 9 trades and only had one very small loss of 1/2 point. I had some split trades in there, half the order comes off first and the other half later (T-2) , usually at a better gain.
The market sold off on Friday during the last 15 minutes of the day, another close at the lows of the day after trading higher through out the session. That again should have an impact on Tuesday’s opening market.
Trading Lesson: Generally, when the market sells off early in the session while it is in an uptrend on the daily, you can often see the market come back and close at the highs of the day. The same is true when we are technically in a down market. You will see the market rally early in the session, only to close at its low of the day. We have been seeing exactly that the last three trading sessions. It happens all the time, so it’s one of those things to keep in mind. If you don’t know if we are in an no trend or downtrend, you have work to do.
Where do we go from here? Since last week, we had broken the wedge that was forming to the upside, that I had been talking about for weeks, but we do not yet have a lower low from our most recent pivot point. Some of my daily indicators are pointing down and some have yet to turn down. From the price action that has recently taken place over the last three trading sessions, I had become bearish on the daily, but with caution.
On Wednesday I stated in my blog, the short term top was in and lower prices were coming off of the price rejection I saw that day and hitting the adjusted outside purple line that I had talked about for a month. All of that has happened and now we will have to see if the last pivot low is going to hold. There are things happening that say it can hold and at the same time, there are things that say it will drop down and break the low, which will bring in more selling. I don’t know which one it will be yet. Pure price action says there is no violation yet, while momentum says it should break. I am going to have to let the market decide and you should too at this point.
We have come off 50 S&P points from the top at 930 to Thursdays low of 879. A month ago I had said 940 or so would be the top of this little run and was off about 10 points. I just needed to re-adjust my lines and last Wednesday I saw that.
Anyway, let’s just let the market decide. If it does break the low, we could see a move down to 847 to 850 on the S&P. It’s not too steep but it would naturally find initial support there at a parallel channel taken from the most recent tops. That lower end of the channel comes in at around the level I just mentioned. Again, we will have to see what happens first. It would appear that is what is going to happen, but if price action changes to reflect something different, I will look to re-asses. With the Gov looking to take control of GM, that could tip the scales south for now.
The financial networks always try and come up with a reason why the market did this or that, but fail to realize that much of the price action would happen that way regardless of the news – just a personal observation.
Last week I was talking about “Price Action”. I wanted to clarify one thing, the difference between price action and price patterns. I believe I was pointing out a “Head & Shoulders” formation that developed in a 5 minute cash chart of the S&P from Wednesday’s sell off. Anyway, there is a difference between the two and I wanted to make that clear.
Price Action is a collection of price movements based mostly on support and resistance. Prices are pushed above and below their mid point. While price pattern is the collection of price movements that cluster to form identifiable patterns. When those patterns are broken, you can draw a conclusion that will yield a highly predictable outcome. Price action is what takes you to the point where you can see the formations coming together. It is almost like, which came first, the chicken or the egg?
In this case, price action comes first, then comes price patterns from the price action. I hope that helps clear up any questions you may have had about that. If you were not even aware of the difference, you now have it explained.
http://www.screencast.com/t/lcQ9oHq5q Friday’s equity chart