Today is Friday June 4th and what a ride Wall Street had today, as things seemed to be sliding all day and into the close.
It looked like someone was anticipating the reaction on the street as 3 a.m West Coast rolled around, the market started selling off in a big way. After the open, we saw a bounce after first dropping 30 S&P points from the high. The unemployment numbers did come out and they were good, but not good enough, as much of the gains came from short term Census jobs.
The S&P was off 40 points, the Dow off 325 and the NASDAQ off 64 points, roughly around 3.5% across the board. This was a big sell off and with only two more trading days before the new weekly sentiment poll to be taken this coming week after Tuesdays close, the market may now work itself into a larger bearish position, as more of the Street will become bearish and we may finally get the market extreme I was looking for.
Currently the level of bullishness is at 39% and had dropped over the last three weeks straight, with last week staying the same. It is going to be interesting come Monday and Tuesday. If the market can contain the selling into those two days, there is a chance we could see a real surprise rally over that 1107 figure that I have mentioned two or three times. In the night trading last night just before the selling began, the S&P emini futures went 3 ticks over that price at 1107.75. It quickly reversed and went straight down from there. That goes to show, that the 1107 number is a very valid and strong number, that if overcome with conviction, will prove to be a trigger point that will ignite the short covering to kick in at a higher level. Just remember that number as we go forward. If we continue to sell off, it won’t matter, but there is a lot of worry out there and rightfully so. There is a total mess when you look at the big picture.
Going back to what I said a moment ago, if the market can contain any selling that may come in Monday and Tuesdays sessions, don’t be surprised if you see a massive reversal of all the losses from today and a whole lot more. Just realize that it is possible and that a complete wipe out from here is not a for gone conclusion.
I don’t talk a lot about patterns and technical analysis, not because I don’t follow it, but just the contrary. What we could be looking at is an “Inverse Head & Shoulders” if as mentioned we can contain the selling to no more than say 1150 on the S&P Emini Futures. Take a look at it, it looks just the same as an upright “Head & Shoulders Pattern” but in reverse. We could be working off the right side of the shoulder flushing out all of the weak hands that allow themselves to be overtaken by Fear. Once those traders, investors and everyone else have gotten shaken out, the market will then reverse back up, leaving them in the dust.
In addition, this Head & Shoulder trading pattern, has a tendency to exacerbate short covering rallies. The initial rally once it takes hold, usually is very fast and catches many by surprise. If things take shape as laid out, I would expect the blast off point to come in some time next week and as early as Wednesdays session. This will give time to sell the last hold outs that we are going down, which in turn will cause the market to bite them as they get left behind.
This is all conditional, in that the next two trading days we will need to hold, giving up no more than -16 S&P points and or -160 Dow Jones Industrial points. So, it can still go down and it would even be better if it did, getting the last of them to take the bait.
On the other hand, I too can not become sold out to my theory, because I to could be taken by surprise if the market were to crack the 1036 S&P lows. For me personally, I don’t hold any positions overnight and only day trade the short term market swings, so it is not going to effect me that way. I do hope my theory plays out, because it just means that there is more time before the market crash that I do think is coming. I can not say when that is and it may not happen for a while as things get strung out, but if I had to guess I would say September or October this year. Anything can happen and it could be now, but I say the odds favor later in the year.
Going back to the possible Inverse Head & Shoulders trading pattern that may be setting itself up, investors need to be prepared. If we do see that breakout and it is confirmed by the breaking of 1107 with conviction, that will be a pretty good spot to buy and hold stock for at least a little while.
In my own trading today, it only took me 30 minutes and 5 about trades to take what I wanted from the market and I was gone. Click on the chart above and then click it one more time to make it larger if you care to see the trades I took from today’s session. I could have traded for more and probably made more, but I had already done my extra work early in the week posting big gains. The last three days I have just been cruising and playing it safe. This is all apart of good money management for me.
Traders often have there biggest losses right after they have had there best gains. It is important to not get overconfident and let your guard down as you start to see some success. Once you have made it, the money is yours, it is not free money, you earned it. You need to guard your equity and not let it leave your account the same way it came in, but do not let fear hold you back from putting on the trade either. Trade what you know and leave all the rest.
Good Trading to All !
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