The Boyz are Back in Town

by Dominick A.K.A. "spwaver", TradingTheCharts.com | September 8, 2008

Volume finally started to pick up this week, but it was all downhill for several days after opening Tuesday morning over 1300 on the S&P 500. Though we had some targets for a move higher, we’ve been skeptical of gap openings in either direction for the past several months and, as usual, looked to see the market set up a trade for us rather than guessing or assuming. The last two updates included important numbers we’d use to gauge price action and plan our trades. Among them were 1306, 1264, and 1292.

The opening of the week was close enough to 1306 to keep us from scrambling to try and chase a move. While looking for a long entry we saw the market stair-step lower and each time it lost one of our levels we were forced to enter on the short side, covering as we approached our next target. 1264, a level the market has recognized for months, was a big number that we would either look to buy or sell aggressively depending on the reaction at the level. We risked a scalp long off the bounce there knowing to do a quick TMAR (take the money and run) if there wasn’t any momentum to the move. Losing 1264 became a major signal to get short.

The best way to trade a trending market, in either direction, is with trailing stops that move along with the market. We had our stops as low as 1223 Friday morning knowing that after four days straight down, bears would be looking to take profits and get an early start on the weekend. It didn’t hurt that we had a long signal from our 15-minute trend cycle oscillator, or this chart:

In our real time chat room members were advised to cover shorts on a move above 1223 and to get long with a tight stop. On top of the points gained shorting the market all week, this single entry point yielded over 20 points in a single afternoon to the unbiased traders at TTC since our target was 1242-1246!

But despite the snap back rally that had the markets actually closing positive on the day, we still don’t have confirmation of a bottom being in place for stocks. Next week a crucial market to watch will be the dollar, as it looks to top out in either the C of an ABC correction or 3 of a larger impulse up.

We won’t guess which count is correct, but if we see confirmation that the impulse is invalidated, rest assured the dollar bears are going to have their way with the greenback. Though we won’t necessarily look to trade the dollar index directly, this market will implications for many others.

Disclaimer: Market analysts are always welcome to contribute to the Forum or newsletter. Email me @ Dominick@tradingthecharts.com if you have any interest.

Ideas from this update are provided as general information and are not investment recommendations. TTC accepts no liability whatsoever for any losses resulting from action you may take based on the contents of its charts, commentaries, or price data. Each person must do his or her own research to determine the appropriateness of taking a position in any financial or commodity market. If you are uncertain, please check with your licensed financial advisor or broker prior to taking any action. Securities and commodities markets inherently involve risk.

Contact Information

Dominick A.K.A. "spwaver" | NJ, USA | Email | Website