Thursday, February 25, 2010

Thursday February 25th, what a day!!!

Well what an amazing day we had today, I love this type of market! Obviously we saw weakness overnight and broke below my bull/bear line in the sand from yesterday's post. So was anticipating weakness in the morning.

Top chart is the 30 minute chart showing the last few trading sessions, from the most recent highs to Tuesdays sell off day. Wednesday was an inside day that retraced back to the 61% level for the bears. Bears defended it well, and later on defended the 50% retrace level, so lower highs lower lows, you know whatever the "news" or the unemployment claims data at 8:30 was, it was going to be sold into because of the current structure of the market.

Needless to say we sold off on the "news", check out the -23% range extension level on the charts, called the low of the day to the TICK!!!!! This is not a fluke, this is black box trading at it's best, and happens a lot. We rallied back up to test Tuesday's low, where we were met some more selling pressure.

Market retraced to test the Initial Balance low, and it was all downhill from there for the bears, as we rallied strong into the close on high volume!!

Now I felt like today was not going to be a downtrend day from the get go, the tape just didn't look right. Now I am more bullish than most in these times, but check out the third chart above. This is the VIX chart for the day, as you can see it was moving down pretty much all day, not confiming continued selling.

So we had a good day, what happens from here? Good question, check out the second chart above to see the 4hr chart of the ES from last lows to last highs, spanning about 2 weeks or so. We rallied back today again into the next measured move short on the longer time frame, when we hit the -23% target the bears handed the market back to the bulls to take over, now that we are in the next short setup the bears need to defend this setup or the correction will be over and 1130's will be achieved next, on the way up to 1230 in the next few months.

The key levels are 1102 - 1106 for the bears to defend, for the bears out there short these levels with stops above 1106 targeting the midpoint of this move up off the 1040 lows coming in around 1076.75. So your risking 4-5 points to potentially make 30pts, that's a great setup!

For the bulls, wait for a pullback to today's point of control to enter position, if 1106 seems to be holding abandon ship, if it breaks first target should be last highs at 1112.75, then 1130's. Not as good of a setup as the bears have right now, but still good enough.

We have GDP and New Home Sales as big economic news tomorrow, expect some decent action in the AM session at least. My bull/bear line in the sand for tomorrow is 1094ish.

Trade of the day
Obviously to buy the -23% range extension, trail it all the way up for big money!!!