Tuesday Review

Well the market held onto long setup yesterday, but who expected that kind of upward momentum yesterday, be honest?

The market has become complety decoupled with the equity markets now, just look at what the Euro and USD did yesterday, not a healthy market in my opinion. To have an up trend day in the face of that completely threw me off. After I got stopped out of my first short trade of the day I had to just walk away. I was going long on Friday, when should have been riding the trend short. I was going short yesterday, when I should have been riding the trend long. I am a much better rotational day trader, as I like to fade overextended moves. But on trend days that strategy will only get you run over. I have to work on first recognizing potential trend days earlier and learning to work with them and not against!

Update!

Our first scenario/level worked out perfectly overnight! (Bottom chart)We had our sell off back into strong support. I am out of my short trade, key levels to be watched now is the next measured move short level at 1132 and high volume area 1135 for potential short entries. Be careful though!

(Top Chart) As the ES showed weakness and made a new lower low, the rest of the 3 indices have not made lower lows and are now in good long setups, so be nimble and don't get carried away on the short side, yet!

Market Analysis for Tuesday

Friday did some technical damage to the market, the one hour chart above showing the last 20 day trading sessions has been trading in a nice price channel that was finally broken on Friday. Possible new bear channel could potentially be forming. Looks like the market is currently back testing this broken channel. Bears have a good short setup here with the 50% fib retrace as confluence.

Price levels to watch for:

Short Setups

1137. 50 - Channel trend line resistance, and 50% fib retracement level

1139.75 - 61% Retrace

1142.50 - 76% Retrace

Long Setups

1127 - 1128.50

1124

1118

Open Gaps

12-18-09 - 1097.75

12-21-09 - 1107.75

12-31-09 - 1110.75

XLF breakout on the weekly chart

You heard me refer to the breakout on the XLF yesterday, well here is the visual evidence. After much weakness the last 2 months in all the financials across the board, the bulls potentially have something going here.

Now we must close the end of the week above this trendline otherwise this will be just another shakeout. But if it holds could be the catalyst for SPX 1220 at least, yes that's right 1220!

Now that doesn't mean we couldn't get a small correction first to entice more bulls to jump on the bandwagon, but it is something to watch carefully right now.

SUPPORT/RESISTANCE FOR 1/6/2010 Trading day

Ok, so I am seeing some weakness among the other major indices (YM, NQ, TF) so I expect to see some weakness in the ES early on at least. We did have a breakout to the upside on the XLF weekly chart, which I will post sometime today. If that holds could be a huge catalyst for the move up to the mid 1200's in the SP500.

For today, I expect another rotational day with a little wider range than yesterday. I could see another 15 point range day today as the market continues to build value.

Top chart shows the range extensions for today using yesterday's price action, I have outlined the key S/R levels on the chart. The bottom chart shows market profile, in other words where the volume was transpiring during each trading session. This information is invaluable for us traders because we now know if the market is net long/short at the key levels and when their positions are underwater. Yesterday we actually had more total volume than the previous day which was a wide range up trend day. As I have noted on the Market Profile chart we built a lot of value above 1127 in yesterday's action which is so far reassuring to the bulls. But moves below put the bulls underwater, they would most likely add to positions on the first move below, but the second (if there is a second) move might cause a lot of them to give up their positions. But I have marked the levels on the Market Profile chart as well.

As I type here at 4:30 am, the Asian markets are up about .50% each and the European markets are so far flat with slight bias to the downside. The DX, Gold, and Oil all hovering slightly above their daily pivot, Euro trading at S1. So far supporting my rotational day theory.