Day Trading – The Bullz And Bearz

A New Week – Will This Rally Continue Even Higher?

July 27th, 2009

I spent a lot of time looking at the charts of the indexes this weekend – as I usually do anyways. But what got me thinking more than ever is what I read in a new technical analysis book I started reading. The author is a very well known hedge fund trader – more than likely not known to the general public but definitely known around the trading circles.

 

He says in his opening chapters time and time again, to always look at the markets as giving you signals each and every day for it’s next move. You cannot wish or dream the market into this direction or that direction. But if your completely unbiased, then you will see the early signals and be able to jump along for the ride. Of course the problem for every is the “unbiased” part. I mean we all have feelings and emotions and let’s face it; we are dealing with real money here.

 

So long story short, I tried to do just this over the weekend. Here’s what I found using the daily chart of the NASDAQ.

 

 

1) Clearly the markets are showing strong signs of strength. 10 days of straight up movement is not weakness by any means.

2) Technically we should have made it this far up in the rally based of Fibonacci retracement levels. Where the NASDAQ is right now is right under the 50% retacement level. This has always been the highest probability level and since the bottom it would have been logical to think that a move up here was realistic.

3) Short term we are going parabolic. The faster we shoot up, the faster we are going to fall back down. If we are truly in the beginning of a long term bull market (which I don’t think we are) then we need to see a more normal trend starting to form - not this moon-shot.

4) Finally, I’m glad that members and I have some long positions to start making money in this market when it rallies. I would have liked to see a strong pull-back last week to jump into more positions, but at this point it’s worth waiting. I have a long list of stocks I want to go long, but patience will be key. I’ll wait for the 3-4% correction first and get much better pricing.

 

Take from this what you will. It’s always hard to be part of the group that thinks we are over-bought. But I was part of this same group at the top of the market in 2007 and holding strong to my thinking them made me a lot of money. Here are the S&P 500 intra-day support and resistance levels. Watch the 985 level as pretty major resistance today if we continue this rally.

 

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