Thursday, July 29, 2010

A hard day to trade

As I am sure most of you readers will agree, it was a hard and frustrating day to trade. On days like, it is important not to overreact and not to overtrade. It is imperative to know what the support and resistance levels are on the indices and to focus on those levels, and treat the rest of the action as noise.

Here is an updated version of the S&P chart that I posted yesterday. 

As you must have noticed, the support and resistance levels I had marked yesterday came into play today. the market got rejected right at the resistance level marked in the morning. The market ended right on the first support level.

Let's move on to the updated Nasdaq chart now.

If anything, the levels that I had marked yesterday worked even better than those on the S&P chart with the index bouncing right off the support! For all you non-believers out there, TA works!!

As always, let's end with some thoughts on tomorrow. The charts show that basically nothing much changed today and we are still in the consolidation phase. The big news tomorrow would be the GDP numbers that come out in the pre-market tomorrow. I believe a bad number is already built in into the market and the only question is how bad the number actually is. I still believe the right strategy here is trading small positions or staying in cash. Sounds boring, I know, but its a much better alternative to losing money!

Take care and good luck!

P.S.: Grabbed a little DE at 64.90 today. Its a small position, about 1/3rd my usual position size. Might consider adding if it makes new highs.


bill said...

what about the flash crash? did TA work then?

positiontrader said...

lol. You gotta combine TA with position and risk management. And you were fine with TA on that if you had mental stops, and not hard stops. And I read lots of people lost money in mutual funds which were based purely on fundamentals.

bill said...

also im glad you mentioned GDP, the market seems to think its going to be under 2.5% by the way the Fed is talking but i would be surprised if GDP is less than 2%. has their estimate at a whopping 3% which i think is a little crazy considering the lack of consumer confidence and the fact that most companies are producing record profits because of cost cutting efforts not sales, ie harley davidson. What is your estimate? I would peg it at about 2.3-2.4% but i think 3rd quarter GDP is what will really shock people (around 1%).

Market still oversold? My guess is another bearish day tomorrow unless GDP comes in higher than 2.7%. The market seems to be streaking days of up and down together more lately as well (6 up 5 down scenarios).

Nasdaq smashed the intraday floor of 2240, are you changing your stance? any chance we see 2220?

positiontrader said...

No estimate on the GDP Bill. I just trade what the market gives me. I used to try and anticipate the news/numbers when I first started, but quickly gave up on that. You very well might be right though.

The markets have never been oversold this week.I judge oversold/overbought levels by the McClellan Oscillator. Oversold reading, from the top of my head, is at around -60 levels while right now we are at +30 levels. Far off from being oversold but not overbought either.

Nope, not changing my stance as the market bounced off the ascending trendline and even closed above 2240. Tomorrow's GDP numbers might be the game changer though.

Bill said...

i admire your philosophy.. albeit cautiously and how you stick to your guns/charts. i myself chart daily too but not as widely nor extensively as yourself. How bout the Head and Shoulders on the S&P over the last year? Its technically still well in tact since we never broke 1117, although the Dow is a little shakier, still im wondering how the chart genius that you are doesn't see that a bearish trend. your posts seem to indicate you are slightly bullish? Isn't sitting in cash kinda bearish?

Also your probably right about DE's chart, it looks ready to brake out again, although im not really sure why. They have cash flow problems and net receivables has already tripled for 2010. Also they traded out 18 mil in long term investments for 2 mil in reduced long term debt. Not exactly a win. So i'm not really long term bullish on a company that has over 1 billion in sales this year and only 400 million of those sales are paid in full. That doesnt give me a lot confidence in this economy. But like i said that pick looks good short term.

positiontrader said...

Hi Bill,

I love your contribution to the blog!! Although we both might have very different trading philosophies, I love your thoughts and comments and I hope you keep them coming. In anything in life, it is important to be surrounded by people who give you an honest appraisal of things rather than just agreeing with you. As far as DE is concerned, it is a small position with a close stop loss, so I can sleep easy at night.

Keep it coming Bill and thanks!! Your thoughts are very much appreciated.