Monday, August 2, 2010

Important resistances broken

What a start to the new month! I am sure all you readers already know that the markets were up huge today, so let me just wrap that part up quickly. The markets were up huge today. There you go! If you didn't know that earlier, you know it now. I am sure I had sounded like a broken record last week stating that the consolidation was bullish and congratulations to you all who actually had handsome profits today! Most of the stocks posted last night did very well today, as they should on a 200+ up day, and I hope some of the picks were useful to some of you readers out there. Let's get back to the bigger picture now. Lot of key resistances, that the market was struggling with for quite a while, were broken today.

As always, let's start with the S&P. I have been going on and on about the importance of 1115 over the last few weeks. Well, 1115 indeed got taken out today and now becomes the next support. The next resistance is the June highs of 1131 and then finally 1151.

As far as Nasdaq is concerned, it is nearing the important level of 2325 - it got rejected here in 2006, 2008, 2009, 2010 and the market found support here in 2007. Seems important, eh? Here is the weekly chart illustrating the importance of this level.

Here, I also find it imperative to point out the important close in XLF - the financial sectors ETF - today. It has been stuck in a range since May and finally made an importance close over 15 today. It wouldn't surprise me to see financials be the next market leaders here.

Personally speaking, I had kinda disappointing day. Disappointing in the sense that inspite of heading into today overly long, I did not make the kind of profits one would expect in a 200+ point day. I had doubled my DE position at 65.20 on Friday and sold half of it at 67.60 today. I had also entered IGTE at 17.75 on Friday and got out of it at 17.86 for a profit of 0.6%. Seeing how both these stocks ended, both these sells seem to be the right decision. I also sold the remaining half of my DOLE position at 11.09 giving me an overall loss of 1.5% in this one. Nothing wrong with the chart on this one but I it reports tomorrow and I didn't want to hold it through earnings.

There were a couple of reasons I was selling today. Firstly, I know I will have very little time for the markets the next 10 days, so I found it sensible to reduce my exposure to the market. Secondly, something didn't seem right to me about the rally today. No, I can't explain it and I have no charts to back myself. The charts, if anything, look bullish now and key levels were broken to the upside today. It was just a feeling I got looking at the action today. If I had a feeling to short the markets here, would I have followed that too? No! Basically, faced between two conflicting choices, like my read on the charts and my gut feel here, I try and always go with the one that involves reduction of risk. I sincerely believe that in order to be a successful trader all one has to do is take care of the risks. Profits will take care of themselves.
I will be back with a few charts tonight. Take care and good luck.


bill said...

wow. as shocked as i was to read that last paragraph, i think we finally completely agree about something. the rally today just didn't seem right. its very possible august could be a great month for stocks but there is still too many problems and unanswered questions for everything bad to just disappear. i applaud your call to avoid risk at this point, your smarter than you think.

positiontrader said...

lol on the last line. I get that a lot. Nice to know we agree about today but our reasons are again different. I am not considering the macro picture, just the fact that some stocks which I expected to act better today, didn't perform the way they should have. Like I said, its more of a gut call than anything else. And if you go through the past posts of the blog, I always choose minimizing risk over maximizing profit. The analysis for those three stocks coming up in the next half an hour.