Sunday, July 31, 2011

The week ahead

Sorry for the no show last week but things have been pretty hectic at work lately. Before I post any charts, let me just say that we are currently in news dominated markets where news might possibly trump fundamentals or technicals. And always remember to trade the reaction to the news rather than the news itself. Let's now move on to the charts.

Firstly, the markets are in oversold territory. This can seen from the Nasdaq and NYSE McClellan charts posted below. This means that the odds favor a bounce but we will have to see how much that counts for in a news-dominated market. But I would be very careful in starting new short positions or having too much short exposure overnight here.

Moving on to the S&P chart, all eyes will be on MA(200) next week. The market has found support here  five times in the last couple of months. 

But the strong support shown here the last couple of months makes me wonder if this is too obvious a technical level now. Let me explain what I mean by that. To be successful in the markets over a long period of time, you have got to expect the unexpected. The market works on the principle of fooling most of the people most of the time. With MA(200) being such an obvious support level, there will be surely lot of stops put right underneath it. I wouldn't be surprised to see the MA(200) break, all these stops got taken out and the markets to then go right up again.

I wont be posting a watchlist today as I plan to stick to day trades till all the debt news gets out of the way.

Take care and good luck!

P.S.: Here is my analysis of the Indian stock market posted on my Indian stock market blog.


ppmoore said...

Good analysis. I'm only day-trading at the moment. Swing/position trading too risky.

tk993 said...

Love the post. I am one of those people with the 200 day as my stop. I bought in on the dip in June when the 200 day held, and that is my stop. I agree that more people will probably have stops there as it is the obvious support.

The trouble I have with the post is that if you keep lowering your stop because "that number is too obvious a stop" (200 day moving average, 1300, etc.) Where do you put your stop.

I feel like that's a slippery slope you run if you start moving your stops "just a little lower" because the logical points are too obvious. I like your thinking, and if I wasn't in a position, I'd probably follow your line of thought and buy a few days after the breakdown. But a break of the 200 is pretty big in my (short) book, and so I think I'll stick to my stop.

But thanks for the thoughts! They are always great.

Keep Postin'

positiontrader said...

Thanks for the comments guys!

I agree with what you are saying tk but the problem with stops being too obvious is that with the increase in algorithmic and high frequency trading these days, chances are high you will get stopped out and then see the stock turn around and run without you.I believe one has to first think like the big guys here and then out think them! I would highly recommend the post " The art of setting stop loss points".

Cheers and good luck!