Sunday, August 05, 2007

Trend Following Friday?

Taking a look at Friday's action one more time....

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I inquired whether Friday was shaping up to be a trend day. I noted the price level of 1469 because I thought that it was a key price level at the time I was watching the charts and the tape. As it turns out, ES did break above 1469, but what I've learned to be more important now is whether that break above can be sustained. Price moves almost at random sometimes, stops get taken out, shorts cover, etc. so touching a price point is not as significant as sustaining a price area. And, we see the reversal of trend @925a as a the strongest sign that the move above the 1469-70 area could not be sustained. That should have been the sign to look for as confirmation of trend day.

Friday's action must have left some more hedge fund managers spewing blood in the streets. Just when you thought it was safe to go long, we see another cliff dive into the close, trapping more bulls from Wednesday and Thursday.
In 1997, we had the Asian Currency crisis. I think I will call this latest downtrend the "SubPrime Lending Crisis." You heard it here first.

Notable characteristics of this trend:
- Previous two days were marked by massive rallies in the last half hour of trading.
- The time window of entry without suffering through any retracements was in the first 20minutes of trading. After that, you would have to suffer through retracements of up to 12points if you were short.
- There were 2 low risk entries: the first was in the first 20min. of trading, and the 2nd opp. was just after 11a, when price put in a double topp-ish looking lower high after the reversal of trend @925a.
- The best part of the trend occurred after 11a.
- The market dropped 17pts in the first hour, then spent the next 100min. retracing 75% of that drop, double topped and dropped for the rest of the session.
- Trendlines were broken on numerous occasions, making this trend day hard to catch (despite the 40pt drop).

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