Tuesday, August 14, 2007

Turnaround Tuesday

Deconstructing another trend day....

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The SubPrime Lending Crisis delivers yet another trend day.

Notable characteristics of this trend:
- Previous day was marked by a gap up that faded into the close, but the gap did not fill.
- The time window of entry without suffering through any retracements was in the first 35 minutes of trading. After that, you would have to suffer through retracements of up to 14points if you were short and wanted to catch this trend.
- There was really only 1 low risk entry that would enable you to capture most of this move:
It was in the first 35min. of trading when there was a high volume break below 1455. There was another opportunity that came around 9a, after the price had retraced 55% of the initial first thrust down. You could have shorted the second tag of VWAP and hold for some 20pts into the close. However, you would have to endure many choppy, 5-10pt retracements along the way. There was also a 10pt move downwards available in the last half hour of the session, even though you missed out on most of the trend.
- The best part of the trend occurred between 7a and 805a.
- There was no shortable rally, no double top reversal to mark the start of the trend, as the market sold off right out of the gate. market dropped over 20pts in the first 90min, then spent the next hour retracing 55% of that drop, chopped its way down 7pts for the next 2 hrs, and accelerated the pump and dump for the remainder of the session.
- Trendlines were broken on numerous occasions, making this trend day hard to catch (despite the 30pt drop). In fact, it would be unrealistic and unreasonable to try and hold through a 14pt retrace not knowing that only an additional 6 pts of downside (from 1437) was available for the rest of the session.

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