This market has been a choppy mess and very difficult to trade outside of day trading. My last major write up was on the August 10th calling for the end of the bull market, you can find my write up here http://swingtradesetups.com/free-updates/is-this-the-end-of-the-bull-market/ My normal hold time for a play is 1-3 weeks over the last month it has been 1-2 days. As setups that breakout or breakdown reverse quickly and plays don’t stick. If you ask a handful of traders what they think of the market right now you will get a mixed bag of answers from the bullish market is still intact to, this market is going lower from here. This is what we have been seeing in the tape indecision, and increased volatility as normal .25% moves are now 1%+ on the major indexes and they move 1% up and down a few times intraday.
Trading is all about finding your edge and taking advantage of it when that edge is presented. For most traders this type of market will result in a high amount of failures and bigger losses during the daily wild price swings. Unless you are willing to take smaller positions with much wider stops to see your thesis playout you are going to get chewed up. This is why inside my swing trading service I went from taking a 1% risk per trade to no more the .5% and most of the trades 1/3 of a % risk and almost nothing was held for more than 2 days. Here are our results avg winner .9% avg loser .3% total profit of winners 10k total losers 4.5k total results 5.7% portfolio gain while the market is down 6.2% If you would like to join the service please check it out here. http://swingtradesetups.com/join/
Now lets get into the charts and where this market is headed. First we need to look at a monthly chart. For me the 10 period moving average is one of the best indicators out there. Over a rising 10ma things are bullish under a declining 10ma things are bearish when we look at a monthly chart of the S&P we can see all the major market turning points took place on the 10 month moving average.
We are now under a declining 10 month move moving average, which has me in the mindset of shorting pops instead of buying the dip for the first time in years. Now for people that trade on shorter timeframes lets look at a daily chart of the S&P futures. Since the Monday flash crash we have been grinding higher but with large daily gaps in both directions. The bulls really wanted to see a V-shape rally like back in October. But there has been too much damage done to the charts to see another spirited rally to new highs. The chart below I have a drawn an RSI resistance line which we hit during trading today. It also happened to correspond to with the upper Bollinger Band which is a logical spot for the market to pullback. Given that we are under the 10 month moving average hit the top of the BB and RSI resistance and faded from the highs of the day. It looks like the market is setup for another leg down to possible test if not take out the Monday panic lows.
Let’s look at the anatomy of the last few market crashes to get an understanding that first low usually is not the ultimate low. 1987 had a double test of the flash crash lows before it moved higher. 2001 failed at the upper BB on the bounce before heading lower and 2008 tested the original lows before bouncing to the back test the breakdown area before rolling over again. Common theme is a test of the lows as well as failure at the upper Bollinger band. We are at the upper Bollinger band here and haven’t tested the lows, this is why I am bearish on both the short and long term at the moment. This market is bearish until we get back over the 10month moving average until then rallies are to be shorted and you should lessen your risk per trade idea, as capital preservation is key in these markets. I wish you all nothing but the best of luck.