Friday, October 20th, 2017

Are we going down?

Woke up this morning with a nasty surprise. Market down 140 points with a massive gap! Immediately I got calls from people about the market. After all with such a bullish day on Jan 19, 2010 this shouldn’t be happening ? Right?

Trading is a Brutal game. Sometimes its downright ugly, and makes us swear never to trade again. But here is what does helps. Some Technical Analysis goes a long way to help see things as they are not as the way we feel they are. So here is whats happening to the general market.  Here is a chart of SPY 60 days 60 min for a up close look. Click on charts to enlarge.

SPY Jan 20, 2010

SPY broke out of consolidation pattern around Dec 21, 2009 and since than has been going up in a nice trending channel. The move up has been relentless with no breather, and no pause, nothing. Eventually all such moves come to an end. That is exactly what happened on January 11, 2010. SPY stopped moving in the upward channel and instead craved out a nice range between 115- 113  and is moving in it. You can see the upper channel on the top right hand corner of this chart. Here is another look at it up close with a 20 day 30 min chart.

SPY Jan 20 2010 20 day

As you can clearly see the uptrend has ended and consolidation pattern has emerged. Its a rectangle consolidation pattern that we saw back in November 16 to Dec 21, 2009. These patterns form when there is lots of indecision in the market place. Some traders are selling off assets while others are holding on. The selling becomes short lived and than new buyers step in and bid up the prices.

This is what happened on Jan 19, 2010 when the markets opened after a 3 day weekend prices got bid up. But today fears returned and we dropped from the top of the channel 115 to bottom at 113 in a brutal plunge. That took DOW down to 200 points. Ouch!  But SPY found support at 113 again and if we hold here it should bounce back to the 115 levels.  How long this will continue ? No one knows that.  It may take  a while for this pattern to resolve and these patterns usually resolve in the direction of the primary trend which is up. We just have to see how this sideways action is and how long this can continue. The key is to observe any breaks from this channel up or down.

From an Options sellers perspective we will be using all the Stock option strategies to take advantage of these neutral conditions in the market place. What do you think is happening? Do you agree or disagree  with this ? Subscribe to our site  or join our premium service for more cutting edge content.

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