The Game And The Media
It was
game day yesterday, but the Generals didn’t cooperate.
The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) traded down to
the intraday low of 872.05 on the 10:05 a.m. ET five-minute bar. Greenspan said
a soft pocket is why rates dropped a half instead of quarter. That’s really
news, right? This set up a three-day RST buy pattern, where the 1 point was on
Monday. For you traders that have attended my seminars or have my tapes, you are
reminded to check prior days’ price movement when looking at Fib retracements/extensions,
along with the RST patterns. The RST entry was above 874.59, then we got lucky
with the equally ridiculous futures move on the Iraq resolution news, which
really isn’t news.
That didn’t stop the
futures jiggle, as there was an 11 point move on just two five-minute wide-range
bars, with the SPX trading up to 888 by the 10:50 a.m. bar. It managed to trade
up to 892 by noon, but the game was over right there because it wasn’t the
Generals who bought the index up, and that ended yesterday’s game. It was
straight down into the 3:00 p.m. bar, as the SPX hit 873 before the last-hour
jiggle took the index to an 882.13 close, which is right on the 50-day EMA. The
territory below 882 is open space as it puts the SPX below all of its 20-, 50-,
89- and 200-day EMAs.
The afternoon 1,2,3 lower
top short trade came right at the confluence of the 890 .618 retracement to 965
and the 894.30 .618 retracement to the 926 rally high. You had a market up for
no reason other than the game being played, and your 1,2,3 sell pattern at a
confluence of resistance was staring you in the face. Were you an honest trader and
took the pattern entry at resistance? Or were you influenced by the CNBC empty
suits and made a decision with the wrong side of your brain?
There is a confluence of
numbers at 866 and 867, but the stronger one is 841 – 847, which includes the
.50 retracement to 769 from 926. Below that is the .618 retracement at 829.
There are some minor cycle dates next week on Nov. 18 and 22, with a stronger
intermediate date on Nov. 20. Whether this leg continues higher before at least
a .38 retracement to 769, or whether the SPX takes out the 867.91 low first will
probably be decided next week. The media hype creates the overreactions, which
enables the future raids to artificially move the market intraday, and that’s
why volatility bands, 1,2,3s and RSTs are a money machine.
I continue on the short
side of TLTs and IEFs, which are the bond market proxies against hedge position
longs in the SPYs and SMHs. If you think equities are going to take off and
rates not rise, you had better regroup. If rates remain low or go lower and the
growth/earnings do not take off, then we are looking at
deflation/I-won’t-use-that-1929-word. We will either get some inflation with an
increase in earnings, or some inflation with weak earnings growth. Either way,
the odds are you won’t see the combination of real growth/productivity and low
inflation we have had since 1982. That all means that as traders and/or money
managers you will have to play both sides of the market to generate any
longer-term gains. Daytraders can continue to do their thing, but money managers
that concentrate in equities will have to get more adept at market timing because the no-brainer long-term trends will
probably revert to trading range markets. I suggest you review the charts from
1965 to 1982 and relate it to the trading strategies you currently use.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS