26/8 Market Recap
Posted by jon on
Spy of the week.
This week, as last week, we had a dull performance of the market. Besides the gap down of the market on Tuesday, nothing really happened and the market traded between the bounds of 165 and 163.
The last week’s important support level of 164.5 has been violently breach during the down gap, and the market continued to drift lower until the 163 round number. Although we have been going through 164.5 level, it is still considered a short term resistance and we are looking on a slightly different level of 165 (Resistance has risen half a point higher).
As for now, 163 is a good support level for the upcoming week, and breaking that level will probably effectuate a larger drop potential.
Another sign for the weakness of the market is the declining Laguerre Filter (A proTradingIndicators.com indicator) on the daily time frame. As always, the bigger, daily time frame dictates the sentiment, and for now we won’t look for Long trades until there’s a visible shift in that slope. We don’t we look into Shorts? the reason for that is because the market is “sitting” on the upward sloping lower channel which has acted as support for numerous times this year.
This situation demonstrates an important principle in trading – You cannot always be in the market, since there’s times where the market is neither Bearish or Bullish. When the odds are not clearly on your side, taking a position is like tossing a coin, a near 50% to win or lose, and that’s definitely not how the market should be traded.
Gold & Metals.
As expected, buying pressure is still showing its effects on Gold and prices continue to drift away from the pierced, down sloping channel of the last 6 months. ProTradingIndicators.com’s Laguerre filter still points up, and although we would wait for at least a symbolic price retracement in order to get in, we think that Gold is stepping out of the Bearish state he was for such a long time. It doesn’t say it’s time to grab Gold at any price, but it’s a good sign that, at least for the current levels, buyers are ready to step in and prevent the price from going lower.
That being said, the $17.5 – $18.5 support area is gaining much importance. If for any reason this Bull attempt fails and the prices go lower that that level, get ready to another down sloping channel, and get ready for another red season.
Although Silver got a little late to the party, he did show some nice gains over the last 3 weeks, adding a up sloped Laguerre Filter is also supporting the buying short term momentum.
As opposed to Gold, the Silver is still flirting with the down sloping price channel, and we would wait before getting into any action in SLV.
Last week CSCO has experienced a mini gap down ($2 drop, significant for such a steady stock) accompanied with high 150M volume. This immediately came up as a candidate for our “Continuation trade” strategy which was quite successful the last few month we are covering it.
A quick recap of this strategy: We are looking for aggressive price moves that manifest themselves as a considerable gap (Up or down) with a relatively high volume during that gap. The reason for that is to try to catch the longer term aftermath of the news that generated the gap.
Usually, the first actors on a news generated stock are obviously the professional traders, they know it first and act upon the news first. We want to ride the second wave of the late buyers, which read the news on the evening or on early morning and try to get into position 24-48 hours after the news has been released.
This time, for those of you who were patient, you managed to Short the stock on the fourth day after the gap down, where CSCO has finally broke the gap day’s support. This would have yielded a nice $1.5 as for now. For those of you who took that trade, we would recommend liquidating half of the position, and bring the stop to breakeven to lock in profits.
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