Wednesday, November 30, 2011

end of day analysis

See my last post (below) for today's comments, but I also wanted to add some additional comments after performing my end of day analysis.  I actually just lightened up on my positions in preparation for tomorrow.

Although I'm not bearish at this moment, I have a number of indicators flashing sell signals.  As I mentioned in my previous blog post, today's action sent a very strong signal to the bears and therefore I don't expect a huge amount of downside IF the bulls keep the momentum rolling (as I mentioned ... we will need to see some follow through tomorrow and Friday), but I would be surprised if we don't have a down day tomorrow or at least strong down movement intraday.  I would expect a 2% decline from here before being able to resume our uptrend.

Looking at the charts, I have to assume we are going to test the lows of the range to see if there is support there to stay above it one more time.  We recently broke down below this range aggressively and then today broke back into it.

Looking at my statistical analysis of today's movement, I show that in similar trading sessions over the past 10 years, we were profitable 5 days later 61.5% of the time.  We also showed a profitable position 10 days later (64% of the time) and 20 days later (62.50% of the time).  Of these profitable times, we showed a median gain of 0.80% (5 days later), 1.19% (10 days later) and 1.17% (20 days later), although this is using a relatively small sample size.  Based on roughly 2000 trading days analyzed, there were only 26 similar occurrences to today.

We had an overly pessimistic crowd which if the market continues to rise, will fuel the rise with their 'popped stops' as they exit their short positions at a loss, but this could also encourage another down side test as these guys will not be buying quite yet.

Unless something changes, tomorrow and Friday I will use this coming decline to position myself more aggressively on the long side at a better price than today's euphoric and emotional close.  I use the term euphoric and emotional to describe the concept of 'chasing the market'.  Many amateur traders will buy at the worst moment ... when the market is rocketing up ... only to find the next day they are quickly put into a losing position as the market comes back to earth.   A good rule is to not chase the market up (or down), since it can (and usually does) turn and leave you in a losing position.  Waiting for the market to come to you at a better more 'value' oriented price will put less risk on the table over time.

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