So far 2 hours before the close of session it looks like the sp500 and the SPY ETF wants to choose the bullish option. In my previous post I made the point that despite the potential for topping as of 9/17/2010, the market was not showing us a real confirmation of anything yet.
Dojis and hanging man candlesticks are meaningless unless they show confirmation. I also mentioned in my previous post that it would be typical for the market to squeeze the shorts who shorted the market too early at the top of this important resistance range. This is exactly what appears to be happening today. The early shorts are being tested today as we have the market trading above the important resistance line. They must now decide to either cover their shorts or sit idle on the assumption that today was just a head fake.
I suspect that today will not be a head fake and the market may squeeze higher right into the close today, possibly leading to another panic squeeze higher tomorrow. That can lead to new longs coming in with bullish confirmation by the close and also previous shorts switching to long as well.
If the SPY ETF closes either mid range or top of range today then I have to view that as a bullish continuation signal and a signal for new long entries from my original bottom call that was on end of August 2010.
Is There a Lesson Here Somewhere ?
I think this is a fascinating market dynamic we have right now and it is very educational. The education I am referring to is that as of the 9/17/2010 close there was no clear signal to go either short or long the SPY ETF. There were some possible clues, but in my opinion there was absolutely no hard evidence of a continuation buy signal or a sell (short) signal.
Despite this fact I am quite positive that thousands or maybe even hundreds of thousands of traders still went short the market 9/17/2010 before there was any signal? Now all those shorts are being squeezed and facing decisions to take a small stop loss or ride it out for a possible reversal tomorrow or some time this week.
I am not making this point to sound like a smart ass. I am making the point because I have too often made the mistake of thinking that I am smarter than the market itself and that I want to get in before any real signal is indicated by the market. Me getting in too early before there is any real signal has cost me the expense of too many stop loss orders. Surely there is nothing wrong with taking a stop loss to protect yourself if you are wrong, but why go through the frustration of taking a stop loss when it could have been completely avoided in the first place ?
I want to wait for clear and decisive signals the market gives me where it removes as much doubt as possible. This is the proper way to trade in my opinion.
If we close near the top of the range today then the 113 level on the SPY ETF will transfer into new support and provide a short term floor for any possible later corrections this week.
But so far the tape action today is looking like a clear ‘new addition longs’ signal to me, and I have to respect the tape. . .
Final volume today is also going to be interesting. It seems like another moderate volume day, but closing above the range strongly is as important if not somewhat more important at this point.