This is one Sick Market

This market is sick.  There is absolutely zero doubt about that after today’s price action.  Not only is it sick but it is extremely costly!  Especially during the last 7 or so trading days.

I have flip flopped my calls about where this market is going repeatedly for the last couple of weeks and it has been extremely frustrating.  Right now I am into analysis paralysis and I don’t have a clue if this market is going to crash next week or whether we will make another feeble attempt at a rally.  I just have to be honest about it.

Everything was lined up for the market to continue higher today after forming what seemed like a clear Adam and Eve double bottom pattern and a bullish MACD cross.  But the MACD cross has turned into a failure KISS and now at least potentially warns of a cascade decline that shows more lousy bounces and flat trading days for the next month or two.

The weekly chart is still extremely bearish and it does show much lower prices in the month or two ahead.

So I guess I have to go back to what I was originally saying about how the best way to trade this market is to just position trade it!

Perhaps others have had better success than I have but I would really like to meet the traders who during the last 7 or 8 trading days have bought near the lows and sold near the highs.  It has been extremely difficult and to be honest the technical analysis has not helped me much.

Whether you look at the sp500, the DJIA or the Nasdaq there appears to be a variety of patterns that could be rising wedges, symmetrical triangles or flag patterns.  All of these can have eventual bearish resolutions.

Again I have to emphasize that my weekly charts are looking extremely bearish for the next 4 to 8 trading weeks, so position trading is king here!

But the caveat with position trading is that one needs the ability to sit through the VIOLENT market rallies which depending on your stomach and ability to take draw down is no easy task.. You just got to believe… and sit tight… trusting that the weekly charts will eventually play their hand.

Perhaps the whole world was looking for the sp500 to rally back up to the 1150 range including myself.  But now that seems like a distant dream.. or is it ?

You know I was going to do a post here on how the current market structure has a decent resemblance to the 2008 period in September – October.  There was also a period there where the MACD seemed very overextended and was ready for a bullish cross but then turned and got even more oversold somehow beyond belief.  That move led to the 2008 October Panic.

But the key point about that decline phase in 2008 was that it was really sloppy price action and price was all over the map.  But still it did have the waterfall type persistence that seems evident now.

Any previously held fantasies I had about 1987 occurring again seem like a remote possibility at this point.  1987 was just too easy. It was so sudden and had such a full price move so fast it was like a 5 course dinner all at once.

The this market is all about frustrating the heck out of everyone and then making the big move.  Perhaps that is the definition of a waterfall decline.

But the question is, was 6/4/2010 ending action or beginning action ?

Ending as in the end of the decline and final cleanout or beginning action in terms of beginning a new multi week leg down.

The acceleration in volume today was interesting on the SPY ETF.  However compared to the two previous tests down at the 105 level it has a descending slope to it.  So whether or not that means we are headed for a short term triple bottom I don’t know yet…

Sorry for being so inconclusive on this post, but I am feeling like a deer looking into headlights after today’s action.

Posted in Market Timing, Online Trading, Trading Psychology
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2 comments on “This is one Sick Market
  1. austin says:

    Hey Tom, I agree with the confusion of this market. I have been using limit orders on the SSO and picking them up here and there on the dips. But also i have a hedge in on DXD for a about a month now and life has been good. I will continue to buy the SSO to the down side and dollar cost average in. But I have stopped buying the DXD. My 2 cents is we are going to trade sideways under the S&P 200 day moving avg. for a while longer. I will start to sell the DXD when we close above the 200 day on the S&P. I am not an active trader but I find your posts very insightful, so I would like to contribute the VXX . Check it out if you have not. Common sense told me to, and it was an easy kill.

  2. Tom Tom says:

    Thanks for your comments. Glad you have been surviving the volatility especially last week. I think we are on a verge of new leg down again. It appears like the market wants to save the best for last and just crunch as much price action in a short a period of time as possible.

    Just looked at the VXX yes it looks pretty good, nice and steady and probably ready for another big spike. Thank you.

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