Too Late for Longs Too Early for Shorts

The sp500 is still trading within a very large trading range.  It is looking like we are headed on a clear path to 1230 or so for a test of those swing highs.  The 1230 is right at the top of the current large trading range.

So it seems like it is too late for new longs from here and too early for any shorts on this market.

My take is we pop up to 1230 then form a doji or something similar and then flat line into the Fed meeting next week and then get a drop going back inside the trading range. 

But then the market may grind higher again in this very large flag, or the flag may morph into a large extended rising wedge.

Honestly I do not feel like shorting this market or going long.  I prefer to wait for the next big trade.  There are still plenty of bearish possibilities for this market so my take is if the bear is still alive then there will be a good chance to re short and hold short for multiple weeks (maybe 3).  BUT the timing of that 3 week short is obviously crucial.

I have been looking a the structure of the bear rallies in 2007 and 2008 and can see that several messy flags formed there as well and some of them lasted a good amount of time, in one case 2 to 3 months.

It is too early to say whether we can rise in a large flag for 2 months from here but I am willing to wait if I know it will lead to a 3 week buy and hold shorting chance that involves a huge move.

I am also watching copper price closely on the weekly chart and want to see if it breaks support in the weeks ahead as it did in 2008 before the massive deflationary plunge.  There was a period there where copper took the lead down and then the market fell apart.

If we truly are in a recessionary or deflationary environment then we should eventually see copper break down and get the ball rolling.

I will be watching both copper and the sp500 for clues on the next big trigger point.

I will be using the weekly charts on both.  Honestly the weekly chart of sp500 could suggest we tread higher for multiple weeks and it could be messy and choppy.  But again, I want to wait for the big turning point if there is one and then buy and hold short after that.

Eventually I will post some charts of the 2007 2008 period to show how the current bear flag might morph.  This current trading range we are in now is not mature enough.  It still has a lot more formation to it in my opinion.  Patience is key here.

Have to also consider October earnings and that stocks may try to run up into those earnings.

For now here is the near term price action:

sp50020110915

Again, I think this pattern has a lot more construction needed for enough cause for the next move.  If we are still in a bear then this pattern will eventually morph into a point were it will be time to short for a duration again.

The big moves come out of big patterns.  Lets let this pattern get bigger first.

Posted in SP500, Technical Analysis
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One comment on “Too Late for Longs Too Early for Shorts
  1. RMT says:

    I will look to start accumulating shorts tomorrow (Friday) on any rally or gap higher. I think the markets are nearing some heavy resistance here. 123.5-124 on SPY will be very a very good short. The SPY is a bit overextended, there’s daily 50 MA, pivot high, .50 fib retrace level. The qqq’s are also at solid resistance. Considering this was options ex week, ‘m not too surprised at the rally. I’m guessing there were a lot of put options in the market and the big boys took the markets the OPPOSITE way of the public sentiment to make those puts expire worthless. In some ways, this is almost a dream shorting scenario. If the markets rally into the fed meeting, then even with a QE announcement, the markets won’t have the juice to rally much more without consolidating first. On the flip side, if the markets are disappointed with the fed, then it would have a combination of technical and fundamental catalysts to really sell-off. I understand that CNBC reported the “bear-flag”. But if you remember, they also reported the HS pattern, and the markets completed that pattern with real vengeance. So the 123.5-124 is a great short because of the risk/reward ratio there. The upside is limited short term (even if QE is announced) because the markets are already a bit extended and probably factoring in some kind of easing from the fed, where as the downside is immense. One thing that I want to mention is that often when the markets put in an important pivot low, it likes to retest those levels on light volume. SO if 8/9 was truly the pivot low for the year, then ideally we should expect the markets to retest those levels on light volume. But that hasn’t happened, instead we’ve gone on to create a picture perfect bear flag. I think the recent rally was to really whip out the amateur shorts and sucker in more longs.

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