Friday, June 06, 2008

Bear's Revenge

Several bad things happened today, foremost was probably the dismal jobs report, which is actually long overdue. Also it was Friday and regular readers know that I typically regard the last day of the week with a bearish bias.
Thursday's action during the last hour was certainly a bit odd. . .that extended squat bar that sat at 50.53, with all the tails up (hairy top) and no fade into the close.
Today's type of gap down on the open is seen by some traders as a buy the dip opportunity, but those who have studied gap behavior know that when down gaps of this magnitude occur, it's best to either stand back or take short positions. In today's case, the market got a bit squirrelly for the first hour before settling down to selling off with a vengeance for the remainder of the day.
The utter lack of strength in the NYAD was a powerful indicator that any attempts at a rally would not be forthcoming.
Fortunately, or unfortunately, I slept in this morning and didn't fire up the screens until 10:15.
With the 10/20 MAs wide apart, the parabolics firing a SELL and the bearish reversal bar at 10:25, I managed to get short at 10:30 at 49.90.
With the NYAD flatlining by this time, my obvious expectations were for an S2 target.
Noon saw the markets level off a bit on declining volume, and knowing that a lot of market maker games get played out during the lunch hour, I'm typically nervous about whipsaws during that time frame.
When the 10/20 MAs crossed at 12:35 I exited 1/2 the position at 49.70 and put a stop in at 49.80 for the remainder.
Once we got past 13:00 the downtrend resumed and the slide through S2 at 14:05 was strongly bearish.
When the Qs leveled off on the squat bar 14:15 to 14:45 I decided I'd had enough and covered to close at 49.20 at 14:45.

Time in trade - 10:30 - 12:35= 125 minutes; and 10:30 - 14:45= 255 minutes
Trade gain - 49.90-49.70= .20; and 49.90-49.20= .70

Holding onto the second half of the initial entry was clearly the best strategy, but I stuck to my trading plan and have no regrets about the trades. Regular readers know I prefer trades less than 150 minutes in length, so it was a stretch for me to hold the second half of the trade for over 4 hours. . .profitable, but uncomfortable. . .as I really didn't expect the magnitude of selling that unfolded into the afternoon session. One of a trader's prime directives is to expect the unexpected and today certainly showed that truth.


Marc said...

So since we got the "unexpected" as I'm sure many folks got on Friday, what do you make of it?

I was a bit worried on Thurs as I had started a nice short position and watching the Thurs rally made me nervous. Fri. morning I was quite pleased however. I attribute this to luck more than anything (sometimes it just is luck).

I see a bearish picture but the Feds aren't going to let things get too out of hand.

Do you think this is a bear market rally or just a correction off the March low move?


bzbtrader said...

I pretty well sum up my current feelings on Sunday's update. Thanks for checking in.