Thursday, September 29, 2011

The Doldrums Before the Storm

There hasn't been much to comment on this week. This large bearish flag/compound head and shoulders pattern we've been trading in for the past 6 weeks in the S&P is just taking its own time as is its wont.

The prognosis remains decidedly bearish as the 50 and 200 day EMAs are both curved downward and the monthly MACD death cross is imminent. 1100 remains the important number on the S&P.

While we await the Big Picture unfolding, there are short-term trading opportunities. When trapped in trading ranges, oftentimes trading off candlesticks will be fruitful. During this flag, candles with big wicks have proven to be good for two-to-three day reversals. I've circled some of the reversal candles on the chart below.

All charts courtesy of StockCharts.

Daily chart:

Big Picture:


  1. I've been getting chopped up recently. AAPL had been so strong but looks like it is falling apart now. Everytime we break to the top of the range, I think we are going to break through and everytime we go to the bottom of the range, I think we are going to breakdown. So, I haven't traded this range very well.

  2. It can be very difficult when trading in ranges/flags like the SPX. I vastly prefer buying normalcy and selling mania...i.e., when the stock returns to its weekly EMA. I've never been a big fan of chasing breakouts.

    AAPL has been a strong trending stock, but the weekly chart is showing MACD Histogram divergence and a toppy-looking candle pattern the past three bars. The daily trendline was also broken on Friday. I think the general market is poised for a breakdown starting this month, so I suspect AAPL's trend is near an end.

  3. looks like we got our breakdown today, i went short small caps and europe on the range break. Me being dumb money that means we will be up 5 pct this week!