TOday was one of those days, you know where the futures are up wildly into the open gapping the market. MOst days like today are ripe for a trade called "fade the Gap".. ever gap is closed, especially when a major event happens like today causing a sell off of 150+ points pushing all the way to red close. Lets take a look at a few charts to see if we can formulate the trading direction for next week. I must admit i was caught off guard by the rally we had mid week, maybe i am just a contrarian.

The trades which come from markets like tomorrow's are ones which are the most risky. Primarily because of mixed sentiment, both bulls and bears are huffing and puffing. Unsure trades make for jumpy trading, over trading and most of all double down. One's best bet is to guage opening sentiment is too watch the trend develop after the first 10 minutes of trading. Every stock, especially options trade wildly at the open, eventually settling into the true market, it is easy to get wacked by a bid being walked down after a day where shorts are squeezed because overnight sentiment changed.
The GDP number which is expected to show a shrinkage of around 5%. SOme people think this is not going to tank the markets because of an article in which Rep. Barney Frank stated "We're hoping there won't be any government funds in banks a year from now," Link here: http://bit.ly/HhlAe Another factor which will weigh on sentiment is the annual meeting over at Bank of America... I think we might be seeing a call for Kenny boys head. Lets hope for the worst, HA. no but i am not a perma bear but if we do rally on some fluff news this week the harder we will fall.

LOoks to me like the market's are still waiting for something to trigger a mass sentiment change. THere has been lots of indecision exhibited in the past week. I'm looking for a pullback below the first support around 7800 this week. Not sure what day, today's trading will tell the story. We will probably get a nice gapper at the open followed by a bounce then close @ lows. Of course all this is hinged on the days news and how CNBC and the media spin the story. Maybe the quants will take over and not let retail and greed chasers keep buying up the unhealthy market.

The original annotations of this chart were from sunday april 19th, http://adjix.com/quy2. i had highlighted a target area where i felt the vix could realistically spike if we got some strong downward action before the open on tuesday. The lower indicators on the VIX are oversold indicating we could move about the current solid resistance @ 40. The pullback and or pivot i was looking for sunday http://adjix.com/kx5c confirmed today on average volume. Tomorrow will confirm the the trend is indeed back in the downward channel indicated here http://adjix.com/s99r . I am still cautious as to not being adequately hedged here, vix again becoming elevated means wild swings are upon us.

DOW pivot highlighted... moving towards 7800 by close.

Will this week bring a downward trading direction? I do not know the answer to this but earnings will tell the story.
A few thoughts on lower indicators: When in over extended trading environments such as the one we are in now, one must realize most lower indicators signals should be taken with a grain of salt because of their wound out level behavior. They normally will indicate overbought and oversold conditions, in the above conditions they really mean nothing, so if you are using a rule based trading system which derives buy and sell signals from say, stochastics, you would have missed out on this whole rally because because the indicators have been indicating overbought conditions for 5 weeks. I am willing to bet most people have a sell signal set for anything above 80 or so on the slow stoch, if that is the case you sold a long time ago.

Twitter and Stocktwits are going places, they are growing on their own.... no need to bring the masses into an untested and untried product.. It's growing, come back in a year.
Ooh and Oprah is tweeting her first tweet live on her show today... I already blocked @Oprah... -
check this link for more Oprah "first tweet" updates. http://adjix.com/2var

I was kicking around thoughts in my mind today stumbling across the topic of "models". Models as in trading models, which ones work and which ones have been "outsmarted" over time. Everyone who has been in trading understands over time trading "systems" eventually terminate, because the market begins to react differently given the same set variables. The reason i mention Fast Money, is there has never been a show on television which deals directly with advanced market strategies, such as options. The protection and leverage options has afforded people is something i feel is learned and earned, because they are usually coupled with a winning market strategy. NOw that every Joe bob who watches Fast Money thinks they can play the stock/options active trader game are either loosing big, or in theory causing strategies such as, edge/hedge, technicals such as support and resistance etc. to be become less and less profitable. This could be a ridiculous hypothesis, but i find these thoughts more often then not jumping into my mind when i see certain technical conditions go unnoticed. Primarily regarding our situation right now, a market which seems overbought but the oscillators simply mean nothing because they are so wound up. You got Fast Money contradicting itself every other day, and the talking heads on CNBC cheerleading higher higher as of late, lower and lower in the ladder part of the year. It seems everyone is trying is slanging technical trading strategies on infomercials and on the Internet. Bottom line is, when you have person's all over the media telling you how easy it is to make money by following "OUR" strategy, its time to look for a new strategy. There is always two sides to a trade, if everyone is playing one side, everyone will lose/ BUT the free market works problems out, social Darwinism Time will tell.

Google earnings commentary: http://adjix.com/47t5
Chicago Cub's schedule: http://adjix.com/2uw6

The weaker than expected Retail numbers, seen here http://adjix.com/hu54 sunk the media's sentiment of the market today. The media has been cheerleading all the way up, im ready for them to eat their words.
Referring to the chart i annotated yesterday , http://adjix.com/j75t you can see the candle we formed looks a bit bullish, with the real body being very small and near the top of the wick. This is because, in layman's terms, a tug of war between bulls and bears, with the bulls clamoring to push the market above resistance. The bears the exact inverse. It looks like today we observed a pivot back into the downward trending channel. Today's movement coupled with tomorrows close will confirm the new trend. TAKE all this into account when playing Google's earnings AH on Thursday. GOogle could smash and take the market with it, but it might be enough to move us above the averages again.

The chart on the left show a few intermediate term break outs and break downs. Looking at charts in this frame, i believe helps those untrained better identify different trading patterns and eventual resulting termination by way of break out. THat being said, where do you think we are going to trade from today? are we going to mind the upper resistance top of channel and pivot? or shall we break out per earnings blow out this week? Either way its your gonna win, just straddle the market here. I personally want to pivot, maybe we break out a bit then pull back into the channel?

This past week has been quite the euphoric ride straight up on seemingly nothing but hot air spouted out of the mouths of the CNBC chatter heads. You gotta give it to them, CNBC that is, they have orchestrated a pretty good pump, their sentiment has done a complete 180 in the past month. It went from "How low can we go?" to "How high can we go?" "Is it too late to get in?" blah blah blah.. Anyway, all the BS does not even matter, what does matter is earnings. There are some big names reporting this week, the primary focus is Goldman Sachs and Google. Goldman is rumored http://adjix.com/kr3y, to smash earnings, SECOND highest profit in the company's history. My opinion on trading this rumor is to play sentiment, if it looks like its gonna smash buy some calls, maybe 150 Mays. Denninger seems to be on the right track about Goldman and its hedging of the CDS's over at AIG.

Based on the chart to the left one can hypothesize where we might go in any number of ways. For me, i am at a loss here, i see we have broken through out 100 day SMA, the purple line, but we did so on lighter than normal volume, this could indicate program buying. or it could indicate a possible quick squeeze for a sharp pullback on Monday to correct the technicals.

I am still bearish but Monday is going to be a key day for swing traders and the like, stay focused and remove emotion from this trade.

 I know a lot of people are full of excitement, the market is rising, it will keep going! If the market pivots on some shitty news, flip the trade around. Since we are not fortune tellers we cannot see into the future, lets just shoot for a 51% success rate at calling the direction.

Article on Program trading over @ Goldman Sachs http://tinyurl.com/cmgofx
Article on Chinese drywall used in the housing boom causing problems http://bit.ly/4ebOCH

Yes that is Twade, my term for a trade spotted from StockTwits. For anyone out there who does trades actively, you should take a look at twitter. I look at twitter as one all encompassing squawk box... a lot of what is "tweeted" is actionable...

http://tinyurl.com/dauqbf USA Today article on Twitters explosive growth!
http://mashable.com/2008/09/16/twitter-traffic-growth/ Interesting article
http://venturebeat.com/2008/12/17/stocktwits-nails-stockpicking-on-twitter-raises-round/

StockTwits is an interesting social program which utilizes the real time nature of twitter to make relevant tweets on current stock happenings. Day trader's and the like seem to be the ones who first picked up on this, now the masses are jumping in for the ride.

Others seem to be followings.. http://venturebeat.com/2008/12/17/stocktwits-nails-stockpicking-on-twitter-raises-round/

Today was quite a choppy day, boring movements on low volume. These are they days when you sit around and play bouncy ball around the office waiting for trades! Technically speaking on most index charts we have broken, or are just about to break trend.(bearish) The violent rally has been trending nicely up until yesterday and today when the volume dried up. Could the almost 50% drop in overall market volume be foretelling a possibly reversal? One thing i do know and you can see for yourself in the chart too the left is the oscillators needs to unwind on daily candles. For this to happen we must drop to the 74.86 Fibonacci retrace level (7543 on the dow). If we hold this level of support we might bounce, but from the looks of things the chicken is not out of the frying pan. AIG, GM and even C still have a lot of things they need to sort out, maybe we have not bottomed? whatever i don't care if we bottom, it all makes for great trading in a high volatility environment.

GReat resource for brushing up on your break out pattern identification.

http://www.chartpatterns.com/cp_prs_shameless_promotion.htm


make money from break outs...

It looks like i am going to update this blog a bit more now that i have a bit more time on my hands... anyway if you are on twitter... follow me on there.. /sellputs..

Anyway i think the hanging man we have here on the SP500 and the DOW will break down and we will see a broader sell off through the week. I am not sure what to make of the UP tick rule.. it is possible it has been priced into the market already... i do not think we will rally much higher on the news.. i am looking to sell the news ..

IF we break out too the upside we are in for continuation rally... if we fail we fall and hit supports 1 and 2 over the next month or so.. IMO