Tuesday, March 9, 2010

S&P Poised To Push Through 1150, So..What's Next? (SPY)

First lets recap todays trading, we saw a strong trend from the opening (red)print forward, there were not any crazy violent up moves after the open, just steady seemingly normal trading. Though this party was cut short in afternoon trading as trend riders who missed the exhaustion signals around 1:45 were stopped out perpetuating a fairly violent sell off which took us negative on the day for *literally only a few minutes.

The two exhaustion signals I picked up on were fairly simple:
1. A second failure to break above 114.94 on the SPY around 1.30pm.
2. A rough intra day double top at 114.94 at 1.30 then again 2:30.. we did reach to115, though was mid candle and did not close above so i ignored this.

Now for the billion dollar question: "What's next after we break 1150.23?"
Judging by the past two weeks price action piercing through S&P resistance .23 looks like a reality. This resistance has been in play since we touched 1150.23 on January 20th. By taking into account the current bullish media spin on the tape and the unrelenting buying from Feb 8th on i do not see any reason why we do not pop through 1150.23 this week. We have about 1 point in the cash(SPY) and 5 handles to go in the futures till we hit resistance, this is not a huge move in a strong tape. If we closed red today without any in, bears would have gained control for a day or so. BUT we did not close red, the bulls painted the close green.

What's Next TRADING IDEA...
In my opinion straddling 1150 is the best way to speculate on the markets next move, this eliminates emotional bias on direction as you are both leaning long and short. Once we make move and you feel confident in direction you think is the right, you the the other side go. As you know already it is not a matter of IF the S&P will go through 1150.23 it is a matter when & what happens after? I base this off two simple scenarios:

1. A post resistance break and hold above 1150.23 could trigger fresh wave of buying(covering) quickly pushing us up to 1200 resistance last seen in Sept of 2008.
2. The market could falsely break out. S&P could close above resistance trade very flat then fall back to 1120 support on lack of follow through volume and or an unforeseen negative catalyst.

The recent moves off the early Feb lows are kind of a zombie like if you ask me, fast up moves followed by buyers "catching the knife". Over the past few weeks this buying pattern has kept the index from closing in the red. A great example of this was yesterday where we saw huge buying come into the SPY around 114.25 and 114.10 (red on the day level) pushing it back up to 114.55(green on the day level) a half hour before the close. The fact that the market is still buying intra day dips no matter what the tape is very bullish, based on previous (strong)markets...I guess the argument here is, were previous markets healthy? and should we model our current and future markets on previously proven strategies or venture into the unknown? I will discuss this in my next post titled: "What does baseball, gravity and program trading have in common?"

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