The news have been going on and on about how the US economy is back to disappointing data, European countries are all in trouble as Italy is now getting thrown around just like Greece, Ireland, Portugal & Spain.
If you think the market action of the past 4-6 weeks has been on the data then please stop reading and save yourself five minutes which you can use to watch Jim Cramer over at CNBC.
On the July 28th post titled “Deal or No Deal -Debt Ceiling Edition- $SPY” I talked about how the market had been setting up and that no “Debt Ceiling” deals would matter. It was obvious a debt “downgrade” was coming but that should have been no reason for the market to really go skydiving as it did. If you were an great A+ student and partied a bit too hard, if your next grade was an A nobody would treat you with less respect especially when they’re getting grades from B+ and lower, (the analogy here being US credit rating vs ratings of many countries in the world).
The market was simply setting up for a technical Head & Shoulders pattern and there was a great chance of it playing out (which it did). Click chart below to enlarge.
The chart above is an updated chart of the previous post. The light yellow represents all the time It took since my last submission to the blog. The Fibonacci retracements drawn on the monthly chart really have helped see that we were about to enter a rangebound market (the area between the Red and Green boxes).
The “crash” from 1300 to 1170′s surprised me in terms of the velocity in which happened. I expected it to trickle down for a few weeks but when the dam broke there simply wasn’t enough incentive to stay short the weeks following as there was a great possibility for a short cover.
The suggestions I made was to buy some SH shares or SPY puts. I did both and got out with enough profits to allow me to break away from the markets for a few weeks. Now I am back and so are many professional traders and when they fire up their charts they will see what I am showing above. They will wait out this rangebound trade until either a break above 1235 or a break and close on Weekly chart below 1120 which could set up for another 80 point slide.
Right now we are mid range and since Daily is too noisy I’ll keep checking the Weekly every few weeks and report the progress.
Hope some of you made money or at least the posts have been helpful to give you a second view from a Freak’s viewpoint.]
Till next time,