Wednesday, November 30, 2011

Latest trend: overnight gaps

If you wanted to be part of this weeks rally, you had a few options:
- you bought Friday's close,
- you went long on Monday, but with a wide stop,
- you traded futures and were glued to your screen 24/7,
- edit: you bought today's open and held on to it until the close.

We had a huge gap up on Monday morning and an even bigger one today. Basically, you don't want to chase gaps like these, although today's pullback in the first 10 minutes of the session wasn't the worst moment for a daytrade. So we had a strong opening, followed by a rangebound pullback for most of the day. Just before we entered the last hour of the session, another rally towards the high of the day took place. And once that high got taken out, price just shot higher!

Indices ended the day +4% (except Nasdaq, up 3.8%) and small caps even up 6%. A very strong close, good volume today, but the last 2 weeks create a big, fast V-shape. This needs time to work out. Or we go back lower, or a long consolidation period will start soon. Not sure if we have much upside left, although I wouldn't rule out an attack at the Octobre-highs.

Today's news that got everyone buying in pre-market, was a big intervention from the worlds central banks. Economic data coming in strong was a plus: ADP employment change was huge, Chicago PMI was very good and pending home sales beat expectations by a mile (see table below). But will this be enough to get a sustainable rally going?

5m-chart SPY in the trade-section.

Daily charts DIA, QQQ and SMH:

Gold and silver were moving more or less in sync with stocks. But the big winner today was copper, up almost 7% intraday. Oil was up only little, still struggling with that 100-level it seems.
The euro had a good 1% move on today's news.

I went short on the break of the triangle (see chart below), but my stop was about 2 cents too tight. In hindsight, it was probably wiser to trade a bearish candle near the top of the range.
Short SPY 123.96, out 124.08 (half a position). These trades hurt, even with such small positions (hence a small loss). Being right on the direction (my first target was met), but still out for a loss.

In hindsight, I shouldn't have traded at all. I didn't take the small opening dip, which would have been a quick easy gain. I didn't have the guts to short 124.40 after 90 minutes of trading (weakness showing, but against the trend) which would've worked just fine. Instead I took the break of the triangle-pattern which would only have made a measly profit. The last couple of days, support/resistance-trades seem to work better, compared to those breakout/break-of-patterns trades. Let's try to keep that in mind the next few days...

Now wishing I hadn't sold my small TNA-position on Monday. That 12%-gain would now be a +30%. Oh well, I didn't wan't to risk a huge gap against my position.

5m-chart SPY:

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