Monday Watch and Wedges

Hello, Bulls. Hope you’re having a great weekend. Time to get ready for Monday.

Market summary in 10 words or less:

Euro leads. Fear lingers. Volume dries up. More wedges. 

The major newsmaker last week was China’s export report. The huge increase in exports spurred investor confidence that the global markets are still strengthening and life will be good. Even with this positive report many are still cautious that the export numbers will soon be hit as European markets struggle. Fear lingers.

The other newsmaker came out on Friday – retail sales. Most feel that the numbers were generally sluggish and not enough to boost confidence or, more importantly, remove the double dip recession virus from infecting more and more minds. Overall, the SPX was able to squeeze out two up days in a row (more on this below) – a rare occurance lately.

Now what? As a technical trader, I find that news and macro views of the economy are useful, but not crucial.   The main reason has to do with time frame. Most of my trades last an hour or up to a day or two. I rarely trade long-term trends with one trade and therefore am less interested in where the market is going in the next month, or year. However, I do find news helpful – especially economic calendars.   The big picture helps me determine the amount of risk I’m willing to take and likely levels of volatility. So, if you’re a short-term trader, don’t overload yourself with news and the struggles to makes sense of it all. I would recommend following news like a PowerPoint presentation. Go through a few top market news websites/blogs and read the headline of every article on the front page. From there, notice the similarities and overall themes.. Then, dive into a few articles that interest you or may have an impact on trading tomorrow. Do the same thing every day.. rinse and repeat.   I usually spend about 1 hour in this process. I spend significantly more time reading for pure entertainment and education – gotta stretch the brain.

Now that I’ve scanned the internet for news and market commentary, how does it shape my trading approach headed into Monday?

Based purely on the news – my strategy has not changed. I’m going to continue my cautious approach and stay heavily in cash and participate in few swing trades.   The market really doesn’t know where to go right here, so I’ll stick to scalping until we run or crash. 

OK – so I’m done with news, now it’s time to look at the technicals…which in my opinion, tells the news. A choppy chart = market indecision, etc.

Check out my zone chart… we’re now in yellow, so this tells me to remain over 80% cash over night and to spend most of my efforts scalping. Also, check out the volume on Friday.. ugggllyyy. What does this tell us? Well, either there are fewer sellers left OR there are no buyers.. or both (neutral). If you’re looking for bullish signs in the market, this isn’t it.. we’ll need volume to push us north. I’m still looking at SMA200 on the SPX. If we fail to get through in the next few days, it could get ugly as traders turn and take short positions. Technically positive – MACD has maintained positive momentum and RSI14 is approaching 50. Outside of volume the SPX is leaning bullish.

Are there other signs that we may be about to move up? Yes! The falling wedge. If you’re not familiar with this pattern, it is a consolidation pattern on the daily chart that often marks the end of a market pull-back. Right now, the equities market is packed full of falling wedges. From a technical standpoint, I’m going heavy long if I see 3 things this week – SPX above SMA200, volume increasing, and stocks starting to move out of their falling wedges. Heavy long doesn’t mean long-term. Just means I’ll throw more money at my short-term bull trades.

PMI 

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