Monday, March 07, 2011

Technical Picture - Market in Correction

According to IBD, tomorrow's Big Picture column will change from Market Under Pressure to Market in Correction based on yet another distribution day for the Nasdaq as depicted above. A distribution day occurs when institutional selling weighs on market ie. volume is higher than the previous session and we close significantly lower. The Nasdaq shed 39 pts. or 1.4% on faster trade when the semis, as a whole, were downgraded. CIEN earnings also weighed.

Using the SPY chart below, we see the NYSE TICK indicator versus SPY price. We note that the opening gap and go scenario was not confirmed by the TICK readings. Prices were higher than Friday's close, and yet the TICK stayed in the neutral zone and notched lower and lower lows.

The NYSE TICK measures the number of stocks trading at the offer minus the number trading at the bids. When buyers hit the offer, stocks rise, and when sellers hit the bid, stocks decline. So, a declining TICK reading cannot sustain higher market prices, hence a good shorting opp presented itself very early in the trading session.

Yesterday, I posted the IDCC chart above (bear flag) on and this morning I posted the chart below, as price reached the prelim. target.

The chart below is my trade. The trade triggered at $46.00 and since I didn't have a NRB, I gave it a $0.50 stop.


DW said...

Hi Jamie,

I trade small Base BO in 10min chart recently but the winning% can not reach 50%. If I only trade the base formed at the margin of Opening Range or previous day's Range, do you think the performance of BO can be improved?

Thanks a lot for any advice.


Jamie said...

Hi DW,

I'm not sure that I fully understand how you are currently executing these trades. If you only trade bases that form at the ORH/L or previous day's range, you will likely have more trades trigger, but not necessarily a higher % of winners.

The markets are extremely volatile at this time and even the best traders are trading less in order to preserve capital.

The best advice I can offer is to look for stocks that make strong impulse moves, wait for price/volume to contract and for price to form a tight handle, then enter to catch the next impulse move. This implies that your entry is well timed and that the trade starts moving in your favor right away.

DW said...

Hi Jamie,

Thank you very much for your great suggestion. I will trade less and more selective.:)