Saturday, August 20, 2011

Longing for a Bear Market Relief Rally

So we're in the midst of a bear market and I'm longing for a robust bear market relief rally, the likes of which we had on October 28, 2008 as depicted on the 5 minute NQ emini futures chart below.

Looking at the daily closes on Friday, I noticed that the QQQ is very close to a retest of the August 9th post FOMC lows, whereas the SPY and DIA have a ways to go. Compare the charts of the SPY and QQQ below.

History doesn't repeat itself, but....if we compare the October 2008 charts of the SPY and QQQ and you'll see what I'm getting at. The SPY held the initial reaction low as support throughout the month of October 2008 and well into November, but the QQQ breached the previous low early on two separate occasions, each time resulting in a reversal and bounce. The second breach preceded that huge parabolic day trade depicted in the upper half of this post.

So be ready if a similar scenario develops next week. I can envision a breach of support in QQQ, but if the SPY and DIA don't confirm, we should get the highly anticipated relief rally.


Rick said...

Half of me expects a short term double bottom here but the other half thinks that we're looking at an h pattern. Somebody (PPT?) seems to want to hold this level though.

Jamie said...

Hey Rick,

Agree, we could trade around these levels for weeks. Right now, the bears have the upper hand. They have opportunity and motive, but if we test key levels and they fumble, the bulls will step in. If the bulls, get a chance and can't manage a higher high, I think we go a little lower.

Ashish said...

Hi Jamie,

Good to see u blog more actively. Hope u can find more time to share u'r views about the market and recent trades.

I shorted TCK today (Monday) on break of 38.8, but had trouble finding a reasonable stop. Wondering how u would have played the stock, if at all.


Jamie said...

Hi Ash,

I like the TCK short. Assuming you used a 15 minute timeframe, I would have placed the stop at 39.25.

I am mostly trading index futures and gold names at the moment. With only a few names on my WL, I'm finding it easier to focus and plan my trades in this volatile market.

M said...


What are your views on gold action today?

Zoomie said...

Hi Jamie. Long time no "see". I used to post on Move the Markets. I switched over to currencies.....sorta same ball game as index futures. Do you have any charts you share for futures?

Jamie said...

Hi M,

I included a chart of GLD in my new post. We have a lot of support below today's range, and I don't expect GLD to tank like SLV did a few months back. I will be looking to buy support in GLD if the SPY loses steam and roles back down.

Jamie said...

Hi Zoomie,

Long time. Great to hear that you're still trading.

I'm not inclined to post index futures charts. Too messy and difficult to explain the thought process behind the trades.

I key off of price, RSI and momentum for counter-trend moves. Support, resistance, Fibonacci, pivots and reversion bands help with entries and exits.

Trying to focus on the bigger moves as opposed to just scalping for 2-3 points.

Zoomie said...

Well that is interesting you made the switch. I find trading forex/ futures a lot more challenging. Makes me wonder why I switched at times ;)

Jamie said...

The reason I switched was I was tired of spending hours scanning for stocks. I now focus on a handful of favorite stocks and the futures. Makes the homework part of trading much less cumbersome and I'm less likely to miss a planned move.

Futures is challenging indeed, but over time it is becoming a little more predictable.