Dec

Investing Systems Research Lab Blog for Week of December 26th, 2011

First of all I want to wish you and your family a Merry Christmas and a Happy Holiday Season.

As the year winds down it’s always a good idea to review and reflect on prior trades to see what we can learn from both the winners and the losers.

Since I posted the last open Trade Plan of the year here last week, I thought it would be nice to see how it played out.

I like using the 60-minute chart because it gives a good zoomed-in view.

You can see where I marked the Entry, initial stop and the three targets as well as the green circles that mark the spots behind the strategy on this trade. If you didn’t read last weeks post you can scroll down and review the thinking behind the trade. This is a case where everything lined up just right on multiple timeframes (and of course the market cooperated last week as well).

Speaking of which, we have some positive developments in the overall market.

The S&P-500 rallied up to close above the 200-day moving average, which was a big feat considering last week we were right in the middle of no-man’s land, smack in the center of the triangle we had been watching.

Here’s a look at the daily chart.

As you can see, Friday the market was able to peek it’s head above both the 200-day moving average and the downward-sloping trendline that we have been discussing here for several weeks.

This does not necessarily mean that we are “off to the races” just yet. As I have been saying, the market needs to clear the 200-day and start using it for support. You can see back in October we broke above it briefly a couple times and then got turned back. Also on December 5th, 6th, and 7th, the market poked above it all three days then got turned back as well.

So it’s important here that we actually “surmount” the 200-day and get a weekly close above it.

Then, the “zone” where I have the green arrow might come into play. Also note that the trendline that forms the top of the inner-triangle should act as support on any throw-back. It’s very typical for a breakout to retest the trendline from above.

Before we get too optimistic on the overall market we have to consider that there is still a band of significant overhead resistance just above which I have marked on the 60-minute chart below.

With the market closed Monday the 26th, there are only 4 trading days left in the year and it will be interesting to see if we can push up further and make it into that overhead resistance.

We also want to keep in mind that there are a lot of extraneous forces at work this time of year like strong seasonals and year-end positioning. So while it will be interesting to see if the momentum can continue into this week, I am still approaching everything with a bit of skepticism. (don’t I always?)

I mentioned a few week ago that for me to get “constructive” on the overall market I would have to see three things.

A trendline break out of the upper part of the triangle, a move above the 200-day and a move above the recent highs. Two of these three conditions literally happened in the last couple hours of Friday’s session, but just by “barely”.

Next week will be the important test.

I am going to say that the area between 1250 and 1300 on the S&P is the most important zone we have seen in quite some time.

I wouldn’t be surprised if that is the area a lot of traders are looking to get short and it presents a huge wall of resistance.

If and when we see the market break above the top of that green shaded area I drew above on the chart, then it will be “game on” and a significant move up could be underway.

If you go back up to the daily chart, you see I have drawn another downward-sloping trendline. This is a very important major trendline as it’s drawn from the all-time high way back in October, 2007 down across the high of May of this year.

That trendline will be the ultimate target of the current move, if it proves to be sustainable.

Next week we will look at that on the weekly chart.

For now, I am going to get back to enjoying my Holiday weekend and spending time with family, obviously the most important thing to do this weekend.

Again, I hope all of you have a nice, relaxing Holiday weekend and spend it enjoying the things in life that money can’t buy.

Since the market is closed Monday, we will see you Wednesday morning at the open. I hope everyone can join us, especially the new members.

We sincerely appreciate your support and look forward to a great 2012. As we demonstrated this year, no matter what the overall market does, we can make money trading stocks short-term.

That my friends, is the key – and why we are here…

Cheers!

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One Response to “Investing Systems Research Lab Blog for Week of December 26th, 2011”

Investing Systems Research Lab Blog for Week of January 9th, 2012 on January 7th, 2012 8:13 pm

[...] Investing Systems Research Lab Blog for Week of December 26th, 2011 [...]

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