Taking a longer term view!

I have been very obsessed with the short term movement of the market.  There is a lot of movement, but also because I think something important is happening or is about to happen.  I was comfortable with the new Momentum Change Buy signal that was generated March 21 and March 23.  I was pleased that we got the kind of move that I had expected.. a strong up move that lasted a couple of weeks.  It was very easy to protect gains with trailing stop price points, as the move was consistent with out any corrections.  Then all of our stops were hit over a 3 day period.  It turns out that we got prices very near the high for the move.

I was looking for a pull back that would give us an opportunity to re-enter the long side, and was surprised when the Momentum Change indicators generated a new Sell signal.  I had not expected that, as some of my timing tools had been looking for a minor top in late April, and a significant top in late May to mid June.  So I was reluctant to enter new short positions that would have been consistent with a new Momentum Change Sell signal.  The whole corrective move from the top of the rally felt entirely proper, and I was very concerned with a whipsaw type trade if I entered the short side.

So I did not re-enter the market.  I became the kind of technician that I used to be, looking for patterns that would show me that the correction was likely over and anticipating a new long side trade.  But I was really conflicted, due to the Momentum Change Sell signal generated 4/12, and if I was gong to get long, I wanted to be very sure I could see an end to the correction.  I thought we were close to a turn when the 15 minute chart opened very weak yesterday, hitting the down trend support line, and then reversed.  I was right that it marked the end of the correction.. but I wanted to see some kind of a test.  Unfortunately, the test did not develop and I missed the opportunity.

So I spent the afternoon and evening, and then again this morning, looking at everything and then taking longer term looks at the indexes (where most of my attention is focused.)  I am glad that I did.. as I began to see some things that I did not really like..  Take a look at the 4 year charts of the SPY and the Transports.  If anyone can make a positive case from these charts, please send me a note and show my your thoughts.  After all, TA is an art form, not a science, and I am always happy to be shown something that I have missed.

Click to Enlarge

Click to Enlarge

 I created the Momentum Change Indicators in their present form in the past 2 years, and they have proven to be very successful. The Sell signals generated in January and then confirmed in February proved to be early, but I did not trade that short side until March 3, with very good results.  I was very comfortable getting long on March 22.  My point is the strategy works.  But like everything else in this trading business, every signal must be examined for context.  And right now I do not like the short side.  After looking for the longer term charts, I do not really like the long side.

For me going forward, I want to see what the Momentum Change indicators are saying about the SPY when it gets back to the 134 level, or when it falls to what appears to be major support around 124-125.  ( I spend most of my time on the SPY. Of course, I also track Momentum in the other major indexes)  At the 134 level, if we get a break out, it will be supported by a break of the neck line of a well defined inverted head and shoulders pattern, as well as breaking above major long term resistance.

If it breaks lower, through the 124, 125 level, it will be telling us that we have seen the top of the March 09 rally, after a double top, or possibly a triple top, depending on the interim market action.  I will also be watching a decline that approaches the long term trend support line, currently at 129-130.  If we break that support, I think the odds will be great that it continues lower, through the 124-125 support.

Having said all that, I think I will sit on my hands and wait for the next high value, low risk trade, and see what develops.  I will continue to post daily as this exciting market continues to develop.

Currently, the Momentum Change indicators have a Sell signal generated 4/12.

Best To Your Trading!

Bill