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Option Millionaires was started in February 2008 to provide traders with information about option trading. Led by three career option traders, whose pseudonyms are JimmyBob, UraniumPintoBeans, and Vantillian, they started one of the most popular option trading communities on the web. Now, Option... More
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  • Stalling Momentum & A Doji Star On The S & P 500 0 comments
    Jul 19, 2012 10:46 PM | about stocks: SPY, DIA

    By Christopher Diodato

    On your mark, get set, go!

    Run as fast as you can as far as you can. You likely start off at a sprint, slowing down to a jog, and then a walk.

    Eventually, at a crawl by now, you realize that you're exhausted and need to go back.

    This is exactly what the market is showing signs of, exhaustion.

    (click to enlarge)

    As you see from the bottom section of the screenshot (it's the momentum), with each advance, the overall momentum of the thrust is becoming weaker. If you extend the green line on the right side out to the edge of the chart, one might even say that the momentum is in a large triangle formation.

    So when will momentum stall out completely? We believe it already has. Today was the key pivot day that we have been watching closely since mid June. Not too exciting of a day, but important nevertheless.

    A Doji Star Appears

    The market drifted in a range of about 0.75% today. It gapped up with some strength, but could not finish the day above the open. This gives us a pattern called a doji star. It represents a sudden halt of momentum. I would not give much credence to this pattern if it did not fall right below the 78.6% resistance level at about 1380 on the S & P 500. Of course, this pattern won't be validated bearish until we close beneath today's low. Still, something to keep an eye on.

    (click to enlarge)

    If today was the top, and knowing from experience how these types of setups act, tomorrow should be relatively boring, and then the real turmoil will start next week.

    Happy trading!

    Disclosure: I am short IWM, SPY.

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