Trading High Probability Inc,  Newsletter offers High Probability Trading Strategies and trade  ideas that will help you learn while enabling you to trade for a living.

Yesterday the Dow Jones closed up 0.04% while the S&P500 Closed down -0.02%. All in all it was a day of confusion. Intel sent shock waves through the market Tuesday Night with its surprise earnings and reports of increased demand, then came Wednesday morning with the Retail Report showing the second straight month of declining retail spending. This news will likely keep unemployment high and help weaken the economy. Then came the FOMC minutes yesterday afternoon and inside those minutes it was indicated that the FED revised their growth forecasts down to 3.0=to-3.5 percent (Down From 3.2-to-3.7 percent). It also gave a more cautious mood among the Fed policy makers in light of Europe's debt crisis, a volatile Wall Street, a stalled housing market and high unemployment. The Fed also revised its outlook in that it will be at least 5-to-6 years before we can see a normal economy again. If the Fed is now stating 5-to-6 years you can probabily consider 7--to-8 years is more realistic. The only shimmering light in this storm that is brewing is that companies spent more on computers last month. 

Businesses helped drive the early stages of the recover last year by building up their stocks after slashing them during the recession. The worry now is that if consumer demand will falter and thus businesses will cut back . That could mean fewer orders to U.S. factories and weaker output from manufactures and if this happens expect more layoffs. 

Above we have the chart of the SPY as of the close of the bell yesterday. We are still in the bear camp even though all the talking heads on CNBC are saying that this was just a minor correction over the last three months. We have drawn and shown the Left Shoulder, Head, Right Shoulder and Neck Line. The Right shoulder has pierced the neck line which is a very good sign for a head and shoulder pattern, what we see happening now is a second opportunity to look for an short entry. Currently we are heading into the 200ma as well as the 50ma (which the 50sma is being hit right now) for a longer term short position and have a stop above the June 21st high. Aggressive traders might want to take it short anywhere from the 200ma to the current close from yesterday. While conservative traders might want to short it under yesterday's low . 

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Above you will see the DIA, SPY, QQQQ coming into the dashed lines that represent their respective resistance levels ( the while trend line represents the 200ma, yellow represents 135ma, the cyan represents the 50ma and the purple represents the 20ma ).
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Now what should we expect after today’s price action ?

Even though we came back with vengeance yesterday, it doesn’t mean all is clear. Remember what happened Friday. We warned you Sunday afternoon that we didn’t see any reason that the market was ready to go higher and we know what happened on Monday. Now here we are again. As we right this newsletter the /YM (Dow Futures) were up 60 points. But the MACD over the last few days is telling us that a slight pop up may occur but the risk/reward is not showing any reason to take most of the trades that are presenting themselves to us. The situation with the European credit crisis is far from over, first it was Greece, now Spain could be next and then....

Europe is reporting that government spending will have a major cut and taxes will most likely rise. That will have a direct impact on GDP world wide.

Then you have the Case-Shiller reporting that between February thru March, home prices fell again 0.50%, that makes six straight moths of declines - a sign that the housing market is going in reverse and that the slump isn’t over.  Can anyone say “Double Dip” ?

Tomorrow believe it not might be a difficult day to trade. Most talking heads on CNBC believe its a great time to buy ( they thought that back in 2007, 2008 and gain this Month).   The market has traveled 600 points in one day (300 down and 300 up). Because of the price action very few trades hit our scanners to give us a decent risk/reward ratio to make it worth while.

In summary, we wouldn’t be surprised to see a slight bounce to the upside to fill the gap on the SPX to 1090-to-1116 before resuming its downtrend once again.

Currently we sit on the 50 day (acqua) moving average which could act as support and cause the price to consolidate before continuing down, unless some major news develops to push the market through the 50sma.   If by some chance the market moves up into the highs of yesterday or possibly the midpoint of Tuesday, we will most likely add to our short positions.

This news that occurred during the wee hours of the night (pre-market data) is exactly what the Kicker is all about.  This Kicked off market reaction that caused the Gap from Monday’s close near the high, to open below the yesterday’s days open as shown in the above image.

This type of Kicker is VERY Strong. We sent a Trade Idea Alert out to our Gold Subscribers to Add to any short positions or create a new position on the QQQQ. We will look to add more positions on the short side as long as the price does not go into Monday’s bar.

The Kicker is noticed by the the open of the first day (yesterday) is equal to or less than the prior days (Monday) open and the price is in the opposite direction from the previous days price and overall trend.

Lets take a look back in time to see what has happened after a “Kicker” Signal has formed.

All three Kicker Signals produced significant sell offs. Also notice not one of them came back into the prior days bar for some time.  

The Kicker is a more than a intraday trade, this is one of those trades that a trader will hold onto with a trailing stop.

On April 16th Trading High Probability called out that the Bull Run in this Bear Market is over or close to being over. It was possible to see one more test of a high or a double top. Yesterday’s Kicker Signal was Very Strong and with the Inside 2 from the other day that formed then the Inside day after the Inside 2 followed by the Kicker. We believe that the high last week is going to be the high for this bull run and we are most certain and sorry to say that we will once again resume the bear market trend.
 

Now lets turn our attention to the other days discussion on Greece’s credit problems.

A subscriber, “Cliff”, wrote in that they heard that Jim Cramer say that Greece’s credit problems should not effect the U.S stock market and its totally blown out of proportion. I couldn’t disagree more. Read Wednesday’s blog to understand why we believe this could directly impact the U.S. stock market.

Back in January we recommended shorting the FXE when the stock was trading around $143.  Currently the FXE trades around $132.07.  For a longer term outlook of the FXE we must look at the current  credit problems of Greece and even if they get $60 Billion dollars in bail out help (its probably more like $100billion)  then Spain, Portugal, Iceland, Ireland.... will want the same.... Europe’s problems are just beginning and thus effecting the value of their currency. As their currency falls, the United States dollar will rise and thus cause our exports to be more expensive and will have a direct (negative) impact on our stock market.

For those of you who don’t like to short the FXE, an alternative is to buy the EUO which is the ProShares UltraShort Euro ETF 2x.  Our forecast for the FXE still stands at $125 within the next 1-2 months and $110 target within the next 2-6 months.