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Bottom Fishing

So much QE3 media hoopla for the FOMC meeting.

The Fed acknowledged the state of the economy today as it should.  However, since when did the Fed kowtow to the stock markets?  July 2010 was so bad with the May 6 Flash Crash to boot yet the Fed only hinted of QE2 in late August.

For the bottom fishers;  this is the first time in several days that a lower low did not result in a crash despite the great dissappointment with the Fed's inaction:


A better trading strategy is to wait for an Inverted Head and Shoulders on the 15min chart.  If Spx rallies way past 1152 without forming an invHnS, then buy a grudgingly reluctant and slow a-b-c pullback. 

Another buy method is to draw a downtrendline and buy a breakout or a pullback to that trendline.  Or use the 30min Holy Grail chart as illustrated on previous Instablog.  Once the 30min Holy Grail setup failed, there should be a rush for the bears to cover their shorts.

For those who are not used to intraday charts;  the usual method is to buy above today's 'green' bar with today's LOD as the stop loss for day traders or some other metrics such as 5% allowable loss for medium-term traders or 10-12% allowable loss for longer term traders. 

SnP500 and Dow Jones produced an inverted 'green' hammer bar tpday which is usually a bullish reversal bar when it happened at the bottom of a prolonged selloff.

I bought back the SSO Swing Trade yesterday at the $40 and $39 range just in case the markets decide to jump the gun before the FOMC meeting.  It proved to be too early since the markets still got lots of lingering doubts.  Did not sell it today but has now a stop loss below today's LOD.

Also bought YM again last night on good news coming from Asia.  Futures have potential truncated v-th of 5th today.  So, if the wavecount is correct then the futures market should rally in vertical fashion from today on the 24-hr 120min charts.


Also bought some NOK since it failed to make a lower low today.  Not a high probability trade since if the major indexes just kept going down NOK will be a prime candidate for short sellers.  Gap resistance is at the $7 area.  Bought some FAS yesterday as a 'darn the torpedoes' buy since it has a 127.2% fibo extension reversal support on the weekly chart at $12.81 level.  XLF (and FAS) is a potential A-B-C pullback from the March 2009 to April 2010 1-2-3-4-5 rally = a Bull Flag or Flat Pattern with a lower low C-wave:


Long-side trend traders will be eyeing leading stocks such as AAPL or MSFT since they made strong rallies before this vertical meltdown happened. 

Airlines are good buys after oil price dropped dramatically.  Those who will be able to buy lots of future oil contracts (for actual delivery or as a hedge against high prices) should be able to make good profits in the next several months or at least reduce it's red ink in the case of AMR.

IEF is now testing the 127.2% fibo reversal resistance level on the weekly chart:



That makes the TBT a potential good buy at this moment in time.

Gold is an hammer bar today (albeit a green bar that reduced it's bearishness).  A bearish sign which usually is a reversal bar when it printed at the top of a prolonged rally.  Those who are eyeing to short gold will be waiting for a possible breakdown tomorrow.  This most recent vertical spike could be a iii-rd wave of the 5th or an over-extending v-th of the 5th.  Watch out for a 3 pushes up on the daily chart.

* see my latest Comment for weekly chart analysis.

Good Luck

Wed 1:05 pm Update:

So far so good for bottom fishers.  These are the more common contrarian methods I use to buy bottoms and/or to add positions:



The 60min Holy Grail Setup is starts working today.  Will it sustain the downtrend or not remains to be seen.