RHT – Chart Of the Day

Jan. 05, 2012 8:23 PM ETRHT, SPY, DIA
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Momentum

Contributor Since 2008

I’m a swing trader of momentum stocks with a holding period of anywhere from a few hours to a few months. I run a number of screens to locate the strongest/weakest stocks out there, using technical analysis to determine my entries and exits. Trying to calculate the intrinsic value of stocks in my opinion is out of date and there is wisdom in crowds.I've developed a market timing system that determines when it's best to be long, short or on the sidelines, using a number of proprietary indicators based on many time frames. I believe that to have longevity in this field one must find ways to calm the mind and trade from a detached point of view. Emotionless trading will allow you to respond to what's going on right now in the markets, rather than reacting to daily fluctuations.View my personal blog http://zentrader.ca/

The following is a guest post from the team behind All About Trends, who teach traders how to achieve consistent gains through stock selection and daily trading education. You can learn more about what they do and their generous half-off discount to zentrader readers here.

“What to watch for” and ‘What to watch out for” concepts explained.

Folks, what we have here is another thing of beauty much like the GLD example from a few days ago.

Lot going on in this chart. First off, Off the August lows you can clearly see the Pullbacks Off Highs (POH) long-side triggers (the only pattern you ever need to know in up-trending markets and issues by the way) when this issue sold off to the 50 day average shown in the red numbers 2 and 4. Classic buy points for us.

Secondly, notice the classic Elliott Wave five waves up off the August lows. Notice how it stalled out? Yep a Double Top on negative RS divergence. If you were long that was your “What to watch OUT for” If you were looking to sell short? It was the “What to watch for”.

From the retest of the highs (red 5) the moment it started breaking back to the downside that was resistance players queue to sell it short of course this was all to the dismay of the breakouts into new highs buyers. Again folks this isn’t the 90′s and bull market strategies don’t work in sloppy mature markets. So if you are wondering why you are getting thrown around when you buy breakouts into new highs – now you know.

From the breakdown (Blue box 1st thrust down) this issue is now in a classic All About Trends snap-back rally mode. How far it goes from here is another story but as you can see we’ve got a resistance zone just ahead and the 50 day average just ahead of that. After today this issue gets added to the short side watch list and we’ll be notifying subscribers to an optimal short entry.

In Summary:

A big change in trend comes WHEN we break to the downside of the big picture uptrend off the Oct lows. That is a big trade and its on the short side. The other big trade is at MAJOR resistance (assuming we get there).

Big picture we are going to be in for some rough sledding at some point this year but first we need to polish off this current run we are in. The big question is will the SPX make it to 1292 resistance? Will it head fake and bust through it and hit the MAJOR downtrend line at 1320?

I would not rule out a break over 1292 to stir up the emotional masses (in which case the masses will say See! an inverse head and shoulders bottom – so lets buy buy buy) BUT first we need to digest this run from yesterday.

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