Wednesday, November 16, 2011

Have A Cigar

We are looking at a decent gap down this morning, and yet again, there is panic in the air. However we must, as professional market participants, simply sit back, and look at the big picture. As you can see on this daily chart of the $SPY, we are holding true within this bull flag formation, and bumping against both the top and bottom range is not only normal, but it's essential in attributing more credence to this formation.

Moreover, I would like to direct your attention to the big bullish hammer candle on August 3rd. Yes, we continued downward, but this candle does not by any stretch signal an immediate reversal, it simply signals a possible new buying presence that is beginning to take control possibly. And and this case, it signaled that the forced selling was pretty much done, and a significant bullish force has now stepped in on August 3rd.

So those prices provide a key reference point for the future. That level from August 3rd where the bulls stepped in must prove that there are new bulls coming in. Meaning its normal for that area to be a major congestion level, as the bulls who stepped in on August 3rd will indeed take profits here. But we want proof that they are not the only buyers. We want to see that even with the bulls from August 3rd selling because they are now seeing profits, we want to see new bulls taking the reigns at that 124 level.

So even before the bottom of the bull flag is tested, that 124 level should show us whether new buyers step in, or everyone who bought at August 3rd 124 is gone, and there is no one left. Here is the daily chart, followed by the 60 min chart for a closer look:

So watch this level, keep the reference points in mind, and relax. It is more than fine to miss a trade, but fatal to chase a trade. So have a cigar, and wait.

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