Homework for Wednesday 2008.11.26

25. November 2008
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ESZ8 - I consider Tuesday to be a "doji" day; a day of indecision, a day where we went way up, went way down, and, in the end, didn't make much progress. We did close slightly up, but the overnight action seems to have unwound that (we are currently trading at Monday's close, see small red bar forming on chart below).  Interestingly, Tuesday's high was 874, low was 833.50... the average of the two?  853.75.  The close?  853.25.  Yeah, doji.

Wednesday is filled with approximately seven reports (financial calendar) that just can't be good in this market.  That, combined with the poor reports from Tuesday and the "short 2 days up in a bear market" rule (visit "Live with Oscar"), should give Wednesday the death punch.  As Tuesday closed, I was thinking to myself, we are probably at Wednesday's highs, right here (852.50).

We are currently right below the pitchfork's 0.618 level (light gray line) and surely to head down tomorrow.   

  • Sell 855-856 area - Due to the weak market, we may not get much higher before falling.  If we manage to get higher, 865 and 873 are still valid sell levels. 
    • Target 800 (the trendline from the swing lows, dark green line), then 785 (bottom of pitchfork, blue line).  I think we will re-enter the parallel channel and continue our march south (if not tomorrow, then Friday).
    • Resistance at 835 and 825 areas (resistance areas can always been seen as target areas!)

 

 
 
15:43 CST Summary - WOW, what a day!  Boy, was I backwards!  We hit the 855 level (in the middle of the night) and fell 20 points to our 835 level, then proceeded to skyrocket to 888!  What?!  Here are some news headlines from today, "Four new reports reveal battered economy", "New home sales fall to slowest pace since 1991", etc.  Yup, as expected.  What does the market do?  Rally above the extreme-highs-that-I-didn't-think-were-worth-mentioning levels.  The quick response is "Well, it's the days leading up to Thanksgiving, so the market is un-predictable and does the opposite of logic."  Perhaps.  However, perhaps the market told us how this was going to play out during the rally of 10/28 to 11/5 (weeks ago!) and we just needed to listen (including me).  See "History Repeating itself, Part II".
 
As always, money management is the holy grail.  Our three sweet spots were 855, 865, and 873.  Even though we didn't have the fall we were expecting, we still could've made good money.  855 broke +20 points, 865 broke +5 points, and 873 broke +10 points.  A very conservative approach would've been to take +5 points on the three sweet spots and get +15 points on the day.  That's a good day.  See "How to Play Your Sweet Spots".
 

Homework

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