In follow up to yesterday's post, I will not be making any new trade recommendations today. The futures are way up this morning (currently over 2%) due to anticipation (and maybe assimilation) of the Fed's new bank rescue plan.
It is entirely possible that selling will come in once the market opens in typical "sell the news" type fashion, so I certainly cannot suggest to buy at the open today. Also, buying well off Friday's lows will adversely affect the potential risk and reward for a bullish trade that could have been justified by Friday's oversold short-term model readings.
With that being said, if I had to pick a direction for the market this week it would be up, and I would not be surprised to see the rally hold up today. There is still an unfilled gap at about 82.75 on SPY. I am not counting on that gap being filled, but I think that the odds are as good or better that it will fill as that it won't.
Also, the extreme price action and optimism created by further gains would be theoretically typical for a large degree first leg up (wave "a") in a contracting horizontal triangle. It will suck many people into the market as the excitement grows each day, only to disappoint by failure to make any new highs once that leg is complete.
For day traders, I think there could be a good bullish trade set-up if the market does not move more than 1 to 1.5% below the opening price in the first hour of trading. Look for "soft" sideways/up and down action as opposed to vertical type retracement for this set-up to be good.
The two potential set-ups mentioned in yesterday's post are still what I see as the next trading opportunities for the blog. I would prefer to see more upside this week, but either set-up should make for a good trade.
Pete
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