Thursday, July 16, 2009

Broken Record

Click on Charts to Enlarge

About the only thing I can offer right now is objective indicators to guide decisions on the current trades. Obviously no objective exit signal has come for the current SDS trade. In times like these when I am already positioned, I try to step back and just look at what is objective and decide if I would be a buyer or a seller or neither. Looking at the indicators above, I would definitely strongly consider being a short-term seller of the market at this level. For the first time this week, we are seeing divergences across the board from basically every indicator that I typically track. The chart directly above is the S&P 500 (30 minute chart) with stochastics, RSI, and DMI indictors. RSI and stochastics are overbought and sharply divergent on this afternoon's highs. The ADX line, which gauges trending movement, has peaked and rolled lower for several bars and the +DI line is showing a divergence on the afternoon highs also. The top chart above also shows that the trading model (STEM.MR), as well as intraday TICK and another type of price oscillator are all divergent on today's higher highs as well. These divergences are typically the best/strongest signal, and as the markets are at/in major resistance zones from an indicator perspective I don't see a good reason to not still suspect some measure of pullback very soon.

There are certainly some bullish factors here in the market and for blog trading purposes I am neutral, and will just primarily be looking at future signals in terms of where price and the signal occur relative to the previous signal to determine the best direction to trade.

As a non-objective side note, the last couple days have been the first time since early January that I really have felt a strong (negative) emotional reaction to the market action based on my current trades, etc. That was also the last time that I suggested a blog trade that went relentlessy against the trade for 3 straight days before any meaningful pullback. Being a contrarian by nature I tend to look for, and often trade, reversals earlier than (in hindsight) would be ideal. That was the case in January as well, when all the data and patterns suggested that the market should be topping. Shortly thereafter the market did roll over strongly as I suspected but the blog trade resulted in a loss of about 2% when said and done.

I do try to take mental, and often written, notes on any emotional response like this to help learn my own boiling point. So I am wondering if maybe this is a similar last hurrah as the market appears headed for higher highs only to roll over. So, I still am not exiting the SDS trade because I have no objective reason to.

Anyway, I gotta run, so I am trying to take any learning experience away from the current environment and trying to let the indicators be the judge rather than my feelings. I do expect a loss on this trade, but that is trading. I just am willing at this point to see if it will be a smaller loss than the current paper loss.

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