Today is the first day in approximately 2 months where I received a green light to officially invest in the market. I think most institutional traders received the same signals as I did, we finally got out of the danger zone and should move higher from here in the short term. Although I personally have been long for a number of days and holding positions overnight since Thursday, today I finally have the confidence that the trading world will now embrace the upside.
With this said, volume was extremely weak today which isn’t surprising given that hurricane Irene kept most people out of the city today. Yet, until we see volume on an up day extremely strong, many traders will be skeptical of this push higher and therefore won’t flood the market with their money. I use volume more as confirmation of signals and not to directly trade on, as over the past year volume doesn’t always coincide with the movement of the market. This most likely is due to evolution and prevalence of HFT (high frequency trading) that is moving much of the market these days. Yet, as I mentioned above, many of old school traders follow volume VERY closely and as a result, we won’t have as much fuel for the fire while these old school’ers are waiting for volume confirmation.
I think tomorrow will be an important indicator to show the world whether the bulls are truly back in control or not. If we have a strong or even flat day … I expect this week to be good, but if tomorrow is grossly negative … the bears still have fight left in them and we will see more whip saws … up and down days for a time.
I would imagine with such a strong push over the past two trading days that any bears that are left will be terrified at this point and not willing to get aggressive, so major downside from here would surprise me. With that said, I feel confident telling my brother (and you) to get long in the market at this point for the short term. I expect this week to be a good one.
One reason for my bullishness is that today we passed a number of price points that I felt were critical to ensure the longevity of any upside. I actually did not expect to pass these numbers for a few days to a week. Generally these important price points act as resistance (and support) when the market comes up against them … so I expected us to hit them and drop for a few days. Since the market just ignored the numbers and kept on going, this is a testament to the strength of the current rally. As each of these price points get broken, they usually turn from resistance to support … so what was once a wall that prices bounced off of … is still a wall but in the opposite direction. So, the great news is that we now have some strong support to keep prices above. With that said, the market WILL test these levels again to see how strong the support actually is. The strongest and nearest level is easily found on the IWM at 71.84. We sat there for about 30 minutes today before shooting over that price. So, I expect us to come back to that tomorrow or in the coming days to see how strong it is. If we can hold above that level when the test occurs (which I expect), then we will be able to easily push higher.
The next major resistance level for IWM is the 50 day moving average which is approximately 6.6% higher than today’s close, so I am anticipating a fairly clear sailing until we get to that level … where we will definitely experience turbulence and possibly a breakdown from there.
I think we all made some nice money today … enjoy your Monday evening!