Some thoughts we had leading up to today’s price action:
“…the more likely assassin of this rally will be the U.S. dollar. The currency traded in a very tight range today at the bottom of a downtrend and may be ready for a bounce higher.”
-@ the close 2/8/12
“With the VIX looking like it might’ve found a bottom in the short term and the major indexes trading just below resistance, we can’t really get behind the market here.”
-@ the bell 2/10/12
Check box 1 and check box 2. The main criteria we laid out would signal the start of a pullback both appeared today: a spike in the the dollar and the VIX. Both had their best day of February with the VIX settling above 20 for the first time since January 18th. The headlines will read that the market pulled back because of worry in Greece. To this point we assert that if the market was truly “worried” about Greece at this point we would not have ended down less than 1% in the S&P500.
Today is however, the first time SPX has finished below its prior days low (1,344 in this case) so far this year. You will see this many times act as a short signal for alot of traders. Given the market failed to sustain a move past 1,350 resistance we expect that this signal will indeed be acted upon. As outlined this morning though, we aren’t positioning for a sharp drop, but rather more a 3-5% pullback or so with the first main support area being the 1,275-1,300 range. Really we wouldn’t be surprised if the market ends up finding support even above that range.
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