Monday, June 3, 2013

A "TIME" Based Correction

Hey Folks.

Let's try and make sense of some the chart action we have seen recently. As i pour thru hundreds of charts, i am scratching my head by what i am seeing out there. The ART OF TRADING portfolio came into today sitting on 100% cash as we moved to sidelines last friday morning. On today's weakness we picked up some SSO and MSFT longs for swings. (NOT a recommendation to buy SSO or MSFT).

The NYMO(see charts below: NYMO: an indicator i follow very closely) is slowly but surely getting into areas where 'BIG' bounces have been created. It's getting "OVERSOLD" . So shorting here is a little bit sketchy in my opinion.

However, I am not sure i would give NYMO a total '100% benefit of the doubt' here since the DIA, SPY etc are all rather 'overbought' on several timeframes(including WEEKLY and MONTHLY charts). SPY is up 13% year to date for example and a few days(weeks) of consolidation looks like the MOST likely outcome right now. When The markets are OVERBOUGHT and need to make CORRECTIONS. 
They do this in one of TWO ways: 

1: they either PULLBACK in price and correct overbought conditions in that manner. That's when prices come down and many stocks get hammered lower. 

2: they correct via TIME: that's when the indexes simply chop and churn sideways for a few days(weeks even), bob and weave, annoy the hell out of everyone as BEARS do not get their big pullbacks and BULLS see every rally fail(breakouts fail) and get no upside traction. Both bulls and bears will normally suffer in "TIME" based corrections. 

My SPY60 "ROADMAP" chart is getting into "OVERSOLD" right now so SHORT TERM at least, shorting is a little bit risky right now(potential increase for a bounce of some sort). Between today's move down and friday's nasty selloff, it might be too late to short. So have to be a little bit careful if looking to start SHORTS now. 

My initial reaction after looking thru many charts today, is we are starting a CORRECTION thru TIME, not price. So we need to at minimum expect lots of SIDEWAYS, back and forth churning next few days(possibily weeks). Using TRADING RANGE strategies is what i will be focusing on. Buying on extreme weakness and selling into big gaps ups or strong pushes back into thick resistance areas.

Attached below are charts which i have been highlighting recently on twitter and or NEW charts which are of HIGH INTEREST right now.
Hope this helps and Happy trading to all!

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