Will it be any different this time, part II

  • Posted by
  • on February 3rd, 2014

On Jan 26 we posted the first part of this post, Will it be any different this time? looking at two magnet spots we thought market could drift to — $SPY 177 and 173.   Well, the 177 prediction was very accurate and tradable.

As you can see the 177 magical place held three times as bots and traders bid it up three times in a short period of time.

Chart20140203114054

However on Friday, after holding it for the third time, we wrote:

1

23

So two things:  first, repeated taps on support usually lead to cratering of said support — as we saw today.  $SPY 177 broke and market has now fallen almost 3 points within hours.    Two, the financials were key. They were constantly underperforming the rally.  We questioned ourselves on it seeing the hot biotechs bounce, but we were right. The financials were telling the true story.  Watch them like hawks going forward.

So what’s next?  In the original post we wrote that if 177 goes, the next zone is 173.  We still stand behind that:

It’s the lower standard dev 1 on the weekly:

Chart20140203113739

And it’s gap fill on daily.

Chart20140203113712

Now do note that we have no idea if it will serve as a true “bottom”.  We have no interest in calling that — all we care about are tradable areas and we think 173 will be one of them, just like 177 was last week.   If you’re a short-term trader, get your list ready.  If you’re a position trader, well, that’s a different story.

In this day and age we want things instantly — market bottoms unfortunately don’t fit into that paradigm.  They could take months to form and the market doesn’t care if traders get impatient, feel frustrated, or become depressed.

Find tradable edges and trade against those — and in between, do very little.  At least that’s how we trade, but it’s been sound enough of a system to keep us in the business for over 15 years.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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