The Magnet Being Tested

  • Posted by
  • on September 22nd, 2011

My .02 are not needed here, but a follow up to my $SPX 1180 post was promised so here goes.  It’s funny to think that when I made my plans yesterday I wasn’t convinced the magnet at 1180 would even be touched this week.  But indeed it was, making this the 8th week of a sideways market.

The idea of a magnet in a sideways market is not that it acts as support or resistance, but as the center point against which we can look under the hood to compare the evolving dynamics to those at a prior instance.  I still say the market is exhibiting improvement vs. prior stops around that level, though a more accurate description would be “less bad”.  The comparisons through last night play out as follows:

Lots of potential for a positive divergence, but that requires better stats against a lower low and we can’t make that assessment until we get the lower low.  Until then, longer-term commitments are off the table and large, out of nowhere swings will be the norm.  As hard as it is to believe we could bounce from the depths of $ES_F 1130, for me it was just as hard to believe we could drop nearly 8% so quickly from Tuesday afternoon to Thursday morning.

Right now, the repellent(falling 10 Wk average) looks to have the upper hand vs. the magnet.  But until we make it through a week without touching 1180, I consider it a range awaiting resolution.  As mentioned yesterday, the moves away from this range in October 2008, May 2010, & December 2010 were dramatic and left plenty of opportunity for those who decided to wait.

Today, we’ll open well in excess of 2 daily ATR below the 3, 4, & 5 day VWAP for $SPY, leaving plenty of room for spikes from deep lows without even threatening the crash situation that seems underway.  “Sell what you can, not what you have to” mode puts $AAPL & $GLD on the top of the danger list this morning.  I’ll leave it to other risk managers to play here, and look to find clearer entry points next week.

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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