Three Recent Bull Traps and Selloffs in SP500

Dec 4, 2009: 11:55 AM CST

Here’s another very quick look at the intraday charts, showing three vicious bear traps on the most recent pushes to new 2009 highs.  Stay on guard – the market is very volatile and both bulls and bears are struggling to find direction… both failing… and succeeding.

Overhead resistance has been the 1,111 level in the S&P 500, but on Wednesday, Thursday, and now Friday, buyers pushed the index to new 2009 highs but it seems like they were only able to keep the higher prices going on “popped stops” – or short-sellers covering right at new highs (pushing price up).

Buyers have yet to step up to sustain new highs, and in each of the three instances, price has literally plunged as a result of the immediate failure to hold new highs.

Now we’re in an extremely volatile mode, with the S&P 500 falling 23 points suddenly from 1,119 to 1,096 in 45 minutes.

UPDATE:

Expanding Trendlines – aka “Broadening Formation” – on the 15-min S&P 500 Index Chart:

The broader context is that we remain in a trading range since mid-November, and there is a vicious battle going on here – by bulls to try to push the indexes up and sustain them higher… and sellers/bears shorting at the upper range of the channel.

Be careful and watch your positions very closely.  This is no time to play games or get over-confident.

Afraid to Trade.com

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Comments
  • dumbpainter
    Nice post! Yes, no need to play this market until Jan. imo. Watch the battle.
  • the velocity and amplitude of the movements makes my uncertainty meter bee-bop, and with so much other information that also supports the chaotic schizophrenic mentality of the current market behaviour, I feel like we're sitting on a powder keg. Love your work. Excellent effort and presentation, always valuable and insightful. Thank you for the energy and effort you put into this work.
  • terlyn
    The dollar is holding strongly on support above trend resistance at 2:45pm ET.
  • Dan de Man
    It's hard being a swing trader these day, but UNG is worth a look.

    My 2 cents.
  • terlyn
    Dan, I've been waiting for you to ask you a question about something you posted a long time ago...about buying at the end of the day to avoid slippage. I don't understand how that avoids slippage for a day trade. Can you please explain what you meant? Thanks so much.
  • Dan de Man
    Hi Terry,

    For swing trading and I buy long on a down day, I wait for the last minute of trading because if the market is tanking you don't know how low it is going to go.

    Here is an example of a short squeeze for HNU.TO for a few points. The RSI 2 reading was well below 5 and this is a low risk opportunity to squeeze some bears. The risk reward ratio is high because RSI2 reading is < 5. BUT, nothing says you can't lose money, it's all about probability.

    http://stockcharts.com/h-sc/ui?s=HNU.TO&p=D&yr=...

    Cheers,
    Dan
  • terlyn
    Thanks for explaining, Dan.
  • My swing trader friends are either sidelined or getting chopped up. I'm only doing day trades.

    UNG suffers a downward bias by the way the fund is structured.
  • Dan de Man
    I'd have to agree with you with the day trades. I have to admit, I was stopped out today on index shorts. Thank goodness for my gold short yesterday to even things out.

    Have a great weekend Corey.
  • terlyn
    The leaders of this rally are faltering: GS, AMZN, AAPL, GOOG, etc. I think this could be the beginning of the end, at least until the next major support going down. As you said, Corey, where are the real bulls?
  • Exactly - market leaders are faltering, but we could be seeing a rotation.

    Everyone wants to know how far this rally can go without a logical and normal breather. Everyone is getting nervous with a steady and unflinching rise, asking the question "If I get in now, I know the market will top out and reverse." Bears are thus saying "If I get short now, the market will keep going up and I'll be stopped out again." It's so difficult right now.
  • terlyn
    Corey, that is why I wanted to take a look at the how the sectors were doing in comparison to one another. According to your previous analyses of the market sectors, they were being followed logically by the market, but unless I'm missing something, they do not seem to be following the logical progression of risky to non-risky. It seems to be jumbled up. I wonder if you could take a look see.
  • pipercolt
    yes, corey pretty convincing case for a big move out of here. i'm not convinced its gonna be to the downside however. The market just needed to blow thru some moving averages here and now that its above 1100 it could be moving up from here.
  • That's the main idea of a trading range - we all think we know which direction price would break (I bet if you took a poll, 70% or more would say 'down') but the edge comes from letting the market tip its hand and not trying to outguess the break - it makes it a lot easier.

    Especially when the market breaks in the unexpected direction - the range expansion is partially caused by the "Popped Stops" of those on the wrong side of the breakout.
  • blues
    Ya, this is really mess-up though, after 3 failed break out we still can not have a fast down (will we did have fast down, but only half way), to test the range low of 109...still dip buying I guess...
  • Only way I can describe it is as a "Battle."

    Bulls know they have to keep the rally moving, and bears would do anything to see price come down from here.

    Join in on the side that wins the battle.
  • I'm not sure what to watch - everything is happening so quickly. Gold, oil, dollar, treasuries, S&P.

    I've been wanting volatility to break us from this range but gosh this is wild.
  • blues
    "but gosh this is wild." Ya, you tell me!
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