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Right Into The Danger Zone (?) September 23, 2011

Posted by Tom in Thoughts.
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Wow, an interesting week.  But not surprising.  For weeks we’ve been seeing volume light on the Up swings and heavier on the Down swings (exception: last Friday at options expiration . . expected).  All that was needed was to mix in a little bad news.  The ongoing European issues and of course a helping of domestic economy bad news.  That’s all it took.

We’ve discussed the logic of “wait for it!”, and now the theme is from the movie “Top Gun”; Right Into The Danger Zone.  Let’s look at a chart of the S&P 500 Index.

The red box just below the current price formation is important.  I guess I could have called it “The Bulls Last Stand”, but this is more to the point.  Either good or bad things will happen in this area.  A bounce off it into higher ground, especially on high volume would be a Bullish sign.  Cutting through it like a hot knife through butter would be very bad news.  Bad, because there is not much price support underneath this area.  A third scenario is that we just bounce around this spot for a while, building a base for the next move.

This market is maddening because it turns so quickly.  I know many pros who try to follow trends are just staying out of this.  They are in cash (or hedged out) and will wait it out.  Not a bad idea if you can’t watch things intraday.  The old saying: “It’s better to be Out wishing you were In, than In wishing you were Out !”  How true.

So what’s next?   It’s too hard to call.  If you could predict the news, I could probably (or not) predict this market.  But neither of us can.  So we watch the Danger Zone and excercise patience (“wait of it”).  (No need to show Accumulation & Distribution charts, they’re ugly.)

Have a good week, and post a comment at the top of this post.  I read them all.  Cheers.

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