A Wyckoff Analysis: US Stock Market Appears Vulnerable to a Pullback

2014-10-29 Daily ESIn the last post made on the US Stock Market on Sunday night, I noted that the S&Ps was moving up strongly, but had run into a resistance area around the 1970 level.  A pullback into the 1940 level was anticipated (we went to 1944.50), and then the market rebounded, making a new rally high today.  Despite the new rally high, we are still negotiating that 1970 area.  Today’s market action was influenced by the FOMC announcement that their QE is coming to an end.  The day closed below yesterday’s high and in the middle of its range.

The market responded rather well to what could be considered negative news.  After all, the tone of the announcement is that the Fed will be turning off the tap to easy money.  The market seemed to shrug that off.  Does this response to the news mean the market is going to go higher?  Or, perhaps the market will wake up to this policy change and fall hard tomorrow?   As we discussed recently in Chart Reading Mastery, it’s best not to try to figure out how the market will react to news.  Instead, it is best to read the chart!

I’ve posted a 45,000 tick chart showing the rally from the lows made on October 15th.  The market rallied up nicely in a well-behaved manner 2014-10-29 45K Tickuntil last Thursday, October 23rd (right click to expand and/or open the chart in a new tab or window).   On Thursday, we began to see shortening of the thrust.   And while we have continued to make higher highs since, the thrust continues to shorten.  No supply has shown its hand to this point–though there was a fair amount of effort to go up yesterday with something less than a commensurate response in price, so some selling can be seen, but we have not seen supply dominating demand.  So, what does all this mean?

The market seems vulnerable to a pullback.  We could see the market fail to go higher and begin dipping lower here.  If it does go below today’s low  (1962.00) and we don’t see significant volume come in to the downside, a reaction would likely end around 1955 to 1950.  A stronger reaction could move the market down into the 1945-40 area where we could expect buyers to come in.  A spring of yesterday’s low or holding higher above yesterday’s low would indicate that the market is not ready to react and we could anticipate potentially higher prices if a rally gets going.

 

Trading Psychology: Cutting Winning Trades Short: How to Overcome It

Cutting Winning Trades ShortOur trading psychology is often confronted with the strong urge to book small profits on a winning trade.  If we listen carefully, we often hear our mind telling us:

I must get out now.  I’ll have a small profit.  It’s better than a loss …

How often have you said this or something similar before cutting a good trade short?

Cutting winning trades short is one of the most common problems traders have.  It affects novice traders as well as more experienced trades.  Cutting a winning trade short is a manifestation of loss aversion.  The strong desire to avoid losses negatively affects trader behavior and pretty much everyone at one time or another is affected.

I just published a succinct article on cutting winning trades short and the antidote to overcoming this detrimental behavior.  The article is in the Fall 2014 TradersPlanet Digital Journal now available on line. Here is a link to the article:

Trading Psychology: Cutting Winning Trades Short 

Strong Move in the S&Ps Expected to Continue

V-Spike Reversal Shows Market Strength
V-Spike Reversal Shows Market Strength

The market as represented by the S&P futures put in a strong week last week, continuing the bullish reversal from the week before.  We were quite oversold two weeks ago, and this led to a V-spike reversal, which is something we see only occasionally.

After Tuesday, the market had a little difficulty pushing higher, though push higher it did, making firm closes on Thursday and Friday.  It just didn’t continue to show the strength it had on Tuesday.

We are in nearby resistance now (the blue line around 1970, or so).  I would expect the market to pause here and pull back a bit.  I won’t be looking for a deep pullback, at least not early in the week.  Any pullback on Monday is likely to find support around the 1940 level.  A deeper pullback early in the week to test last Tuesday’s strong rally would likely meet initial support around the 1920 area.

As the week unfolds, I’d like to see this week’s lows holding above 1900.  If it can do that and we see some buying come into the market later in the week, then the market will be putting itself into a position for another rally in the coming weeks, perhaps to test the highs seen in September.

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Trading Psychology Edge New Website Update

Website UpdateMany traders have stopped by our new website.  We’ve been getting lots of compliments on the new look and new functionality.  We are very glad you like it, and we thank everyone for their kind comments.

We are still experiencing minor bugs in the website.  We know that there are still some links not working and signup forms missing.  We are working to rectify these last few issues as quickly as we can..  We appreciate your patience and expect to have all the last bugs ironed out and the site operating at 100% shortly.

 

Welcome to the New Trading Psychology Edge Website!

Website almost doneThanks for stopping by.  We are in the process of replacing our old website with this new one.  Not only does it have a better look, but we are dramatically improving its functionality.  Also, we have a few new things on the site.  Check out the Free Tools, Newsletter, the Next Event and my new book due to be published and on the bookshelves around Thanksgiving.

We are excited about the new site, but we know there are things on the site that are “in progress.”  That means that some of the buttons may not be working (no matter how many times they are clicked), some of the links aren’t linking yet, and some of the content may not make much sense as it is being updated and in the process of being revised.

It is a lot of work to revamp the website, and we have been working on it all summer right into the fall.  We still have a ways to go, but we think that we are almost there.  So please be patient with us over the next week or two as we finalize the site.  We have an excellent web master and an outstanding site designer (how do you like this design?) working on the back end and Helen and I are working on all the content and product changes.  We’ll have it finished soon.

We don’t expect you will have any major difficulties accessing videos you bought or navigating around the site, but if you do please let us know.  We will do our best to get it resolved as soon as we can.  You can reach us best via the Contact Us page and by using the contact form provided (our email may be temporarily out as we transfer the site to a new hosting service).

In the meantime, let us know in the comments what you think of the new site.  How do you like the design and how do you think it compares to the previous site?