Thursday, May 13, 2010

Stock Market - Late Day Selling Triggers A Sell Signal

Above is a 60 min chart of the S&P500 and in the lower panel is the MACD indicator. Late in the day the stock market got hit with a round of selling which caused to the MACD to cross giving a sell signal. If you take a look at the daily chart, you'll notice an outside reversal day which is also another bearish sign.

Many of the the foreign ETFs that I've been writing about these past few days continue to move lower such as EWP, EWI..etc.  Some of the weakest groups of the day were the retailers and semiconductor stocks which were down close to 3% from yesterday's close.

As you know I've been shorting at these levels and added to my position late in the day today when I saw the selling begin to come in. My protective stop is right above highest high of the last 3 days which is a very tight stop considering that I am looking for a move back down. The reward to risk ratio I feel is favorable so I'm willing to take a shot here and play the short side. As always, we'll see what happens.


Anonymous said...

Thanks Kevin,
I thought about reshorting again last night, as there should be a double dip in this correction. Your post convinced me to go ahead. I have tight stops again, maybe this time it will work.
I sold all my GDX in the last couple of days, still have SLV on a tight stop.

Anonymous said...

Kevin, what is your target? should it reach the May 7 lows?

BTW, I'm watching UUP in disbelief. It defies T/A and I guess the fundamentals on euro are very rotten. Some folks talk about parity between euro and dollar. Initially (a few months ago), I did not believe it but now I'm thinking it may happen. The only thing is shorting euro is a very crowded trade. I'm still waiting for euro to bounce to short it.

Kevin said...

I covered a third of my position just a few minutes ago based purely on money management. I wanted to book some profits as well as reduce my risk exposure. Yes, I am looking for a retest of the low from May 7th but the problem is who knows exactly what those lows were. The lows that were made on May 7th are questionable.

Anonymous said...

Thanks for the explanation. You are right that intraday low on May 6 was artificial. This is why I was considering May 7 for guidance (or alternatively, closing price on 6th).


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