Aaron Armstrong, Oct. 19, 2008

My essential theme this weekend is to avoid the big predictions here. Yes, I know there are people saying a crash is soon to come and there are many saying the low is in and stocks will rally. I happen to think it's more complicated than that and why do I think that? Because the charts suggest it. I mean what is there to stake a big trade on right here? Last week prices respected hourly TDST support, they rallied, but prices are still below hourly TDST resistance. In other words we are in a wide and volatile trading range and when prices are in a trading range I'd rather wait for something to reveal itself to assume a trend will or can develop in either direction.

I was able to react to the rally off support and oversold by going long and staying long off of Thursday's "C" up and then I sold into hourly sell Setups, by Friday's close we were well off the highs of the day. I continue to think that until proven otherwise we should take our money and run when the minimum structures have been acheived. After all, it's still a bear market and in the very short-term prices may be above support but are also still below resistance. The best thing for a multi-day (or longer) long would be for prices to prove a trend by taking out hourly resistance or reacting well to an hourly sell Setup. I know I go over this every time but every time is basically the same, we just have to try to stick with the tape instead of forcing opinions onto the market.

Conversely, if you are bearish then look for prices to take out support and react bearishly, they didn't react bearishly last week on the tests of hourly TDST support. We just have to react to what the market does.

On the larger time frames it is perhaps a bit simpler. Weekly and monthly charts have almost certainly not seen the amount of time required to complete the bear market structures nor have they likely seen the price necessary either.

Thus the bear market is not over in terms of time or price.

Weekly charts will have to trade lower to perfect buy Setups and in the absence of perfected buy Setups we still face the likelihood that prices would then retest the lows to generate any sustainable weekly chart rallies.

On the monthly chart we really aren't anywhere close in terms of time to a sustainable monthly chart rally. While prices could rally for months it would likely not be anything but a large bear market rally until prices put in at least monthly buy Setups and beyond that it would be up to bullish reactions to significant price and time intersections.

Listen, I'd love a bear market rally, I think it would be relatively easier on us because volatility would go down and we could gear up for the next round of shorts because any bear market rally would setup numerous short entries. There are tons of broken charts out there and the only thing that can fix those broken charts is a lot of time and price. "V" lows and a return to bullishness just doesn't happen, you need basing, rallies, retests and so on.

So what am I going to be looking at this week? You can guess I am sure; watching and reacting to the potential support and resistance of our trading range and continuing to stick with my day structure bias trades in a market that is offering ample intraday opportunity with very large ranges. Putting on a trade with an "A" up or down etc. can lead to 1-3% moves intraday, I am just fine with those kind of trades for now.

However, just one little prediction, I could certainly see the market needing to test lower just judging my the financials, homebuilders, transports and a few other sectors.

The Charts

Hope it helps.

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