Momentum Trader Report: 09/07/08

07 Sep

Posted by Mo-Trader as Momentum-Trader Report

More bad economic news on Friday, including a multi-year high in the unemployment rate, which spiked to 6.1%, put pressure on the market Friday morning, and it looked like more selling was in store. But the market put in an afternoon reversal, and the major indexes closed near their highs of the day.

On Friday, the S&P 500 put in what resembles a bottoming tail. Perhaps we could see some continuation early this week. However, the long-term trend is looking bearish right now.

This summer has been a difficult one for buying breakouts. Unless you take profits at 1% or 2% or fading the breakout, profits have been hard to come by. Thomas Bulkowsi, who literally wrote the book on chart patterns, talks about this in a recent blog post. He offers this bit of advice:

Chart Patterns only Work in Trends

If price is in a trading range, meaning that it is bouncing up and down but not really moving anywhere, then a chart pattern could signal the start of a new trend. However, the breakout may be fake and price returns to moving sideways.

In these turbulent markets, I see lots of chart patterns with breakouts showing price rising but not enough to justify raising a stop to break even. My trading is suffering right along yours. I take loss after loss but know that if I don’t play the market, a trend will start and I will miss it. I do not know what the solution is to this problem. If I could tell when a market was trending, I would be retired. OK, so I did retire at 36, but you know what I mean. I want all of my picks to work. I want every chart pattern breakout to lead to a long up trend. - Thomas Bulkowski

So if you’re struggling in this market, you are not alone. August was a difficult one for me, and September hasn’t provided many opportunities yet. Until it does, I don’t plan to force trades, and may have some days like I had last week where I don’t post any charts for the next trading day.

I am mostly in cash right now, with a small position in SDS. I only have one chart for tomorrow, but for a day trade and with a trigger on heavy volume.