Momentum Trader Report: 09/16/08

16 Sep

Posted by Momentum-Trader as Momentum-Trader Report

In last nights post, I pointed out that the Dow and NASDAQ had not cut their July lows. Well, those lows were taken out this morning, with another gap down and a very wild day, but with a different outcome than yesterday. The market found buyers today, and the major indexes closed higher on very heavy volume. Is this the bottom? Was this morning capitulation? It’s way too early to tell, as this is only day 1 of a rally attempt. Anything could happen here… anything. We could see a huge rally or a massive crash.

Here’s a weekly chart of the S&P 500. You can see that this week, we took out the July lows. Also notice that we could be forming a double-bottom pattern here.

You may notice that a W pattern had formed in March as well, and I was watching that here. Although the pattern didn’t hold and the S&P moved much lower, there was a nice rally that started then that offered some nice gains.

As mentioned above, the Dow undercut the July low today, but rallied from there. It’s important for a double-bottom pattern to undercut the previous low to shake out sellers. Once the sellers are shaken out, the path of least resistance is higher.

Also consider the VIX. As mentioned last night, traders use this as an indicator for short-term market bottoms. When it gets into the 30’s, we often see a rally in the market.

Again, still too early to say a bottom is forming, but I will be watching these charts.

I had some stocks in the Watchlist, and 2 traded above their buy points, but today was way too volatile for buying. HCBK gapped above the buy point at the open, and with the market action, was an avoid for me.

Another that triggered was ESRX.

I still want to watch what happens in the market before making new trades. If the market is bottoming here, there will be plenty of opportunities to make money in the coming months. If we go lower, I don’t want to be trapped in a position that moves against me. I have some stocks in the Watchlist still, in case we get a strong pop, but I haven’t added anything new.