Market commentary

Market commentary for 11/20/2007

Good day!
So much for a holiday week filled with thanksgiving market action. Monday was one very choppy trend day with divergences all day. The DIA was the weakest and took every opportunity to move lower, while the QQQQ was the strongest and stayed in its' 60 min range, under its' 20sma 60 min resistance area. The Indices acted like they were getting ready to bounce, but every try failed. On the other side, the selling pace and volume were not sufficient for a low risk strong move down. The result of that was choppy intraday action and a trend day for the SPY/DIA.

http://www.ivicacharts.com/diagrams/2007/11202007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11202007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11202007qqqq60.jpg

Both the SPY and the DIA reached their previous low support areas (last Monday). If we look back a bit on the 60 min charts, we can see that the QQQQ is forming a nice triangle pattern, and the SPY/DIA formed a possible double bottom pattern. The 20sma will be the big test for a reversal possibility. On the daily chart we can see that the QQQQ stayed in a range under it’s' 100sma resistance area and the SPY/DIA as previously mentioned formed a double bottom possibility.

http://www.ivicacharts.com/diagrams/2007/11202007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11202007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11202007qqqq.jpg

I am still in a bullish mode. Of course, it is very possible I can be wrong, and in that case I will just follow market action. The QQQQ still has room for a daily move down, but the weekly support and 60 min range is holding very well. The SPY/DIA double bottom possibility and the choppy 60 min selling pace suggests to me that we will see a bounce on Tuesday. Again I can be wrong and in that case I will take few shorts and the day will be good again (like CMI, IBM, CCOI yesterday). Of course we can see a strong move down and some panic action. If we do see selling, I’m interested in day trade short setups only, because for me double bottom patterns are always very tricky to trade. The SPY/DIA can make a slightly lower low and then have a very strong reversal. Anyway, it is time to follow the market action very closely, and remember that we are in a holiday week. Thursday is Thanksgiving Day and that means Wednesday and Friday (half day) will be slow. Wish you all a good day!!!

Ivica
 
Market commentary for 11/21/2007

Good day!
After all the intraday mess, the indices finished the day positively. Looking at the daily charts, especially the QQQQ daily chart shows us that the indices had whippy, intraday action. The QQQQ formed a wild doji daily bar with stronger volume. The SPY and the DIA formed the same type of bar plus a daily double bottom pattern. The volume was stronger than average. The chart action suggests that we will see an up day tomorrow, but before we draw that conclusion, let’s analyze other factors. The SPY and the DIA daily charts are in downtrends (lower highs and lower lows). All the indices are still under their 10sma first strong trend test.

http://www.ivicacharts.com/diagrams/2007/11212007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11212007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11212007qqqq.jpg

If we look at the intraday charts, we can see Tuesday's market behavior. The day started with a gap up and strong open action. The QQQQ broke out from its' 60 min triangle and made a higher high. It was the strongest index. The SPY and the DIA reached their 20sma resistance area, but didn’t have enough strength for another consolidation or another step up. Without any consolidation all the indices fell down to new lows with strong intraday volume and pace. Previously the QQQQ low held and the trading channel for the SPY and the DIA held as well. That was not the end, and after a 5 min very choppy reversal H&S pattern, the indices bounced stronger than the selling pace with strong intraday volume. That action trapped the short traders and after all the QQQQ was back in the middle of the range, while the SPY and the DIA were back to their upper trading channel line and 20sma 60 min resistance area.

http://www.ivicacharts.com/diagrams/2007/11212007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11212007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11212007qqqq60.jpg

After an intraday view, I’m still looking at the long side for Wednesday, which the daily charts suggest, but I don’t expect any spectacular buying pace or volume. I hope that the market surprises me, but I will expect a choppy and slow move up. Anyway, whatever will be, I will use smaller risk, because after the morning action we can expect that the volume will drop down dramatically, as it typically does on the afternoon before a holiday. Historically the days before Thanksgiving Day are positive. Let's see if Wednesday will be same.
Wish you a good trading day and peaceful holiday.

Ivica
 
Market commentary for 11/23/2007

Good day!
The market didn’t want to send relief to long traders. In the past we have seen a pre Thanksgiving Day rally, but Wednesday didn't continue that tradition. We didn’t see a strong intraday move, but from the gap down at the open, the indices showed weakness and the bounce attempt failed. Yes, after the morning move down, the indices tried to trade higher and the QQQQ led that enthusiasm, but there was no volume or true buying pace for a significant bounce. We can easily see that on the 60 min charts. The QQQQ filled its' gap and after that quickly gave back all of it’s' midday rally, with strong intraday selling pace. The DIA and the SPY couldn’t fill their gap and the 20sma area still served as too great of a resistance. On the 60 min charts we can see that every try to break the 20sma resistance finished with a new low and that resulted in the downtrend move.

http://www.ivicacharts.com/diagrams/2007/11232007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11232007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11232007qqqq60.jpg

The QQQQ is still holding its' range area and is somewhat resistant to the SPY/DIA selling pressure, but the triangle consolidation is getting tighter and tighter and we could see it break soon. On the daily charts we can see that the double bottom possibility of the SPY/DIA didn’t hold and both made new lows and are close to their daily equal moves and August low support areas. For both indices this is the 3rd selling wave on the daily charts.

http://www.ivicacharts.com/diagrams/2007/11232007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11232007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11232007qqqq.jpg

On Friday the markets will be open for half a day and it is hard to predict what we will see, but if the last days weakness continues I expect the QQQQ to make another daily leg down into its' 200sma (stronger) support area. My job will be to see the synergy on that leg down. I believe that with this weakness the SPY/DIA will see their August lows support area. On the daily charts we can see that the SPY/DIA are already on the move and not far from their previous support area, so a new swing setup will be higher risk, because a bounce possibility increases as they trade into their support. I know I waited for that over the last few days but we still followed the market action and took several shorts. It is good to have an opinion, and an expectation, but it is always more important to follow the market action. For now the charts suggest another move down (QQQQ to 200sma daily chart, SPY to 140 number supports and the DIA to August low support area). It is important to not overtrade on Friday, because volume will be light and the market is open just half of the day.
I wish you all a peaceful Thanksgiving day and I will see you on Friday.

Ivica
 
Market commentary for 11/26/2007

Good day!
Since we didn’t have a pre Thanksgiving Day rally, we saw that rally during the short session on Friday. The Indices opened with a gap up (middle of Wednesday's range) and the open of the trading session held in a range action without direction and with light volume (which is expectable on a short session day). Around 11:00 am EST the reversal period woke up the indices and for the rest of the day we saw a nice uptrend move. I was not happy with trading because I don’t like when volume is low and when reversals can show anytime with a strong reaction. The SPY was the strongest and broke above Wednesday's high, while that area was too strong for the DIA and the SPY and both closed under. Another thing to note is that all the indices closed above their 20sma which will be the support area in case we see selling pressure.

http://www.ivicacharts.com/diagrams/2007/11262007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11262007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11262007qqqq60.jpg

I don’t think that Friday showed any significant direction and I don’t think that we can count on Friday's move as a reversal move. Maybe that can happen next week, but for sure that won't be because of Friday's action, because the big players weren't involved in it. We have a very indecisive situation and the weekly QQQQ chart will show that most clearly.

http://www.ivicacharts.com/diagrams/2007/11262007diaweekly.jpg
http://www.ivicacharts.com/diagrams/2007/11262007spyweekly.jpg
http://www.ivicacharts.com/diagrams/2007/11262007qqqqweekly.jpg

Another weekly doji bar on the QQQQ chart is the reason for this indecision. The SPY and the DIA made another leg down and on the DIA weekly chart we can see that the last bar is an NR7bar (short weekend helped a lot in that). The DIA has room for another move down into the August lows without much support, and also the small NR7bar closed near highs which formed a pivot bar. If we look at the daily charts they will confirm this indecision. After three selling waves it won’t be uncommon for the SPY/DIA to start with a daily correction. For low risk setups it will be good if the QQQQ can stay in a consolidation area (after first move down) for another week. On the other side the daily triangle can break down into the 200sma support area (red line).

http://www.ivicacharts.com/diagrams/2007/11262007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11262007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11262007qqqq.jpg

It is important to follow the daily 10sma as an important resistance area in case of a reversal. If the SPY/DIA will break their 10sma (daily chart) with good intraday volume and pace, then it is very possible we can expect to see more of a daily correction after the three selling waves. For the QQQQ it is important to follow the daily 10sma and 100sma. If that area doesn't hold I believe that the indices will bounce into their 20sma resistance area. On the other side, if the selling pressure continues, then the 200sma is the 1st support area for the QQQQ and $125 for the DIA and $140 for the SPY as number support areas. I believe that Monday's action will give us an answer on direction, because we can’t count on Friday's activity. Intraday volume and pace on the intraday charts will be indicators to recognize direction and I will be focused on that. After the initial move, I will look for continuation. Intraday charts are very important for me, because reversal patterns on the 5/15 min can get me into the start of a daily move. I wish you all a great trading week. If you have any questions, please feel free to ask me.

Ivica
 
Market commentary for 11/27/2007

Good day!
Well, so much for an after holiday bounce. Again the 10sma on the daily chart shows the strong resistance in the trend move. The market is in a downtrend on the daily charts. The day started with a small gap up and as usual small gaps have a tendency to be filled right at the open. Monday was no exception. Right after the gap filled the indices bounced and broke their 60 min 20sma resistance areas. All looked ready for a daily correction, but the previous resistances for the DIA/SPY and the channel resistance for the QQQQ was too strong and we saw a sharp move back to the 20sma on the 60 min charts. But the indices didn’t consolidate near lows for continuation. They bounced from the 20sma 60 min area and made intraday lower highs which was a signal for sellers to come back and bring the indices down. The DIA and the SPY made new daily lows and the QQQQ moved back to its' daily triangle support area.

http://www.ivicacharts.com/diagrams/2007/11272007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11272007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11272007qqqq60.jpg

After all the indices made large red bars and closed at support, which is not a good sign for new short setups, especially when we see how extended the move down is on the intraday charts. Because of that every new short setup in the morning will be high risk, and I will just follow our current open swing short trades. Usually after a large extended daily bar we can expect a smaller bar which will have an intraday correction. The daily support area is also another reason for high risk new short setups in the morning.

http://www.ivicacharts.com/diagrams/2007/11272007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11272007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11272007qqqq.jpg

With the close at lows we have a higher possibility for a gap down and a daily trend continuation. One scenario is more selling pressure in the morning which could bring the QQQQ into its' daily 200sma support area (red line) and the DIA/SPY into their number support areas. This will be good for our open trades. The second scenario is a gap up with intraday whippy action which will increase risk and bring us into a scalp market. My bias is for more selling and I think that the market has room for that. The situation will be more clear after the open and I will continue to update you in the trading room.
If anyone has any questions, please feel free to contact me.
Wish you all a good Tuesday trading.

Ivica
 
Market commentary for 11/28/2007

Good day!
It was a very dangerous market for trading. One day everything suggests a down market and the next day everything looks more like a bounce possibility. A short explanation for Tuesday's market action is up-down-up-down. I can feel the fight between the bulls and bears for direction. The market opened with a gap up and after the morning try to fill the gaps, the indices all had a strong bounce. The DIA was the strongest and traded back to Monday's high resistance area, while the SPY was the weakest and its' previous intraday resistance was just too strong. During the afternoon the indices' correction was strong and gave back the morning's gains, and formed a higher low on the 60 min charts. At the end of the day we saw another bounce and a strong close at highs. When we see the 60 min charts we can see the higher lows and channel resistance areas for the DIA and the SPY. The same applies to the QQQ, but we can also see the rounding lows on the 60 min charts.

http://www.ivicacharts.com/diagrams/2007/11282007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11282007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11282007qqqq60.jpg

After all the intraday charts suggest a reversal from the daily lows. Lots of resistance remains overhead and if we do have a reversal, pace and volume will be the main indicators to measure whether we do have a reversal or more of a daily consolidation. On the daily charts we can see that the 10sma is still strong resistance for the DIA and the QQQQ, while the SPY has more room to reach this resistance area. For now that is the main resistance area for the indices, plus the 100sma on the QQQQ chart. Tuesday's volume was stronger than Mondays, which is another indicator for a possible bounce and daily reversal.

http://www.ivicacharts.com/diagrams/2007/11282007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11282007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11282007qqqq.jpg

Because the market action is very whippy and skittish, I’m not afraid to miss the possible main bounce. If the bounce is strong enough with volume to prove its validity, we can always take longs on a healthy consolidation breakout. But if the bounce will have weak pace and light volume, then risk will increase and we could continue to see a whippy market. Since risk is already high, and the market continues to look for direction is it important to use proper risk... and that is now the key word: proper risk. I don’t have a bias and I will just follow the market action and wait. Remember that cash is also a position. The market was tough over the last few months, but we must be patient and wait for better times. On the larger timeframes I still think that we will see more selling, but will that be soon or after a bounce...no one can tell that now. Even though the charts suggest a bounce, a possible gap down under the previous 60 min low will change that situation, and because of that i will use patience. If you do trade, please do it with very small risk. We can always catch a continuation if the main move shows promise.
Wish you all a good Wednesday trading.

Ivica
 
Market commentary for 11/29/2007

Good day!
The indices had a strong move up after a Federal Reserve official hinted that the central bank may lower interest rates. That was enough to signal a strong bounce in the morning above the 10sma daily resistance area. That scared the short traders and with short covering we finished with a strong trend day. For me the problem in this situation is that after a strong move down, when the market try to reverse we can see a number of resistances and every one can hold. Because of that my activity yesterday was small but positive. When we have a situation like yesterday, several indicators can help. First are the 10sma/20sma 5 min charts for trend determination, and those worked perfectly. Second is an afternoon consolidation, and that one worked perfectly as well (indices consolidated at highs). Another is volume, and that was the part that I didn’t like. The volume was not bad, but if we look at the indices daily charts it was lower than on Tuesday and I expected much stronger volume compared to the buying pace.

http://www.ivicacharts.com/diagrams/2007/11292007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/11292007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/11292007qqqq60.jpg

In spite of that, all of the intraday resistance areas (previous highs) gave way like they wasn’t there and the indices climbed without much rest. Before the close we saw one try for an intraday correction and profit taking which brought the indices under their 20sma on the daily chart. The market was too strong and on the daily charts we can see that all the indices broke their 20sma on their first try and closed above. That is a very strong signal. If we look back again on the 60 min charts we can see that all the indices have room for another move into their next strong resistance areas and that is the 200sma (red line).

http://www.ivicacharts.com/diagrams/2007/11292007dia.jpg
http://www.ivicacharts.com/diagrams/2007/11292007spy.jpg
http://www.ivicacharts.com/diagrams/2007/11292007qqqq.jpg

Also on the daily charts we can see that all the indices have room for that. The DIA has room for a move up to its' previous highs (red line), the SPY until it’s' 200sma and the QQQQ until it’s' 50sma. Because of that and Wednesday's strong move, I will expect that we will see more buying in the morning. After that, as usual after strong moves, we can look for a correction (consolidation). Trading during a market consolidation is always higher risk. I know that it can be frustrating when traders miss a move like yesterday, but the worst thing we can do is to be to active the day after a trend day and finish negative. I will look for own ways charts and that will be my main focus. Longer term I still think that we are done with the weekly bull trend, but before that the market can still trade back up into its' previous highs and form a double top pattern. That is an educated guess. For now let’s see how Wednesday's gains hold, for a possible continuation or the beginning of a new move down.
Wish you all a good trading.

Ivica
 
Market commentary for 12/03/2007

Good day!
I think that Friday's action was very interesting. We know that the market opened much higher based on Bernanke's mention of another possible interest rate cut. It look likes, however, that was not enough for continuation after the strong open. During the day the indices filled their gap and the previous daily highs were too strong for now. I don’t like to give any predictions based on the economy but I think that right now the expectations for the FED meeting on 12/11 are very clear. If the FED cuts rates then we could see selling the news, or maybe buying the news, but if the FED doesn't cut rates then we can expect a huge reversal. I’m not a trader who will trade right after the FED decision, but for me the expectations are clear after Bernanke's words. For now we can say that Friday's action basically gave us just a gap up. Since the market is entering the last month of the year this is a good time for more of a review. Let’s start with the monthly charts. In spite of the daily weakness and downtrend, on the monthly charts we can see that the indices are still in an uptrend move. Also we can say that the DIA and the SPY formed double top patterns and a strong reversal after with strong selling volume. The QQQQ, after an explosive move up had the same strong move down on strong volume. From that my conclusion is that the indices are done with new highs for some time, which is what the monthly charts suggest. The reason for that is the strong move down after new highs on strong volume. (larger then green bars)

http://www.ivicacharts.com/diagrams/2007/12032007diamonthly.jpg
http://www.ivicacharts.com/diagrams/2007/12032007spymonthly.jpg
http://www.ivicacharts.com/diagrams/2007/12032007qqqqmonthly.jpg

On the weekly charts we can the situation more clearly. The DIA and the SPY already started with a weekly consolidation (range action) and we can see that the selling moves are stronger than the buying recovery. Also we can see how the selling volume is stronger than the recovery volume. In addition, we can see how the slightly higher highs were made and after that the strong move down on strong volume. All that suggests that it will be very hard to see a breakout to new highs and a trend continuation. The QQQQ's move down is obvious and its' selling volume is strong. The red bar is the largest bar in quite a while.

http://www.ivicacharts.com/diagrams/2007/12032007diaweekly.jpg
http://www.ivicacharts.com/diagrams/2007/12032007spyweekly.jpg
http://www.ivicacharts.com/diagrams/2007/12032007qqqqweekly.jpg

For larger time frame expectations we can expect that the DIA and the SPY could see a bounce continuation into their upper range lines, while the QQQQ could form a weekly double top. That is one scenario. For now we can’t expect selling continuation into new lows because the bounce from the support area was too strong. For continuation we like to see consolidation near the lows or a gradual pullback and that is not the case. During the next few days we will see if the resistance areas hold or if the indices will start with a correction. Now, what kind of correction occurs will build our expectations for the future move. Always after a move it is important to follow the reaction on the support/resistance areas, and right now the indices are on the move up (bounce from support). The resistance is Friday’s high and the supports are the 200/20sma for the DIA/SPY and 20sma for the QQQQ

http://www.ivicacharts.com/diagrams/2007/12032007dia.jpg
http://www.ivicacharts.com/diagrams/2007/12032007spy.jpg
http://www.ivicacharts.com/diagrams/2007/12032007qqqq.jpg

And finally the 60 min charts for Friday’s action. For the SPY/DIA supports are 200/20sma and the resistances are Friday’s high. The QQQQ is the weakest and closed under its' 20sma what could bring problems, but the low is the daily 20sma and the QQQQ can be stuck between those areas.

http://www.ivicacharts.com/diagrams/2007/12032007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/12032007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/12032007qqqq60..jpg

Now what? What can we expect for future action. The monthly charts are still in an uptrend, with a double top pattern. On the weekly charts the DIA/SPY are in a range action (rest after move). On the daily charts with the last week's bounce, the indices broke their downtrend move. Right now it is very important to see the indices reaction to Friday’s resistance. If the indices will consolidate near highs or start with a gradual correction then we can expect another move up into the SPY/DIA weekly upper range resistance area and for the QQQQ into its' previous high area which will form a weekly double top pattern. If the indices will pullback strongly then we could expect a daily triangle or daily range action and that will reflect as a weekly consolidation near weekly lows and in the future will result in another move down. So, it is important to see what the next days will bring. Since Bernanke announced the rate cut possibility I will expect a gradual move up (after daily/60 min rest). It will probably be much weaker than the bounce pace from lows. For now the first scenario with a possible move back to high is what I expect, however, I don't anticipate easy trading days. I believe we will see more of a choppy move up. It is very hard to say right now exactly what will happen. We must follow the market action and then the expectations will be clear. I will continue to bring updates in my future commentary and I think then we will have a more clear situation. Right now, what is for sure is we have a higher trading risk. Since the indices are already on the move up on the daily charts, new swing trades will be higher risk (except “own way” charts) and the safer place will be with intraday moves and smaller timeframe trades. If anyone has any question about my commentary or any trades, please feel free to contact me

Wish you all a good trading day.

Ivica
 
Market commentary for 12/06/2007

Good day!

Symbol Last Net Net% Symbol Last Net Net%
INDU 13444.96 +196.23 1.48 DIA 134.45 +2.02 1.53
S&P 500 1485.01 +22.22 1.52 SPY 148.81 +2.45 1.67
COMPX 2666.36 +46.53 1.78 QQQQ 51.57 +0.90 1.78

The ADP job report reported a stronger job growth than expected and a four year high in labor productivity. The result of this was a strong gap up for Wednesday's open. It ended up being a trap for short traders because the indices opened above Tuesday high. The problem with the market is quite a lot of resistance over head on the daily charts and the resistance came in right after open so we didn’t see a strong continuation. The first 30 min brought range action which is not typical for trap. The indices then decided to run up to the previous resistance area which we can clearly see on the 60 min charts. The resistance area was too strong and during the doldrums the indices started a strong intraday reversal which is not the action we like to see after trap open. The previous support areas held and after lots of indecision the indices ran back to the highs and closed strong. That suggests a continuation for Thursday morning.

http://www.ivicacharts.com/diagrams/2007/12062007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/12062007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/12062007qqqq60.jpg

It wasn’t a typical trap action because of sharp intraday reversals. Another thing that I don’t like from Wednesday action is volume. I expected much stronger volume and a huge exhausted bar. When we look at the daily charts we can see that indices back to Friday’s high resistance area and we have a possibility of a daily double top pattern. In case that is broken the next resistance is close. For the DIA that is the 100sma and then the 50sma. For the SPY that will be the 50sma and the QQQQ still has room to reach the previous high.

http://www.ivicacharts.com/diagrams/2007/12062007dia.jpg
http://www.ivicacharts.com/diagrams/2007/12062007spy.jpg
http://www.ivicacharts.com/diagrams/2007/12062007qqqq.jpg

For all these reasons I do not expect a strong healthy move up in the morning. We might have a gap up, but I expect Friday’s high will hold and we could see gap and crap scenario. Of course that is just one possibility. We don't know what the morning will bring. For now the indices act with previous expectations and in Monday’s commentary I stated that I expect whippy daily action and the possibility of a move up for the rest of the month. I don’t expect that move will be as strong as last weeks bounce from the low. The weaker buying paces with choppy intraday action suggest this action. This is not good market action for swing trades, since each day the gaps bring a higher risk and we must be very careful with the risk that we use. We have several open swings and for now they are doing ok. I like to note again that overnight risk must be small. Yesterday's gap up didn’t convince me to be a strong buyer. I will follow the market action as usual and I will use it for intraday setups what are the safest place for now. Generally the market show strength, but I’m suspicious looking for a continuation.

Wish you all a good trading day.

Ivica
 
Market commentary for 12/11/2007

Good day!
Not much can be said about Monday. We had another very choppy trading day with divergences in the morning and range action for the rest of the day. Even scalp traders had a hard time. This market action is very good for overtrading and losing money. Because of that I will wait to see the reaction after the FED announcement. Even though the DIA had an NR7 bar on Friday, we didn’t see much trend action there. After the open we got an initial move and that was it for the rest of the day. Now the QQQQ formed an NR7 bar, but I won’t count on a trend day for Tuesday.

http://www.ivicacharts.com/diagrams/2007/12112007dia60.jpg
http://www.ivicacharts.com/diagrams/2007/12112007spy60.jpg
http://www.ivicacharts.com/diagrams/2007/12112007qqqq60.jpg

On the daily charts we can see that volume is still decreasing and that makes the indices move up unhealthy and ready for a stronger correction. Because of that trading risk is high and my advice is that it is best to wait to see the reaction after the FED and then decide. Usually on a FED day we have an up market in the morning and then consolidation and range action until the announcement.

http://www.ivicacharts.com/diagrams/2007/12112007dia.jpg
http://www.ivicacharts.com/diagrams/2007/12112007spy.jpg
http://www.ivicacharts.com/diagrams/2007/12112007qqqq.jpg

Also it is important to know that staying in a trade (day or scalp trade) during the announcement is high risk, because we can expect strong reactions after the announcement. I think that if the FED gives us unexpected news that we will see a huge move, and possibly even the start for a new swing direction. But if we will hear expected news then I think the reaction will be only short term and that the indices will stay in the weekly range which will continue this higher risk trading environment. As the Fed announcement nears, look to close down extra market minders and level II screens to avoid a system lock up from the surge in volume following the announcement. Trading at this time is high risk due to data delays and rapid price movement.
Three waves of activity tend to follow a Fed announcement. There is an initial reactionary move, followed by a correction. This correction can be stronger than the initial reaction. A third wave follows, heading back in the initial post-announcement direction.

Wish you all a good trading.

Ivica
 
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