In the movie “Groundhog Day” Bill Murray finds himself repeating the same day over and over until he gets things right. I find this movie hilarious (..”do you ever have déjà vu?..Didn’t you just ask me that?”)  and enjoy watching Mr. Murray working through this day until he finally finds some clarity in what was seemingly chaos. Markets can often have this same feel to them in that price action can seem random but when looked at through the lens of repetitive price swings, we can find order within the choppiness. The monthly chart of the NASDAQ illustrates this nicely. Since the collapse of the tech bubble the NASDAQ has been consolidating within a wide trading range. However, when we take a closer look we can see the similarity in the price swings has been uncanny. There have been 3 separate up swings that have measured nearly the same number of points and the same number of months in each swing…The most recent completing at the January Highs. Traders that are adept at identifying such structure in the market can use this to find areas to look for signals. In this example we see a bearish engulfing candle forming in the NASDAQ just as this last swing completed. In the world of physics Einstein used to refer to things like this as “spooky action at a distance”.  Spooky about sums this up for me.

Kevin Riordan

For those of you who have come to our free webinars and those of you that have attended our 3 day trading course online know that the Parallel Channel is the root of the bread and butter pattern, the AB=CD. The chart posted here is a picture perfect example and could have been pulled out of H.M. Gartley’s description of this pattern in his 1935 book, Profits in the Stock Market.
One of our last posts stated that any rally up to the 1147 area would be a shorting opportunity.
You can clearly see on this chart that it was the upper end of this Parallel Channel range. The SP 500 has now traded down to the lower end of the Channel.
The main question now is, do prices break the lower end of this range?
These questions are usually impossible to answer in advance. In lieu of trying to predict this, traders at this point want to monitor any rallies up, to access the strength or weakness, and watch the lower end of this range. A decisive break of the lower end can lead to a much larger move down.

The holiday season is long since over and turbulence has returned to the markets. Newspaper Headlines and political policy are once again dominating the market psyche, pushing financial reports and the current earnings season to the sidelines. Welcome to 2010! In this blog we warned weeks ago of the storm clouds that were building over the markets and the thunder began this week with the single biggest weekly drop in the Dow Jones since this bull rally began. Was it weak data or poor earnings that triggered the route? Not at all.  In fact earnings were rather solid. Indeed markets have become rattled with a plethora of political concerns including the health care bill, breaking up and taxing the banks to the re-appointment of Fed Chairman Bernanke.  Fast forward to This coming week which is heavy with even more financial data from GDP to housing starts….littered between some very important corporate earnings reports. As if this wasn’t enough, we will also have our first FOMC meeting for 2010 this week, chaired by a Chairman that may soon be viewed as a lame duck.  While these land mines all threaten to cause even more volatility….the markets will keep a close eye on Wednesday’s state of the Union address. Regardless of investor’s political leanings ( and this blog is not intended to be political), it’s important that traders become aware of the increased influence political headlines and policy have taken these past few weeks. The State of the Union address is always an interesting political speech to watch. In light of investors increased focus on some recent policy statements, this year’s speech could be more of a State of the Markets. Stay tuned

Kevin Riordan

On Friday the SP 500 had a small gap down open but failed to fill even the small gap from the previous days close before selling off 14.75 pts for the days range. The area around 1147 is very good resistance right now. The market closed on a small abcd sell on a 400 tick chart. Watch any rally up in the next day or two for a shorting opportunity.