Monday, January 19, 2009

Catching Longer-Term Market Moves With Price Targets

My recent post described how weekly price targets for the S&P 500 Index can be used to frame swing trade ideas. Here we widen the time frame even further and take a look at the price targets for January derived from December price data and adjusted for recent volatility. The pivot, R1, and S1 levels are drawn as blue horizontal lines. Note how we tested R1 very early in the month, but could not sustain a move to R2 (which was at 95.27). The general rule is that such a failure targets a move back to the pivot level and, if that cannot hold, down to S1.

You can see how we did indeed return to the S1 region but have since bounced higher. The key for traders now is to handicap the odds of returning to the pivot level vs. continuing the downmove to S1 and even S2 (which is at 79.02). The day-to-day strengthening or weakening of the market indicators (new highs/lows, Cumulative TICK, etc.) provide us with evidence for handicapping those odds and framing trades accordingly. Should we see an inability to take out Friday's high in Tuesday's trade, along with weakness in NYSE TICK, for example, I would expect a test of S1 and would be selling the S&P accordingly.

I will post the monthly pivot/target numbers to Twitter later today. Once again, the last five Twitter posts appear on the blog page under "Twitter Trader". The full list can be found on my Twitter page, where you can also register for free subscription via RSS.

On a related note, I talked at length with Trevor Harnett of Market Delta today and learned that they are coming out with significant additions to that program at no additional expense to users. Those additions are in beta testing at present and should be ready for roll out in the next few weeks. My initial look suggests that the new features will be of particular help in gauging real time market strength/weakness to help traders anticipate moves toward the price targets. More to come!