Today was one of those days that makes you curse the markets. "It shouldn't be doing this!" Or, "it shouldn't be doing that!" Well the critical issue really is to recognize what's actually happening in the market and being quick enough to take advantage of the behavior.
So, today's question was; at what point does short-covering turn into a short squeeze?
I don't remember where, but I once read that short-covering typically returns 38% of a high-to-low sell-off. So, in today's market for example, I was looking at the 38.2% retracement as confidence that some short positions were being covered and the SPY still remained bearish. However, once price started working back up to the 50% and 62% retracement levels you started to get the feeling that not only were shorts cover, but fresh long positions were being initiated.
That build-up of positive TICK was the sound of thunder.
Points for realizing that the early morning move was a fake-out:
(1) Price put in a recent higher low.
(2) The 20-EMA on the daily chart, yet again, acted as support.
(3) NYSE TICK got awfully "bullish."SPY sure does like being in that $106-106.5 rangeIt's very slight, but the end of the day did build some upward momentum, and the fast line started to correct off of the slow line. Perhaps SPY will go back to test the $106 range again?A move back to $102 (the 50-EMA) sure would seem healthy.
The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at firstname.lastname@example.org
I am always open to questions, comments, or suggestions on how to improve this blog.