Daily Wrap

Analysis turned into dinner and then a movie.

So here's my take, everyone was expectng a bounce on the done debt deal, the trade was too obvious, after the House passed the legislation, the debt deal was too obvious.

 What the market is really worried about is a downgrade and tonight Moody's passed on a downgrade, although they did put out a negative outlook which they had to do to keep any credibility.

Today some serious levels were taken out, these are the kinds of levels that send traders into the market on the short side.

Some examples...

 The Dow-30 breaking support and the 200 day moving average.

 The Russell 2k at new lows for the year.

And the SPY taking out support, but in this is a possible head fake move as well, with all of the important levels broken, there's going to be a large short presence, a perfect setup for a head fake. You can see the last head fake in the SPY on a new high, they tend to be at extremes.

If a head fake plays out, I would expect the market to open lower and probably sell-off a bit more committing shorts to the move. I'm not basing my analysis on an oversold move because there's no way to define oversold, I'm basing it on 3C charts that seemed to defy new lows and made higher highs. Also the Price / Volume relationship came in at Price Down/Volume up, this is a typical short term reversal relationship on short term capitulation.

Some other information I found interesting...

 The quote stuffing at the end of day which coincided with the market breaking afternoon support and pushing a few averages that little bit extra needed to break important levels. What I find interesting s why cancel the order if you are bearish?

 The McClellan Oscillator is at lows that are associated with rallies-the SPY is in red here.

 On a 5-day Bollinger Band (20,2) in a flat BB environment, when the market closes below the lower band, often it leads to a move up. The key s a break of the band and the bands being relatively flat (indicating the volatility of a topping market).

Also when the % of stocks above their 40 day moving average spike low, often a rally follows.

Ultimately we see a lot of head fakes, they help set up the trade and the give extra energy to the resulting move and more then anything, they cause a lot of people to be wrong. In retrospect, the expectation of a rally today on the debt deal was so peppered across the media, it was just way too obvious.

I'll be keeping an eye on the early trade, but I would expect the morning to look pretty nasty, it makes sense just from a head fake point of view, you need traders to commit to the short.

No matter what happens, whether you are long or riding out some of our shorts, HONOR your stops. If there's to be a bounce, they'll be time to catch it. If the top breaks down, there's tons of room on the downside.

 Keeping your chips is what the game boils down to. There will always be another train on Wall Street.