Thursday, February 25, 2010
Breakout or shakeout?
I am still long one unit and am sitting here scratching my head. I can't figure out whether the move below 1090.25 on this morning's economic numbers is a breakout (implying a move to 1075-76) or a shakeout (implying that this morning's low will hold).
The trend channels I have drawn on the lower chart ( 30 minute bars, 24 hour trading) and the upper chart (1 point box, 5 box reversal) still show room to the downside before the lower channel line is hit. This suggests we are seeing a breakout.
On the other hand, we have seen three pieces of bearish economic news this week which produced an immediate bearish market response (red arrows). But in each case once the initial selling was out of the way the market essentially traded sideways to up. This suggests we are seeing a shakeout.
I am not going to add to my position since I think that 1075 is stronger support than 1086 because it is the midpoint of the rally from 1040 to 1112 and also sits on a pair of channel lines (see upper chart). If the market struggles upward the rest of the day but can't move above the horizontal green line on the lower chart I will get out of my other unit expecting to repurchase both units near 1076.