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May 09

Market Log for May 11, 2009

indu daily chart

indu daily chart

The positive momentum continues. Sentiment is on the positive side and long positions taken over this period have done well. As you can see on the Dow Jones Industrials, the 8200 minor resitance level was clearly broken and 8400 major resistance has been broken as well. Remember old resistance becomes new support and now you will notice the 8400 area being slightly supportive.

Momentum indicators still point to the upside but prices don’t go up in a straight line. As prices become over extended, risk to the long side increases dramatically. This is an area where we are taking profits on long option positions that we have taken in the previous 2 weeks. If I were going to take any new option longs at these levels, they had better perform within a day or two, otherwise I’m out.

This market in terms of scalping is hard. This is a choppy market with occasional spurts of momentum. If you are new to this type of trading strategy, then this is a great time to educate yourself further and trade a litte less. You can do this by taking advantage of our free instruction, paper trading and doing your homework on the tons of learning resources on the net. What do I do during this environment with my scalping? The first thing I do is adjust my time frame higher. I pay more attention to support and resistance levels within the bigger picture. If you join our chatroom, you will see first hand how we navigate in this environment. You must learn to be flexible.

Some news items to keep an eye out for next week include: Bernanke talking on Monday about the over dramatized “strees tests”. The rest of the week contains things like retail sales and producer price index numbers. If something comes in unexpected, we can see volatility enter the market very quickly. Also there is alot of news coming out of the Eurozone, UK and Japan. It is good to be aware so that you can take it into account when trading, especially in the currency market. Remember we trade momentum and don’t make decisions based on any news related items. News is there to sell advertising, not help you make money.

Check out the Forex Factory calendar here it shows all news pertaining to all markets.

See Barrons economic calendar here for US reports and explanations here.

Overall, I am very cautious at these levels and looking to go where the ever prices decide to go.  It is possible for this to go higher, but I am now thinking very short term.  This means my time horizon for non scalping trades is 1-2 days.  Need further explanation?  Come to the room!