What Does Recent Price Action Tell Us??

As Eric wrote about in the blog yesterday some recent action in the market has made us start to pay some more attention to the short side of the market.  Eric identified 118 as the area in the S&P 500 as support and that was the level that was holding in the first hour of trading this morning. 

During this time I was nibbling on some trades from the long side and the short side.  This was obviously a major level in the market and I wanted to be ready for whatever the market presented.  The key here is to not have a bias but a plan for the day.  My plan for the day, which I Twittered this morning, was to look at Cameron International(CAM) and JP Morgan(JPM) to the short side.  I also took a few longs which I lost a little bit or took a flat.  But that is the type of plan you need as the markets approach these inflection points, like the 1180 level in the S&P 500.

As I posted the other day this market is continuing to have a heavy feel to it.  Many of the information and news we are getting is good but instead of bringing the market up, traders are selling this news.  This leads me to believe we will continue to roll over for a bit.  Now I’m not saying we are going to enter a bear market but I would not be surprised with a small correction.  I will continue to play the long side at support levels for good risk/reward scenarios but as traders we need to be ready for the short side. 

The major thing to take out of today is to come into the day with identified support and resistance levels in the market.  Then take these ideas and formulate them into trading ideas based on the price action in the market and the price action in the stocks are your list.  If the price action you are looking at does not fit your trading ideas then you should do nothing or at the very least trade with lower share size.  Best of luck with your trading. 

Kyle