August 26 - Identifying Market Tipping Points

In the recent market, local trend change points can be seen in the battle field between the bulls and the bears. Each pulls to a different direction until one emerges as the victor. These areas can be spotted by the narrow trading range around certain market levels.

Let's take a look at a daily chart of the S&P500 captured this morning:

I think that with the recent uptrend the markets have moved up too much too fast! We are over due for a correction. Even though I believe that the markets are over-bought, it doesn't mean that the market can't keep going up from here. The quote that "markets can remain irrational far longer than a rational trader can remain liquid," applies very well here!

Looking at the chart, I see a possible trend change pattern forming on the right side. For the past two days the bulls have failed to push the S&P500 past the 1035 level. The past trend change signals have come following the same pattern and the down-tick of the MACD.

I will look for follow through to the downside today or tomorrow to see if a downtrend will begin. Closing below 1020 today on the S&P500 would be a good start.

Following more evidence of a sustainable pullback in the board market, I will look to sell calls on SPY, along with selling GOOG and AAPL which I think are over-bought. Tighter stop-losses are in order as we are in an up-trend.