November 16, 2011 Leave a comment
If you have not heard by now, the S&P 500 is trading within a symmetrical wedge pattern, which has most in the investing community buzzing. Because symmetrical wedges are generally neutral, they attract quite a bit of attention since no one knows for sure which way it will break. The point I want to make about this wedge is that way too many people are watching this pattern for us to simply buy the first sign of a breakout.
When a more than average amount of people are watching a particular chart pattern, the success rate generally declines. This pattern will play out as a bullish continuation, or a bearish reversal, whichever it is, confirmation must be utilized on any breakout or breakdown of this wedge. Confirmation being a secondary close below the low or above the high of the breakout candle. This method keeps traders out of bad trades, and prevents needless stop outs.
Currently I am short the USO. I took profits on 2/3 of my initial position after the pullback from the 200 MA pierce, and added 2/3 back today after the gap higher. Today’s move looks like an exhaustion gap as it tagged gap window of $39.80 and the pivot high of $39.50. Additionally, the USO hammered into the .618 level before closing lower during today’s 3pm selloff.
USO closed today in a doji formation which leaves the door open for a star or “island” reversal tomorrow. In any case, oil is extremely extended and regardless of the CME margin easing, oil really has no business above $100 in this economy.
In other news, the United States went over $15 trillion in total accounted debt today, a number that is up over 40% in just the last couple of years.