In
thinking through the events of Wednesday to Friday this past trading week, I
basically see the Goldman Sachs civil suit by the SEC and Friday’s immediate
response by the markets as a “shock event”.
It is my experience as a trader that market shocks like this can present
great opportunities for traders, because a shock event can signal a change in
the markets.
Alan
Farley (in his book: The Master Swing Trader) has defined a trade set up
related to market shock events, which I think is very useful here. It is called a “Power Spike. After Friday’s close, I am beginning to see
this set up all over the charting landscape on a daily time frame (but not on a
weekly chart yet) and in several sectors.
Power Spike (a bi-directional set up) –
http://www.hardrightedge.com/tour/spike.htm
provided on Farley’s web site, so I will not repeat them here. However, learning the characteristics of this
set up (and making the trade idea your own) is well worth your time.
S&P 500 ($SPX) – http://tinyurl.com/y5nkmbd (a direct link
to my stock chart)
Financials (XLF) – http://tinyurl.com/yydzzln (a direct link
to my stock chart)
Financials
were one of the weaker areas in the market on Friday. I would note that real estate (IYR) was also
relatively weak.
With
the 5th wave extension of this March 2009 rally, I see a growing
opportunity with this specific trade set up over the next few weeks because the
shock event on Friday is now combined with many reversal-based candlestick
patterns on the index charts (e.g., evening star doji, bearish engulfing, and
dark cloud cover to name a few). So keep
an eye out for the next market ripple in the big pond called the U.S.
economy. The next shock event is probably
not too far away.
