Blow Off Ben

Today was a classic textbook example of a blow off top in the markets, especially in the S&P 500. As I mentioned in last Friday’s recap post, blow off tops happen in extremely overbought markets when the prices make one last spike up on big volume and then very quickly reverse in the other direction, frequently on even bigger volume. Paradoxically and more often than not, blow off tops are put in following seemingly good news.

If you look at the intraday chart of SPY, you will see that today’s action perfectly mirrors this description. The markets opened up slightly, expecting Ben’s 10AM testimony. Not surprisingly, Ben again pledged to keep the money printing presses running for as long as needed to support the economy. The markets shot up higher on this news on very heavy volume with the S&P quickly advancing to 1690 around 10:30AM. At this point the markets suddenly reversed on even heavier volume and the S&P quickly dropped to 1670. After some mid-day consolidation the market resumed the slide finishing the day around 1655, down about 0.80%.

The question now, of course is, where do we go from here? Is the rally over?

I don’t think so. As you have heard me say many times, this market has been very overbought for some time and to be able to continue higher, it needs to rest and consolidate for a bit. Even a seemingly scary 5%-10% pullback would be constructive in my opinion and would not jeopardize this uptrend. But, obviously, we need to wait and see what happens and, as always, let the market price action show us the way.

Today started off as the most difficult day for us this year. Right off the open I ran into difficulties. I was focusing on AFFY expecting a bigger continuation move which caused me to completely miss CLNT’s monster move. After 10AM, as the S&P was rocking toward 1690, I took five long trades in a row (UNXL, AMRN, CLSN, FCEL, AAPL) and they were all stopped out, several after just a few minutes. It doesn’t matter how good of a trader you are and how much experience you have, a string of losses like this will rattle you. The most important thing you can do is keep your composure, focus, and discipline.

The situation improved after 11AM. We were able to get two decent trades in CLNT. As the market selling resumed after 1PM, we were also able to get several fairly profitable trades on the short side (AAPL, MA, UVXY – 2 trades), which allowed us to turn the tide and end the day positive.

  • Gross % Return: +0.71%
  • Net % Return: +0.44%
  • Total points: +5.05
  • Number of trades: 18
  • Green trades: 10
  • Biggest point winner: +2.57 (MA short)
  • Biggest point loser: -0.70 (PCLN short)
  • Biggest % winner: +4.68% (CLNT – 1st trade)
  • Biggest % loser: -2.61% (AFFY)

For more details on today’s trades, please see the attached log.

NTMay22Log

Not long ago a Wall-Street-Hedge-Fund-Finance-MBA guy, now a momentum trader. Father, husband, mediocre soccer player, numbers geek with a lousy sense of humor. Obsessed with risk management, tries hard to "make money every day"

Posted in Just Rambling
2 comments on “Blow Off Ben
  1. OurConstitution says:

    Nice recap! I had to go out of the house and got back after the carnage. All my trades had been stopped out. Boy, I glad I had them in place. The first thing that came to mind was, “I wonder what Noanet has to say about all this?” I guess you have become a part of my day. So glad to have you to learn from. Many thanks.

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