squeeeeeeze

Today was one of those days that makes you curse the markets. "It shouldn't be doing this!" Or, "it shouldn't be doing that!" Well the critical issue really is to recognize what's actually happening in the market and being quick enough to take advantage of the behavior.
So, today's question was; at what point does short-covering turn into a short squeeze?
I don't remember where, but I once read that short-covering typically returns 38% of a high-to-low sell-off. So, in today's market for example, I was looking at the 38.2% retracement as confidence that some short positions were being covered and the SPY still remained bearish. However, once price started working back up to the 50% and 62% retracement levels you started to get the feeling that not only were shorts cover, but fresh long positions were being initiated.

That build-up of positive TICK was the sound of thunder.
Points for realizing that the early morning move was a fake-out:
(1) Price put in a recent higher low.
(2) The 20-EMA on the daily chart, yet again, acted as support.
(3) NYSE TICK got awfully "bullish."SPY sure does like being in that $106-106.5 rangeIt's very slight, but the end of the day did build some upward momentum, and the fast line started to correct off of the slow line. Perhaps SPY will go back to test the $106 range again?A move back to $102 (the 50-EMA) sure would seem healthy.

pot

xlf

From now on I'll be posting what seem like random screen shots of a chart. It may or may not be marked up, and I may not make any comments regarding the chart. It will mostly be meant as a note to myself so that I may check back to it while on my mobile. With that said:

narrow range, low volume

A sideways consolidation day after yesterday's "trend" day. The one thing to look for on a day like today are momentum divergences in the early-middle of the day.Though the momentum divergence in the very early morning was the first opportunity to short (the gap-up open vs. the impulse move on Monday morning).We closed on the previous day's support/intra-day value area. You can see it looking at the 5-min chart above, or by looking at the Market Profile.
Here's where we stand:
Tomorrow we'll see if we can test previous lows on strong momentum. Otherwise, we put in a higher low on weak momentum and work on a re-test of the highs.

20-EMA bounce

Many Daily issues bounced off of their 20-EMA's to start off this week, leading to a light volume trend day to the upside.
We gapped up and the first test of negative TICK was bought.The first 15-min bar of the SPY opened on it's lows and closed at the highs. Pay attention to these impulse candles! Not only that, but the close of this candle was just above the resistance level of the past two previous days. We eventually retraced 62% of the entire move from Wednesday.

setups

Some setups going in to Monday.
GD - a couple of things to notice; an inverted H&S pattern, a test of resistance (though you could consider $61 as resistance, in which case it broke out and found support) and Friday price gapped down into the 20-EMA but closed up and well into the previous bar's range on strong volume (piercing line pattern).We can't ignore ISRG after it had such a strong day on Friday.
MVIS - formed a bull flag, but things could get very choppy approaching the $6 range (all-time highs).FLIR is still holding it's flag together.

read the chart

I opened up a random chart and went through drawing trendlines and picking out patterns. It seems like a helpful exercise in recognizing patterns that you can pick out regardless of the time frame. Of course hindsight is a completely different matter, but if you get in the practice of just watching price and the patterns it creates it may give you encouragement in real time. recognize how price has a tendency of correcting/pulling back from momentum movesalso notice how trendlines (whether horizontal or at angles) morph from support to resistance or from resistance to support.

Fri. 9/25

We ended the week with an inside and down candle and we sit on a short-term trend-line support.With a trend-day down yesterday, we needed to keep a watch on how price reacts to both the previous day's low (PDL), the open, and the high's of the last hour of trading (LHH).We could have anticipated a choppy beginning so it's important not to have any knee-jerk reactions. Our gap down sold right into the PDL on mediocre TICK. We snapped back up until price began to test the last hour's highs on fading TICK, bringing price lower.
The low of the day registered a momentum buy divergence, eventually closing right on top of my support pivot.

trend day down

finally!
Nothing to get too excited over, just biding time until we get a dip far enough to interest buyers.
Today's sell-off extended to the lows reached on Sept. 14. which coincided with a 38% Fib. retracement from the lows of Sept. 3rd to the highs of Sept. 17th.
We gaped up slightly, consolidated, returned to the previous day's close (scalp short entry!) where the selling ensued. Notice how price consolidates for the first 35-minutes, but once the pile has been stacked price just slices through the previous day's low/close decisively. A Fib. extension snapped between my S/R pivots gave a good general level of expected exhaustion today.Remember what to look for to expect a trend day.

Here's a chart of the day and a lesson in when to recognize a short covering squeeze.

Fed day sold

A lackluster rally after Fed announcement led a sizable sell-off. We have to see what happens the rest of the week to see if dip-buyers step in.
The first shoe to drop this morning was the energy sector (XLE).Our intermediate trend was breached late in the day

ridiculous volatility on these Fed days

From now on...

...when price gaps above my daily Resistance pivot (or below my daily Support pivot) I'm going to snap Fib. lines between the two pivots to get my extension S/R. Seems to work well.
Here was today's activity in FCX and POT, both of which gaped above their respective Resistance pivots, so I snapped a Fib. line between the two. The extensions gave excellent target potential.

Tuesday Chop

Looking at the last four SPY sessions we see a familiar pattern that is similar to a morning star reversal pattern. Price gaps down one day followed by a gap up in the other direction the next day, extending the upward price trajectory yet again.
Doesn't get any more straightforward than understanding the slightest of lows getting bought.

Monday chop

A choppy day for the SPY. With such a sizable gap down it was curious that we didn't get any strong "buy the dip" hands coming in at the lows , but today's volume was pathetic.
SPY basically chopped around my Support pivot all day long. When we finally did close the gap a TICK divergence hinted at possible selling.SPY always gets choppy when these moving averages cross over.
Still going to watch the setups I listed over the weekend. LZ $72 may be a mover.

Setups

Some setups to watch next week.
BHI; large volume breakout from a base.MBFI; testing resistance (previous support) in a flag pattern. Price closed at the highs on Friday, strong volume.KLAC; basing at $35.5
GIGM; big volume came in on Wednesday and has since consolidated tightly in a flag.NOC; broke out of a long-running base on Thursday with follow-through on Friday, could be a runner.GLS; nice big volume, price closed on the highs Friday, looks like buyers liked the dip below $8.SCSS; sorry for the crappy image, I can't stretch the chart the way I wanted. This one broke out of a flag after coiling into two nr7 bars. Could run to $6.
LZ; all-time highs, perhaps flagging for more.