Wednesday, July 31, 2013

SPY July 31, 2013

SPY Daily chart July 31 2013

Wednesday, July 31 2013 was a Fed day, so it was market by a quiet morning and a wild afternoon. The Fed of course did not say anything earth-shattering - nobody really thought that anyway - but, especially in the era of QE, these Fed days catch traders' attention, so it is a chance for some traders to profit from volatility. Surprisingly, the averages, after all the fluctuations, wound up pretty much unchanged all around, with a slight bias to the upside.

It's never wise to go into Fed days with some illusion that you know how they will turn out. Yesterday, we did not try to do that, though we held out positions. This simply does not look like a market turning point unless the Fed wants it to be, and nothing fundamentally has changed to suggest that it is. To be clear, we remain Bullish.

Why remain Bullish? Several reasons, which we've discussed all along. It was difficult to be disappointed with today's action if you were Bullish, with the trading range we have been stuck in shifting ever so slightly higher. For the first time in a while, we did not touch the 1670s. The futures high at 1694 was very encouraging after we had not seen that level in a while. The market often acts like this at bright lines like 1700, hesitant to go through them. Shorts get to trade on Longs' fears that "it's just too high," as if the we don't deserve to see levels that high or something. That's all nonsense, but it's a psychological battle. When the market builds up enough energy, it then usually blows right through those previously unassailable levels without any trouble. When we finally do clear 1700, we easily could see 1720 the same or the following day.

Another factor is the rising wedge we now see in the below 4-hour chart. We talked about the Bull Flag that was forming a triangle yesterday. Today's action clarified that, on the four-hour chart, we in fact are in a rising wedge. That is Bullish.

Futures 4-hour chart July 31 2013

Somebody asked me yesterday, reading what I wrote, "Does this mean you don't really know where the market is going?" Son, no I don't. If you ever find anyone who knows where the market will close each and every day, go buy him lunch. I would bet you good money that no such person exists or has ever lived. If, in response, I had said, "the market will be higher tomorrow," I would have been wrong. If I had said, "The market will be lower tomorrow," I would have been wrong. The market was unchanged. Did anyone you know think that would happen? I sure didn't. But I don't care, because I don't try to predict.

What I do deal in is probabilities. Sometimes they wind up profitable, sometimes they bite me in the butt. Overall, the key is to play the probabilities properly once you recognize them. The probabilities right now suggest the market is going higher. We remain Bullish.

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