Last week, we warned about key support at 1080-85. That failed the next day, and the thought process is we could see a further correction to 1038.

The playbook calls for a vigorous attempt  to get back over that support line — and then fail. So its no surprise that futures are up strong today.

We know that forecasting is folly, and the shorter the time line, the more random the market action is. However, if I were a gambling man, the bet I would make is for a rally right back to that break line, followed by a move lower.

Of course, this technical stuff — support and resistance lines — is just voodoo to some of you. But its how many Wall Street traders manage their risk profile and adjust to what is otherwise random noise. YMMV.

Category: Technical Analysis, Trading

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14 Responses to “Key Break Playbook”

  1. Chris says:

    Actually, when I started my career as a daytrader, I did some backtesting on buying / selling based on support lines. It looks ok until you consider spread and fees. Then it becomes impossible, at least intraday, to get money out of the market this way. However, I guess it might be possible to use support lines if you have extremely low spreads and nearly no fees (e.g. if you don’t need a broker for placing your orders).

  2. Mike in Nola says:

    It is Voodoo to me, but one would be foolish to ignore Voodoo when visiting Haiti.

    BTW, learned of a weakness introduced by pc card slots in laptops. Knocked over a cup of coffee next to my laptop Thurs. evening. Was mostly worried about the carpet. A little spilled on the palm rest of the laptop, but not big deal. After I cleaned up, got back to the laptop and it started getting flakier and flakier. I eventually pulled out a bluetooth card I hard in there (old, cheap laptop). It was wet with coffee. Took it apart as much I could, including the keybard. Blow dried it and left it out, but to no avail. Didn’t loose data because the hard drive wasn’t involved. I use Jungledisk anyway (recommend it highly for online backups). Am now the new owner of a Dell Inspiron 1764 – 17″ Intel i5 processor and 500GB hard drive. $750 from Best Buy. Went for the 17 inch even though it’ll be clumsier traveling, but the old eyes ain’t what they used to be. A lot faster than my 3 year old 1.3Ghz core 2 duo. Keyboard is very nice except that I just discovered that the spacebar is a little clicky now that I am typing in pretty much absolute silcence.

  3. waiteman says:

    I appreciate the TA read.

  4. jpm says:

    But its how many Wall Street traders manage their risk profile and adjust to what is otherwise random noise.

    Who is the Warren Buffet of TA? ie, how far down the Forbes wealthiest list do you go down before you find the person whose fortune was made by TA?

  5. rktbrkr says:

    I think the Shanghai index is the canary in the cage. Reading about the RE boom/bust in the 20s-30s makes me think the current situation is all the more ominous.

    10% unemployment and new waves of state & local layoffs – guess the furloughs weren’t sufficient.

    What inning is it?

  6. cognos says:

    The only good technicals (in terms of creating wealth) seem to be long-term trendlines and trend-trading in the style of Paul Tudor Jones.

    The opening half of the month has been strong every month since Aug. And we’ve had a generally bottoming into the end of months. Esp Oct and Jan. With consistently strong fundamentals on EPS and economic data, I would (and have) bet that continues.

    The next +/-3% is tough to call. But the pattern… up 12%, down 6%, probably still holds.

  7. rktbrkr says:

    Mike Nola, I killed a Dell laptop with a coffee spill too, I recently bought a Samsung Netbook for about $300, light, decent battery life and does everything as well as my 3YO laptop did.

    Ncomputing has some very interesting desktop virtualization products for about $100, a decent new desktop and some old monitors and keyboards will create a computer lab for about $100/head for schools that can’t afford new eqpt. I want to try out remote virtualization using PLC instead of running a dedicated cable, 500mbps powerline products are going to be unveiled next month in Germany.

  8. “I want to try out remote virtualization using PLC instead of running a dedicated cable, 500mbps powerline products are going to be unveiled next month in Germany.”


    do you mean 1/2 Gig bps, wirelessly?

    these puppies.. http://www.panasonic.com/business/toughbook/laptop-computers.asp?cm_mmc=PCSC_Toughbook-_-Vanityies-_-Homepage-_-laptop-computers.asp

    should put away one’s worries about random ‘coffee splashes’/’waves at the Beach’/’downpours at the Picnic’…

    peep should wonder why their CE-gear is so ‘open’..

  9. Transor Z says:

    Mark, any sense of pricing on the business toughbook? Also, when is Windows 7 going to be standard?

    TA looks like a poor-man’s (no pun intended) pattern recognition algorithm:

  10. rktbrkr says:

    Yes, 500mbps (not real world of course) on electric wiring
    New Samsung netbook is slightly water resistant
    the Samsung NB30 features a water-tight seal around the system. You can spill water on it, but not too much water, and you better clean it off fast. To be specific, Samsung’s claims their tests show the Samsung NB30 will resist water damage from up to 50 cc of water, less than a quarter cup of liquid, if the water is removed within 10 seconds

    devolo AG of Aachen, Germany, the global market leader for powerline-based network solutions, will showcase the new generation of dLAN® products at CeBIT 2010. Based on the forthcoming international powerline standard, IEEE P1901, the new dLAN® generation offers a transmission rate of 500 Mbps

  11. [...] FusionIQ CEO Barry Ritholtz notes the S&P 500 crashed through key support level last week at 1080-1085. “The playbook calls [...]

  12. polizeros says:

    I asked a friend who traded futures for himself and a few clients about TA. He said he thought there was some value in it, but more important, if a stock breaks resistance, then those who follow TA will sell. Self-fulfilling prophecy.

  13. whodunit says:

    I agree BR. It is what it is. The long ride down it did it over and over. A little pop down through S, a trade back up to or slightly above the break, just to make everyone feel nice and safe, and whack.

    I like to look at everything, not just TA, but a break out and break down are what they are a lot of times, and I don’t care why.

    Do you use PNF ? I use that a lot on a Co basis. I find it useful as well. Cheers

  14. rktbrkr,

    I hear you, now. Thanks, for explaining, further..

    that type of ‘rap’/app. is being used to help sell ‘Smart Grid’ installs..

    actually, that Tech., IP over Powerline, has been around for, at least, ~10years..(not saying that this recent prod. is not an improvement)

    still, it pales against Fibre Optic, even DOCSIS 3.0(saying nothing of 4.0)..

    retail quotes should be pretty easy to find..

    but, note, with the deluge of DHS funding pouring into “First Responders”, et al., the ‘used’ Toughbook market is ‘robust’..

    I’d be looking for one of those, forget the Bloat-ware of Win7, and go with Linux-based OS..

    Win7 isn’t, currently, being loaded/ran with b/c of ‘Mission Criticality”-concerns..

    these ‘putes are never loaded with the ‘latest’ OS realease–that’s what the CE market is for–be Guinea Pigs..