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The general market has been stuck in a range for a while. A short term trend following system will fail miserably in a situation like this.  Oscillators, pivots , support and resistance work better here.

The overall market sentiment is perhaps still slightly bearish mainly due to the problems in Europe. So we can pay attention to how EURO is doing.  EURO has been rebounding from the bottom nicely during the past 3 weeks.  If it continues, it will help the stock market move up too. Or it will at least ease the downward pressure on the stock market.

The stock market is approaching a key support area.  As we can see from the chart below, support A and B were both valid.  If you had gone long on these key points, you would have profited nicely. What about this time?   Would you want to go long from here again?

I took a small long position in EURUSD @ 1.1963 on 6/7/10.  It is only 1 lot (worth 100k), which is considered a small position in Forex.

Now I have over 400+ pips in profits on paper now.  I was aiming for a 500 pip move here.   And the initial stop loss was set @ 1.1877,  which is less then 100 pips.   So the risk reward ratio is very good here.  Now I am trailing it.  So the profits are almost locked since Forex rarely has gap ups/downs.  That is one of the reasons that I only swing trade Forex in a regular account.  

Here is the trade.  

See my post about this trade on StockTwits here.  Look at the time stamp of that post.  It was posted close to real time.

If you do not trade Forex,  a 500 pip move for a 1 lot position is worth about 5k profits in USD.

As I mentioned in my previous post, we would expect to see some range bound moves. It has been the case for the past 2 weeks partially because some bullish news from China provided some balance to the bad ones from the EU. Let’s take a look at the daily chart of the SP 500.

Daily

The SP 500 tested the Feb low twice in the past 2 weeks. The first test on 5/25/10 was effective because of the long leg of the bar.  The second test was not as visible as the first one. One might say that the big green bar on 6/10/2010 was a good indicator.

For day traders and short term swing traders, we might see a better picture by looking at the 60 min chart. As we can see, a range bound market is relatively easy to trade since we could easily go in either direction. In other words, there might be more set-ups than in a trending market, which I personally think is harder to trade. Your mileage might be different though.

60 Minutes

Look at the daily and weekly, we can easily tell that the uptrend has been broken.  The monthly seems OK so far. Will we slide more? Perhaps. Dow might slide to 8500-9000 and SP500 to 1000.  But it is not likely to have a double dip to the March low in 2009 again unless heavy weights like France or Germany start to have issues.

Weekly

Monthly