A little scalping in an overbought market

Hey all,

I literally didn't have time to post a blog on entry so I have combined the entry and exit into today's post.

I heard this morning that if we closed higher today it would represent a four-day-rally - only the second or third time this has happened over the past quarter. Couple this with the latest headlines one can't help get the feeling this bear market rally may be a bit long in the tooth. Until we get some dramatically bullish news it seems only logical to look for a bit of consolidation. 

The consolidation today started with continued wranglings out of Europe re. P.I.G.S. debt. and the introduction of more competition within the tablet pc market. The pullback got fuel when the weekly crude inventories number came in with a build when the market was looking for a draw-down. While not earth shattering, they were generally bearish news events and as a result, a consolidation ensued.

Technically, the market carved out a nice descending wedge pattern through late yesterday and most of today. Using our simple bull/bear flag analogy, when the market moved through 54.98 one could have a high degree of confidence in seeing 54.75. Couple this with the tighter and tighter 'wedge' that formed through the day and one could easily see a violent resolution to the price pattern. 

While I fully admit that this market looks like it wants to go quite a bit lower (probably into the 54.00 area, I am more than happy to take profits at the bear flag target (54.75) and did so when that number was hit. As indicated on the chart, 17% on your money (in less than a day) on a nice simple trade makes me very happy.

That's all for this post,

Brian Beamish FCSI

The Canadian Rational Investor

the_rational_investor@yahoo.com

the-rational-investor.com

All appropriate disclaimers apply, DO NOT risk capital in options trading that you cannot afford to lose.