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ShadowTraderPro Swing Trader for October 2, 2009 The ShadowTraderPro Swing Trader is your every morning dose of market reality brought to you from the resident geniuses at ShadowTrader. Overseen by Chief Equity Strategist, Peter Reznicek, each issue contains a full report on the prior day's action, including market internals, technicals, and what sectors were hot and cold. Each issue also includes the ShadowTraderPro Model Portfolio, which updates members on what stock plays STPro is currently engaged in officially, as well as provide a daily list of long and short setups for more self-directed traders and investors. To get the most out of your subscription, please read our Swing Trader User's Guide If you have any questions or comments regarding commentary or plays in this newsletter, please email to swingtrader@shadowtrader.net. The Big PictureGood morning, traders. Yesterday's power sell off reminds us of the latter part of 2008 when daily price ranges were 30 to 40 points a day on the S&P 500 Index (SPX). The pullback was so strong and overdue we have created a new word to describe it beartaliation, but enough of the chatter, let's get to work on how we can possibly profit from it today. The first thing to keep in mind as a general rule is that after such a huge bodied candle, it is not uncommon for the next day's move to be a retracement into the prior day's range or for the day to finish with a doji price pattern. Of course there is no guarantee that this will take place, but with a keen eye on market internals and a plan in their quiver, ShadowTraders could take advantage of a move back higher if it were to occur. First let's look at the chart of the S&P Depository Receipts (SPY) to observe what we think will play out in the broader market today and then we will study a specific stock where ShadowTraders can implement a strategy to profit should our anticipated scenario occur.  We will be looking for an opening gap down. If this occurs we will want to be buyers of stocks with similar patterns. We believe there will be a high probability of a gap fill and then further buying into yesterday's large bodied candle. We have indicated on the chart above (highlighted circle) the area where the SPY is likely to touch down before reversing direction to fill the gap and move higher. It will be interesting to note if the 61.8 % Fibonacci retracement level holds or if the SPY moves all the way down to the magenta trendline beforee proceeding back higher. One of the trade ideas listed in today's Bulls and Bears section is Cullen Frost Bankers (CFR). It presents a setup very similar to the SPY above.  CFR closed above the ascending blue trendline yesterday at the bottom of a large red candle. A opening gap down would bring it right into the sweet spot near the face of the ascending trendline (yellow highlighted box) for a long entry . The stock's previous high-low (orange circle) must be broken in order for the current uptrend to be nullified. We have placed our stop 15 cents below the low on that day. Assuming an opening gap takes place this morning, ShadowTraders should closely monitor market internals, particularly as price approaches the top of a gap. It is at that point that a decision of exiting or paring down trades will have to be made. The tops of gaps often act as resistance. However, if the market internals are very bullish, this would signal that the market will probably trade past the top of the gap and into yesterday's large price bar body. Under The Hood
Heads UpToday - 10/02/2009 Monday - 10/05/2009 Tuesday - 10/06/2009 Bulls and BearsLong Ideas
ShadowTrader Model PortfolioTo get the most out of your subscription and for detailed instructions on how to structure your own portfolio, read our Swing Trader User's Guide
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