After last week's low volatility sideways price action we saw the market transition this week putting the short term UP trend in jeopardy.

This "transition", which began on Tuesday, also came with increasing volume.

To say this market has been a little Schizophrenic would be an understatement.

In the past few months it seems that every time the market seems to be heading one way it stops on a dime and goes the other.

We have posted about the frustration that some short term traders are feeling in this trading environment.

One of the many skills you need to master as a short term trader is the ability to identify how and when the market (and stocks) transition from one mode to another.

A good example of this was the type of trading we saw on Tuesday of this week.

If you didn't put all the pieces of the puzzle together in time you could have easily missed "Transition Tuesday".

Monday we saw the markets GAP UP and follow through slightly to the UP side on LOW VOLUME.

We would like to see HIGHER VOLUME as the market moves higher in a short term UP trend and we did not (as of yet) get that.

Tuesday"s FED DAY showing the typical choppy trading after the GAP DOWN until the announcement came in the early afternoon sending the market a bit higher.

The GAP DOWN and rally into the close had some traders thinking that this type trading was a positive sign of things to come.

We on the other hand saw it as a chance for the "big boys"  to get SHORT.

Our suspicion was confirmed when the market GAPPED DOWN again on Wednesday.

By the close on Wednesday we saw the market sell off as volume increased yet again.

We saw some sector ETF's that were trying to break to the upside FAIL TO BREAKOUT and actually move lower on increasing volume.

XLE, OIH, USO, and SLX all where showing signs of a possible move up but ultimately ended up selling off and giving back most of the gains from the past week and a half.

The Financial ETF (XLF) inverted "head and shoulders" pattern that we posted about also FAILED TO BREAKOUT to the upside and sold off with the rest of the market.

This was a very good example of a FAILURE and a transition from (short term) bullish to bearish.

These "failed" chart patterns often times lead to very profitable trades if you can identify the "transition" fast enough.

Once we noticed the "failure" we entered into a LONG position in the INVERSE FINANCIAL ETF (FAZ) for a nice STS trade.

In our next "Swing Trading Weekly Wrap Up" webinar this upcoming Friday night we will go over this and some of the other trades we made last week.

Feel free to join us!

Until next week…Good Trading to YOU!

Tags: DIA, ETF Swing Trading, Swing Trading, Swing Trading Blog, Swing Trading Chart Patterns, Swing Trading Price Action

This entry was posted on Sunday, August 15th, 2010 at 10:08 pm and is filed under ETF Swing Trading, Swing Trading, Swing Trading Blog, Swing Trading Chart Patterns, Technical Analysis. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.