The Week in Crayons
Despite ending the week somewhat off their new highs, the markets for the most part continued the slow and relentless rally that began about a month ago. As has been the case during that time, sellers have been few and far between and price action once again occurred on muted volume with relatively little volatility. Not much has changed since last week from a technical perspective and most of the analysis I mentioned in last Friday’s post still stands.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see that we are still in the same narrow rising channel that has contained our rally after breaking out at the start of the year. Price is for the most part in the same range it was in last week except for a failed attempt above 1320 which occurred during the middle of the week off the back of strong eps reports(most notably AAPL). We are now very close to last year’s highs which should serve as a strong magnet for price action as the bulls will eventually try to push price to new highs mirroring the action that has already occurred in the nasdaq composite index.
However, we remain oversold and are beginning to see signs of waning momentum. Notice that we printed a yellow candle on our SG22 momo trend bars on Friday’s close, the first such bar in over a month. This is a hint that upward momentum is slowing down and traders should begin to exercise caution in regards to our current swing up. The first key level to watch if this weakness persists is the 1300 area. This was support last week, and a break below it would also likely take price out of our rising channel. After that, the rising 20 day moving average would likely become the next key area of support which would also coincide with the mid 1280′s which supported price nicely after breaking past our last major pivot high formed in late October. Trader’s should be wary that price dropping into these levels shouldn’t necessarily be seen as a sign to short this market as sellers have been virtually non-existant so far this year and a retracement at this point may end up taking the form of a benign sideways drift instead of a deep price pullback. If price were to remain in our channel and continue squeezing higher, look for the 1340 area to become a major test as we begin to probe last year’s highs.
While this type of slow rise can be frustrating to traders that feel they have not capitalized enough on it can be frustrating, continue to remain patient and wait for the proper setups to appear as we work off our oversold nature very close to some stiff resistance on the longer term charts.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Week in Crayons
The markets continued their slow march up this week with little to no real pull backs as the bulls relentlessly stepped in to support the markets any time there was a hint of a drop. We have now drifted in one direction(up) with relatively light volume and volatility for about a month on most of the major indices which is in stark contrast to the highly volatile back and forth movement we experienced for most of the latter portion of 2011. While we can’t truly know until we experience a substantial retracement on the current move, it appears that the market has had a change of character recently and is more likely to be bullish to neutral instead of the neutral to bearish undertone that characterized the back end of last year’s trading. In fact, the start to 2012 is somewhat reminiscent of the start we had in 2011 which also began with a slow and steady march up that seemed to defy gravity.
Looking at a near term chart of the e-mini futures contract for the S&P 500, we can see this low volatility uptrend clearly. Notice how the last several week’s worth of price action is confined to a single narrow range channel. As mentioned earlier, this is in stark contrast to the volatile oscillation that occurred prior to this move. We are now clearly above several key areas of resistance including all of the major moving averages and are poised to challenge last year’s highs. However, Stochastics has had an oversold reading for the entirety of the breakout and while we can continue this slow squeeze all the way to the highs, risk reward does not favor chasing momentum here unless your time frame is less than one to two days for a trade.
Of course, action has been completely bullish for several weeks now, and someone looking to short this should realize that the potential for us to squeeze to last year’s highs is very real. In fact, the nasdaq composite has already formed new highs this week and could be a harbinger of things to come from its relatively weaker peers. In addition to the possibility of a continued squeeze higher, another thorn in the short seller’s case right now is the potential change in character in the markets which could lead to a benign correction that drifts either sideways or slightly down and fails to offer proper rewards commensurate with the risk taken at this point.
As we can see on an older chart of the e-mini futures contract for the S&P 500, this exact scenario occurred during the end of 2010/beginning of 2011. Notice the long narrow channel which contained price action neatly for practically three months. Also note that we were oversold for basically the entire time as well.
While this scenario doesn’t have to play out exactly the same(and likely won’t), it should offer traders a hint of what can possibly occur over the next couple of months and serve as a good warning for those that are looking to short this type of action prematurely. On the other side of the coin, looking at the steep drops that occurred at the end of that run should also serve as a warning for anyone looking to chase extended price action into areas of potential distribution.
We are now a few weeks into the new year and while the character of the market appears to have changed, astute traders should keep an eye on price action and wait for the market to conform to their expectations/scenarios, instead of allowing the market to force them into poor trading decisions.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Week in Crayons
While the markets opened down on Friday looking tired and ready to roll over after a week of positive gains, they gained traction midday and eventually rallied to close just below the days high’s. Friday’s price action was part of a larger pattern of afternoon strength that has become prevalent during the early stages of the 2012. While this is typically bullish in nature as it shows that sellers are having difficulty in gaining control of the markets from the buyers, traders should also take into account that sellers are consistently attempting to push the market down but are eventually becoming overwhelmed as buyers continue to step in during intra-day pullbacks. Another key factor to consider is that this price action is occuring at relatively strong levels of resistance.
This behavior is evident as we look at a chart of the e-mini futures contract for the S&P 500. Notice the string of candles with long lower wicks over the last couple of weeks. Most of these are some form of doji candle and reflect indecision as the markets attempt to find a fair price. While there are a few hammer candles sprinkled into the mix and the overall pattern looks fairly bullish, context should always be taken into consideration when examining candles for clues on future price behavior. While a hammer candle often signals a potential for a bullish reversal, this must occur after a prior downtrend in order to be viewed as a valid signal. When hammer candles occur after a long uptrend, they instead hint at future weakness as sellers are beginning to appear even if they have yet to truly gain control of a market. While this is not necessarily a bearish signal, it certainly is a warning that bullish momentum is beginning to wane.
Another point to consider is the strongly oversold Stochastics reading we are printing on the S&P futures. We have been oversold for a few weeks now and are certainly due for some sort of pullback as price attempts to find equilibrium at new levels. However, traders should not take these signs of temporary weakness as flat out bearish signals as overall price action this year has been strongly bullish. There has been a consistent bid throughout the last two weeks and price is now clearly above the critical 200 day moving average. We have also just cleared the pivot high formed in late October and are in the process of forming a critical higher pivot high indicating that we are now techically in an uptrend.
One level to watch if we pull back is 1260. This was the scene of our breakout at the start of the year and held as support when we tested the gap created from that breakout. This will likely also coincide with the rising 20 day moving average which should provide additional price support as well. Past that, the next key level would be around the 200 day moving average in the neighborhood of 1242 or so. Depending on the timing, this could also coincide with the bottom trendline of the symmetrical triangle we formed over the last quarter of 2011 which would also likely support falling price action. If those two levels do not hold, 1200 would be a likely area of conflict and would present a critical test regarding the state of the markets.
Looking at the overall picture, traders should recognize that while the potential for a squeeze higher is possible, the odds are not in favor of buying now when you consider that we are at levels of fairly strong resistance while the market is showing signs of becoming tired after a nice 3-4 week rally. Now is the time to identify key levels of support on stocks and patiently wait for them as the markets begin to work off their oversold nature whether it be through a retracement or a slow sideways drift.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Year in Crayons
The last week of 2011 in the markets was mostly uneventful as price action basically drifted sideways finishing the week right around where it started, capping off a year that also finished right around where it started. Of course, while the action this week was fairly quiet on low holiday volume, most of this year’s sideways action was done in a much more spectacular fashion as bulls and bears both were trapped on several occasions resulting in explosively volatile moves up and down the charts as the markets figured out the edges of our broad range of consolidation.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see that this year’s action was littered with several bull and bear traps as we probed the key levels of our wide trading range. We can basically divide the year into two periods;
(1)The massive head and shoulders pattern we formed in the first eight months of the year.
(2)The two staged recovery during the last few months as the bulls clawed their way out of the huge hole formed during the breakdown from period one.
Dividing the two phases of this year’s action is the slightly rising neckline of the head and shoulders pattern which supported price action strongly during phase one, but ultimately became a key level of resistance as it became a price ceiling during the second phase of the year. Keep an eye on this trendline as it figures to affect the direction of future price action as we open trading in 2012.
In examining the first period of trading of 2011, one important point to keep in mind is the context under which it took place. We had rallied sharply over the previous two years after a disastrous plunge during the back end of 2008 and there was quite a bit of debate as to whether the markets could break past the highs we formed just prior to the 2008 crash on the back of quantitative easing or if we would drop back down to new lows on a “double dip” move. Each of the key points of the head and shoulders pattern were moments where either the bulls or the bears became convinced that their scenario would win out only to see the market “inexplicably” run away from them. Of course, eventually in late July, the bears finally won out after a strong hammer candle fooled the bulls into thinking that the neckline would indeed hold on the “too obvious and easy” to see head and shoulders pattern.
This spectacular fall led to the second phase of our year’s action in which the previously shell shocked bears now dared to dream of a double dip while the bulls desperately tried to recapture the gains they had made during the previous year’s rally. The markets first attempt at stabilizing after the steep drop we experienced in late July and early August occurred during a volatile two month stretch that featured several swift moves as bulls and bears repeatedly fooled each other as price sharply fluctuated between the extremes of the short term range. In late september, price action finally exited this range to the downside, but ultimately failed as the market instead formed a double bottom as price quickly reversed course and headed higher. The bear trap formed during this false break down can be viewed as the sister move to the bull trap that led to the breakdown from the neckline and amazingly led price back to and through the level from which we had initially broken down from to begin the second phase of the year. Even more amazingly, volatility actually expanded during this tremendous squeeze and even continued for another month as price spectacularly failed at the new price ceiling formed by the neckline from the head and shoulders pattern and threatened to break down back to our lows after several days of repeated distribution with no buyers in sight. However, the bulls eventually stepped in and were able to push the markets back to ground zero to end the year and form a big doji candle on the yearly chart.
Below is a yearly chart of the SPDRs S&P 500 trust etf (SPY) showing the action of the last couple of decades. As we can see, this year’s action formed a doji candle reflecting the indecision that marred most of the year’s trading. This was to be expected after three years of strongly trending action (one down, two up) and is likely to be followed by more indecisive behavior as we are firmly in the middle of a fifteen year range that has now had two major tops and two major bottoms defining it.
The two multi-year tops occurred during the overly exuberant heights of the dot-com era and the real estate boom. The two bottoms occurred during the desperate depths this country experienced shortly after 9-11-01 and after the financial collapse/debacle that led to our most recent recession. These are all MAJOR events and traders should keep in mind that price will likely stay contained within these parameters until there is a proper catalyst to push it through. Of course, part of the reason why trading was so erratic this year is because the threat of major catalysts has become pervasive during the current environment. For instance, the last three years of free money can be construed as the third “good times” era of the last couple of decades and may end up culiminating in another major top if we continue to fall back on quantitative easing. On the other hand, the continued threat of insolvency across the world can ultimately lead to a calamitous drop either to or below this multi-year range and ultimately lead to another major bottom at some point in the next few years.
As we close this year and look towards the next, traders should step back and look at the big picture as they develop their game plan for the coming year(s). Good luck as you enter 2012.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Week in Crayons
Although the markets opened the week in an ugly fashion, they quickly reversed course and drifted higher for most of the week. Other than a few moments of weakness, there was almost no selling pressure this week as the bulls roamed freely while the bears sat back and let them have their holiday break. However, any illusions (delusions?) of a “Santa Claus Rally” are just that as we have not moved significantly from a technical perspective for quite some time now. The silver lining to this recent lack of movement is that volatility has calmed down allowing the markets to rest constructively as they digest the explosive move they had after making what looked like disastrous new lows in early October.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see the recent constriction in price action as all of this month’s candles are clearly inside of the pivot high and low we formed from late October to late November. Keep an eye on these two areas as there will be significant implications concerning them once they are breached.
A move above them will likely signal a new rally and lead to a retest of this year’s highs while a move below them would invalidate our bounce from this year’s lows and probably lead to a retest and possible failure of those lows as well. However, in the short term, we are now testing the key 200 day moving average once again as we bounce between several important moving averages. Watch for the rising 20 day moving average to support price action if it stalls here as the bulls attempt to clear the recent highs we formed in early December. If the bulls fail here as we close out the year, watch for 1200 to be the first line of support followed by much stronger support at the 1140 level which forms the key pivot we discussed earler.
Next week’s trading will close out the year, and traders should expect action to remain light and mostly muted as the holiday season winds down. Watch the edges of our range this week as price is not likely to move with any real conviction as many of the big boys are on vacation and not likely to return until the start of the new year.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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Merry Christmas and Happy Holidays from Stockguy22
Wanted to wish all my friends , family & traders a Merry Christmas & Happy Holidays.
I want to thank you for a wonderful 2011 and looking forward to 2012.
All the health and prosperity to you and your family
Stockguy22 & Team
re: $INHX chart ( Technical Analysis & How I would trade it from here )
re: $INHX chart ( Technical Analysis & How I would trade it from here )
Below is a chart & notes on INHX
I don’t usually like trades like this long because of the fact that they are so news driven.
They make for much better shorts if you can get availabe shorts.
1) volume before gap was very low
2) on these news plays once volume dries up again you get a big retrace back to key levels as i mention on the chart
3) never know how long that will take for volume to dry up again but once it does
it should retrace back to minimum $12/$11 & potentially under $10 again
4) I checked Fundamentals & they do have cash on hand but they continue to lose money which is not a good sign
5) last Q sales were a better but the cash burn would be biggest concern for me
6) i don’t personally like to trade these type of stocks since so news driven but if i was long I’d take
profits & consider shorting it from these current levels
with a cover over $16.50/$17 max & if you do stop out then wait for next setup
double click on chart if you can’t read all the notes sometimes they tend to cutoff ( it will open up larger on another page)
Hope you find the notes helpful
Stockguy22
The Week in Crayons
After taking last week off, the bulls came back ready to work this week lifting us well off our recent lows in all of the broad market indices. Once again as has become par for the course, price action changed course immediately and quite violently as we surged upward negating much of our recent fall with one huge day of buying. Our current environment continues to be a field of landmines trapping both bulls and bears alike each time setiment suddenly shifts depending on what news item or rumor happens to come up. However, while price action has been extremely volatile, it has been contained within a reasonably well defined range for the most part. While there are still plenty of mixed signals and the possibility of strong moves in either direction, the likely scenario is one in which we continue to probe the extremities of our trading range as the markets continue to find their proper value.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see that for the most part we have actually been in a pretty well sustained uptrend after bottoming out early August. While we actually formed new lows in early October, this proved to be a false breakdown and price quickly reverted back its rising channel. This move up culminated with a false breakout above this channel as buyers got ahead of themselves and eventually cascaded down over the last couple of weeks as supply finally overwhelmed demand. The downward momentum was finally reversed this week as we formed a critical higher low pivot price around the 1150 area. While this channel isn’t perfect and has had trouble holding price action on several occassions, it does give us a rough picture of the strengthening price action over the last half year or so.
As we approach the close of 2011, too reference points that are likely to become key levels of support and resistance are the recent pivot low and high we just formed at around 1150 and 1290. The more immediate area of concern would be the recent pivot low we just formed. A break below that would place us firmly out of our rising channel as well as invalidating the higher low we formed and would almost certainly lead to a retest of the year’s lows. A break above our recent pivot high around 1290 however could lead to several scenarios depending on the action prior to a breakout. If we were to surge past it early next week, it would likely be part of an unsustainable squeeze higher destined to fail. On the other hand, if price action were to consolidate and give demand a chance to catch up with the overhead supply then the chances of a breakout holding above this area increase tremendously. As long as price remains in between these two reference points, the markets can be viewed as being in a neutral state of range bound behavior.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
The Week in Crayons
I mentioned last week that the bulls would likely be tested this week as the bears attempt to regain control of this market, and while the bulls can use the light trading / short week excuse to defend themselves, the bottom line is that they failed that test this week as we not only closed red on each session, but saw downward momentum actually increase as we followed through on last week’s breakdown. While we are oversold and due for a bounce, we have now negated much of the feel good rally we had in October and find ourselves back in the middle of the trading morass we resided in for several months this year. While a bounce from our current levels would still be very positive step in leaving behind are summer lows, the recent weakness gives us a strong reminder that we continue to chop around in a broad range consolidation and it appears we will be flying the same holding pattern for a bit longer as we continue to deal with the same regurgitated mess in Europe we have been dealing with all year.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see clearly that we are right smack in the middle of the 1100-1200 mess we were stuck in for several months after breaking down from our yearly highs. While we are still well off the lows we formed around 1080, we are forming new lows on Stochastics creating a bearish divergence hinting that we may have more weakness in store even if we can hold these levels and create an important higher pivot low.
Traders looking for a an oversold bounce should keep this in mind and continue to use the hit and run tactics that have been the only option available to swing traders for most of this year as we are likely to stall out on any bounces into the heavy supply just above our current price action. The 1180 -1200 area will likely be the first area of distribution if we bounce next week and traders should watch the action in this area closely as failure to get above our October breakout will potentially form a bear flag, not a new leg up. If we can reclaim 1200 and emerge from our current range, look for more supply to emerge just above 1215 or so as we begin to encounter several key moving averages. However, if we continue to have trouble finding a bid, we will likely test 1100 in short order which would serve as a critical level of support for the bulls to defend. Traders waiting for the Santa Clause rally should be very careful here and wait for momentum to clearly turn upward before getting sucked into any of the fakeouts that have become all to common this year.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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Introducing SG22 Momentum Pack
We are proud to introduce the SG22 Momentum Pack for NinjaTrader 7.
Indicators are available as part of our Diamond Membership. If you are already a member and want to use them with your NinjaTrader, send an email with Stockguy22.com your username and machine ID to admin@stockguy22.com.
You can download them here.
SG22_MomentumPack
To import:
1. From the Control Center window select the menu File > Utilities > Import NinjaScript to open the Import NinjaScript dialog window
2. Select the file you want to import
3. Press the “Open” button.
To add an indicator to a chart:
1. Open the Indicators window.
2. Left mouse click on the indicator (SG22_FrostyEV, ect) you want to add and press the New button.
3. The indicator will now be visible in the list of applied indicators.
4. The indicator’s parameters will now be editable on the right side of the Indicators window.
http://www.ninjatrader.com/support/helpGuides/nt7/working_with_indicators.htm
Some examples using the SG22_FrostEV showing momentum in the market. You can use it in isolation but these indicators perform best when used with support/resistance, or a simple set of trade rules.
Join the stockguy22.com Diamond membership to learn how we use the SG22_FrostyEV to trade the futures everyday.
How to read the SG22_FrostBarsEV
Bright green is upside momentum.
Dark green is slowing upside momentum.
Yellow is no trend, or slow momentum.
Bright red is downside momentum.
Dark red is slowing downside momentum.
S&P 500 E-mini (ES) Examples – SG22_FrostyBarsEV
The Week in Crayons
We had another week of mostly sideways action again as upward momentum in the broad markets continues to wane. While we finished off on a weak note, the bigger picture remains neutral as we have mostly traded in the same range for several weeks now. We are now at the bottom of this near term range and a hold above these levels would be a big win for the bulls as we approach the typically bullish holiday season. However, price action has been weakening throughout the recent consolidation and needs to firm up in order for us to resume upwards.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see the falling momentum clearly as this week’s close broke the upward trend we had maintained since breaking out of our late summer range. While the markets have shown impressive strength in holding above the key 1200 area as they digest the late October run, we are now below several key moving averages and on the wrong side of a short term trendline.
With momentum still on the decline as illustrated by both the declining stochastics readings as well as the red Momo Trend Bars, odds are that the bulls will be tested yet again next week as the bears desperately try to regain control and push price action back down to our previous range. If we pull back furthur, watch for the area around 1200 to 1800 to become a likely area for bulls to defend. If we fall and stay below that, it would likely signify a win by the bears and a return to the 1100 to 1180 mess we chopped around in from August to early October. If the bulls can regain control and push price back up, the first level that would need to be retested would be the 200 day moving average at about 1259. This would likely coincide with the top of our recently contracting wedge and would probably serve as a stalling point for the bulls.
As we approach the traditionally bullish holiday season, astute traders should continue to scan for strong setups that have begun to develop during our recent consolidation and patiently wait for momentum to turn back up and take price action with it.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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Gold vs Diamond premium membership screenshots
good Question Dave,
Both Gold & Diamond memberships are in real time Dave.
We’re working on a video about the memberships & site layouts but here are some screenshots in the meantime..showing the chatroom as well as the private feed ( http://twitter.com/stockguy22feed)
The buys/sells are in real time so I don’t post them manually to the chat & then the private feed.. the system is set up so its within seconds. I also post charts on new positions or updated positions. Most times they are posted so that traders know my strategy and Risk/reward for that that position with suggested stops. I added the other charts so that you can see the risk/reward analysis i put in to charts when its a new position. For AAPL the risk/reward was on the chart from Nov 14th – so that’s why not on the Nov 15th chart attached but its the updated one when i added.
if you can’t see the full chart just double click it & will open in another page with a full screen shot
Hope that helps,
Stockguy22
Below are some of the more recent charts on SCO & oil intraday chart & MGM AAPL
The Week in Crayons
Despite some rather volatile moves from day to day, this week’s action in the broad markets was still basically sideways as we continue to digest the massive gains we made through out the month of October. While volatility is still somewhat high for “prototypical” consolidation, most of this week’s action was contained within the ranges of our most recent price action on all of the major indexes and is for the most part technically healthy. As I mentioned last week, we were likely to chop around this week as we contended with overhead supply while being buoyed by several layers of support just underneath us. That scenario is likely to continue into the near future as we are still basically in the same situation and probably need another week or two of healthy consolidation in order to try and make our way back to the upper part of our yearly range.
Looking at a chart of the e-mini futures contract for the S&P 500, we can see that while we have mostly gone sideways over the last two weeks, we are still technically in the uptrend that we began in mid-October as we broke from our summer range around the 1200 level. While we are still making higher lows at this point, notice the waning momentum now that we are firmly wedged between most of our important moving averages as we well as facing very strong technical resistance at our recent highs around 1280 which coincide with the neckline of the head and shoulders pattern we formed over the first half of the year. Note the emergence of some yellow and red candles on our Momo Trend Bars indicating a likely end to this particular thrust upwards. Also, stochastics is now firmly moving lower giving us another clue that momentum is slowing down.
Of course, momentum is supposed to slow down after the ridiculous pace we had as we shot up from our year’s lows, so in and of itself it doesn’t necessarily mean we are headed lower, but it does give us a clue that we are likely in need of more consolidation. If we were to have a more substantial pull back, look to the area around our previous breakout around 1200 as a likely level of support. A hold around this level would give the bulls a strongly definable higher pivot low confirming that the recent downtrend is broken. Of course, the market does what it wants to do, not what we want it to do, and if it decides it wants to squeeze higher, traders should not chase as any move above our recent highs is probably suspect and likely to fail and return to our current range [unless there is some substantial news event behind it.]
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Week In Crayons
After breaking out sharply last week from the cup and handle pattern I mentioned a couple of weeks ago, the markets spent this week consolidating those gains while holding some key levels of support in the process. We have now worked off some of the overbought conditions we had built up while rallying sharply from last month’s lows as we head into the typically bullish holiday season. However, not everything is peachy as the markets also regressed back to their recent paradoxical pattern of volatile consolidation with this week’s action.
I thought I would change up things a little this week and share the type of chart I typically look at when watching the intraday action in the futures and forex markets. Instead of the typical candles you would normally expect to see on a chart, this chart uses the Momo Trend Bars our resident wizard @jstantrades designed for the Ninja Trader platform. These candles do a nice job of showing the momentum of the price action allowing the trader to not get too caught up in the actions of each individual candlestick and instead observe the overall swings of the instrument. In this case, we are looking at the e-mini futures contract for the S&P 500. Looking at this chart we can see that momentum has obviously been bullish for the better part of a month now, but has started to wane as we pulled back this week after hitting some stiff levels of supply.
While we were able to hold the now swiftly rising 20 day moving average, we are now back under the key 200 day moving average as we form a broadening rising wedge. This is typically a bearish pattern and hints that we likely have some more consolidation coming as we come to terms with our new price levels. However, this doesn’t necessarily mean that we are reversing lower, only that the recent move up is having trouble sustaining itself. In fact, we actually have now formed higher highs and higher lows as we work our way out of the ditch we dug a few months ago. Now that price is wedged between many key averages, there is a good probability that it will chop back and forth as it comes to terms with this area. This would actually be a healthy sign as volatility would again quiet down in order for true demand to build up for the next move up into overhead supply. The breakout area from our last range (1200-1210) should serve as the first line of defense as it did earlier this week for the bulls, while last week’s highs around 1290 should serve as the near term resistance. If we lose 1200, 1600 becomes a likely stalling point while 1100-1080 become the critical lines in the sand for the bulls to defend. While this market continues to tax many swing traders, it has recently shown signs of improving, and continued chopping in this area should help many charts begin to set up for nice runs into the year’s close.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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Happy Halloween everyone — MF Global What happened & how can you trade a stock like this?
Happy Halloween everyone,
How to avoid getting wiped out & how to properly trade and read the chart on a stock like MF Global
Doesn’t look like MF Global gave any treats today to shareholders except for the ones that were short on it
Whenever you get a stock like MF Global that went bankrupt today , I like to review to see what can be learned from the chart
Many that have been long on this MF stock today wish the ticker had been renamed MotherF..er since they did file for bankruptcy.
Here are important rule I wanted to share to help you stay away from a future MF ( although it has happened even to me in the past) but these simple rules can avoid some costly mistakes.
Although the stock had been weak thru 2008 it had a nice V-Shape formation & nice runup from under $2 ($1.72) to almost $10 ( $9.94). Next major drop it had was into July/Aug 2011 when it started to fall back & finally broke under the key $5 level and never recovered from there.
Here are some notes to help if you ever get stuck in a stock like this:
1) Be aware of key levels of support ie $5 was a major breakdown in July/Aug – I’ve traded many stocks over the years of stocks breaking thru $1 , $5 $10 $100 ( to me these are major levels & often work very well for both long & short positions)
In MF case $10 was never broken back over thru 2010 or 2011 ( if it broke over $10 could have some momentum) . Once $5 breaks down ( i like to go slightly below like $4.75) use that as a suggested stop out area & you can always trade the stock again once it breaks back over $5 or $10 ) . If a stock breaks under $10 ( use $9.75 as suggested stop & re-enter once the stock bases or once it gets back over $10 ) This can help you stay out of stocks that continue to downtrend without recovery.
2) You can trade these stocks thru consolidation areas ( as long as those areas don’t fail ) in MF case you could have traded it initially in 2007 when it was consolidating in the $22 -$31 area — once that area breaks stop out & wait for next set up. Next consolidation area was thru 2010/2011 ( low $5′s t0 $9+ area )
3) Nice V shape formation trade into 2008/2009 formed once it found a bottom ( which matched pretty closely to the bottom of the markets during that same period ) — in MF case it was a bit sooner than markets since bottomed in late 2008 but can see it perfectly on the chart
4) Scaling into key levels & Scaling out is something that will limit your position exposure
5) Never , Ever , Ever put all your money into one trade. That’s just asking for future failure even if it works for you many times over. Position sizing is critical. You can always reduce or increase an individual stock size but keeping them similar reduces your chances of blowing up an account.
6) There are opportunities to trade bankrupt stocks once they come out of bankruptcy. We saw that recently with $GM but initially these are dangerous trading stocks so unless you have a lot of experience don’t trade them. Also read Rule # 5 again if you decide to trade that volatility. There is also a short covering rally that occurs on many of these since those positions still have to be covered ( unless your clearing firm is MF Global then you may have a bit more trouble today)
Good luck & check the chart i did below – To read more about the details of what happened to MF Global & why it went bankrupt read the articles below . Hope these notes are helpful
Some articles on MF Global today :
Wall St. Journal : MF Global: Good Bets, Bad Timing? http://sg22.ly/rwrKYA
MarketWatch MF Global files for bankruptcy protection http://sg22.ly/tQs2Wi
CNBC : MF Global Files for Bankruptcy; Shares Remain Halted http://sg22.ly/tFRk6u
Bloomberg:MF Global Floor Traders Limited to Liquidations by CME, Intercontinental http://sg22.ly/rPq8z4
Double click the chart to see it much bigger & to read all the notes i posted. Chart of MF Global is a weekly one since I wanted to show the entire trading for it .
oct 31 MF Global Chart (weekly) & key levels I would watch for
Happy Halloween ,
Stockguy22
The Week in Crayons
Although this week’s action in the markets was relatively quiet as we mostly drifted sideways, it was actually quite productive as we were able to consolidate the rapid gains we made over the last couple of weeks in a rather benign manner instead of the violent swings up and down that have become typical of our current environment. While we are still facing some stiff overhead supply in all of the major indexes, we have now established some short and intermediate term support as we continue to regain the losses we incurred this summer.
Looking at a chart of the SPDRs S&P 500 etf (SPY), we can see that we closed the week breaking a critical price level as we were finally able to eclipse the area around $123.50. This level was the scene of a tremendous bull trap in early August as we fell sharply lower after forming what appeared to be a strong reversal hammer candle. We encountered this level a second time one month later and once again fell sharply as supply completely overwhelmed the lack of demand at these prices. This time however, price action consolidated just below this level showing that the bulls were finally beginning to assert themselves at this area and were able to push the close above it on Friday afternoon.
Notice the bullish cup and handle pattern we have formed over the last few weeks as well. Significantly, it came after what now appears to be a false breakdown earlier this month giving us a good clue that while we may not be ready to press to new highs we have likely formed a near to intermediate term bottom. The critical 200 day moving average now looms over us and will likely serve as a magnet for price action as bulls and bears eagerly await for a retest of this important indicator. If Friday’s breakout fails and we cannot in fact push past our near term ceiling, we now have several areas of support at which buyers will likely step up. The bottom of the handle we just formed around $120 has held up well over the last week and would likely be the first line of defense for the bulls while the $118 area which lines up with both the 20 and 50 day moving averages likely serving as more significant support. If more bad news out of Europe torpedoes our markets yet again, look for $112 to be the key battleground.
While we are certainly not out of the woods yet as the possibility for bad news coming out of the Eurozone could still potentially derail our markets, we are now entering what has seasonally been a good time to buy equities and appear to have formed the bottom of what I consider to be a broad corrective range. Another week or two of quiet action would go a long ways towards setting up some decent charts and swing traders should start watching for potential chart setups to ease their way back into this market.
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The Week in Crayons
It is often said that the market takes the stairs up and the elevator down. While it is somewhat of a cliché, it is an apt description of typical market behavior as our fear impulses usually overpower our greed in a normal environment. However, in the current environment we have more of a crazy seesaw thing going on as each swift fall is quickly followed by a quick rise as bears and bulls keep jumping on one end or the other as we oscillate between the edges of our range. What is happening is that each side’s fear is fueling the 
other side’s greed causing each oscillation to become somewhat exagerrated as they continue to squeeze each other. This type of action is of course indicative of wildly differing opinions on the value of a given equity and illustrates that we are still not sure of where our markets are supposed to be right now. While we started last week staring into the abyss as contemplated a sub 10,000 dow, we closed this week considerably higher and are now looking at the stars as the Nasdaq composite approaches its yearly highs. While the very strong bounce we’ve had over the last two weeks tells us that we have likely found a near term bottom, the nature of this market’s behavior suggests that we are likely still in a broad corrective range as opposed to getting ready to resume the uptrend we formed in early 2009.
Looking at a chart of SPY, we can see just how precarious things were as we started last week breaking down from a channel and forming new 52 week lows. While we zoomed straight back to the top of the channel in very short order, we are now very extended as we come up to some stiff resistance. Volume has been decreasing as we probed higher this week showing that less buyers are willing to step up as we come into our near term price ceiling. On the positive side, SPY was able to convincingly breach its 50 day moving average convincingly, and is now well above its short term averages as it begins to test the upper levels of our recent range.
These should provide support for price action in the event of a pull back. If they do not hold, the $112 level will become the critical line in the sand that the bulls need to defend in order to show progress in reclaiming control from the bears. If we continue to squeeze higher, another important point of control for this market will be the area around $128. This coincides with the very important 200 day moving average as well as the neckline from the head and shoulders pattern we formed during the first half of this year.
Looking at the bigger picture, this market continues to trap both sides as it reverts violently from its extreme edges and traders should keep this in mind instead of getting caught up in the euphoria or despair that seems to appear out of thin air after every move.
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The Week in Crayons
After briefly flirting with disaster during the early part of the week, the markets rebounded sharply, and ran right back to the levels that have contained most of the price action for the last two months. The action continues to be violent and frothy telling us that participants are still very undecided as to what the proper price for equities is at the current time. While price has been somewhat contained in a channel during the last two months, it has been marred by high volatility and cannot be considered to be healthy consolidation at this point.
Looking at a chart of the average true range of the S&P Spdrs 500 trust series etf (SPY), we can see that volatility has actually increased recently after somewhat quieting down. Looking strictly at the volatility, we have now emerged from a “consolidation” phase into a new “thrust” phase in the markets.
The initial thrust was downwards as as we broke down from our channel and formed new 52 week lows, but the next thrust was decidedly up as we rebounded sharply from that move. The million dollar question of course is, which of those moves was the fakeout? While we can guess, the fact remains that we are in a highly charged market that continues to oscillate in an extreme fashion which is just as likely to race down to its recent lows as it is to charge up towards the top of our recent price action depending on what news comes out of Europe each night. However, traders should take note that the market now has a downward bias and must prove it is ready to move upwards before traders can trust it for anything more than a one to two day scalp. One of the keys I will be looking for to show that the market is getting healthier would be for volatility to die down while we hold the current price levels before attempting to break out to the upper side of this range.
The downward bias to our current environment is evident when we examine the price action of the S&P Spdrs 500 trust series etf (SPY). Note the downward slope of all of its key moving averages. Also note how we have failed sharply each we have approached the 50 day moving average.
Watch how we behave as we contend with both the 50 and the 20 day moving averages into next week as they will both likely exert downward pressure on price action as the bulls attempt to push price through the heavy overhead supply. If the bulls are able to win that battle, then a retest of the $122 area would be the next logical step. If we fall back from here, a significant battle should take place around the $112 area. This will likely be a major tell for our near term direction. If the bulls can hold this area and bounce back up to reclaim some of the short term averages they will have gone a long ways towards regaining control of this market. However, if we lose $112, it would tell us that the bears are in complete control now and we would very likely go on to break our newly formed lows as well.
As I have maintained for several weeks now, this remains a day trader’s market, and continues to be a very difficult environment to swing trade or invest in, and traders should exercise extreme caution and patience until conditions improve.
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Correlation between price action and VIX
Some background information for new traders about the VIX. A simple Google search has ‘several’ results for the question: “What is the VIX?”
VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30 day period. The VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the next 30-day period, which is then annualized. The VIX Index developed by Prof. Dan Galai and Prof. Menachem Brener from Israel, introduced by them to the CBOE at 1987. 6 years later it was introduced in a paper by Prof. Robert Whaley in 1993 while he was at Duke University. Prof. Whaley is now on faculty at Vanderbilt University. ( http://en.wikipedia.org/wiki/VIX )
The VIX is calculated and disseminated in real-time by the Chicago Board Options Exchange. It is a weighted blend of prices for a range of options on the S&P 500 index. The goal is to estimate the implied volatility of the S&P 500 index over the next 30 days.
So what does it really mean to your trading?
Here is a chart of the correlation between the daily ATR(3) of the /ES and the VIX. The /ES is the e-mini S&P 500 futures, btw. The upper area of the chart shows the VIX overlay on the /ES. At a basic level you should notice the inverse correlation between the market and the VIX. VIX goes up, market goes down. It’s not always the case, but let’s assume the correlation holds for our purposes.
The lower chart is the ATR(3) for the VIX and for the /ES. Again let’s assume that the ATR(3) increases in both the VIX and the /ES with a degree of correlation worth noting.
The next chart shows the /ES on the upper area, just for perspective. The lower shows the price of the VIX with an overlay of the ATR(3) of the /ES. If you haven’t guessed as the VIX increases so does the ATR(3) of the /ES.
The chart should tell you that the markets move a larger average amount each day as the VIX increases. Conversely, the markets move less on average with a lower VIX.
I trade intra-day price action using range bars, tick charts, and a larger time frame to play with the general trend. I noticed my stops were being hit much more during higher levels of the VIX and that the swing highs and lows became much larger. The significantly larger price action swings no longer worked with my standard stop of 2.5 points or less. Trading in general became much harder with an elevated VIX.
The easiest solution was to reduce contract size and wait for trade setups around key support and resistance levels. This reduced my % risk to my trading account while forcing me to refine my trading entries.
Think of the market as an engine and the VIX as the throttle, the more you increase the throttle the more vibrations you get. It is also the case with fear, greed, and price. Increase fear and risk going forward and price acts wildly.
I like to keep things simple at first to formulate a hypothesis then, if it’s warranted, expand upon my hypothesis. The VIX is a lot of calculus and voodoo that’s not important to the average trader. I know that many of the people who do statistical analysis of the VIX and the VIX futures will carry this out in excruciating detail. They will also calculate correlations and try to estimate volatility. The correlation is worth noting. So, if you want to do further research there are many articles and research papers at your finger tips with a simple Google search.
So what should you take away from this? When the VIX is up, try to reduce your risk.
There is one last question to think about: When will I finally get around to telling you the simple secret that will make you the next Warren Buffet?
In the Spotlight — DXY0
Over the last few years, the U.S. Dollar has had a strong inverse relationship with the markets and has been a significant factor in determining the ultimate direction equities have taken. One of the most important engines of the bull market rally we experienced from 2009 until a few months ago, was the devaluation of the U.S. Dollar through the actions of the FED which led to a “risk on” environment in which money flowed to the riskier assets capable of providing investors with healthy returns. However, there is obviously another side to that coin and we have seen its effects over the last few months in our current “risk off” environment as scared money has fled those assets in favor of the safe haven the U.S. Dollar provides.
Looking at a chart of the U.S. Dollar index (DXY0) we can see that the dollar has been on a furious rally since threatening to break down to historic lows in late August. It has now broken above a bearish consolidation pattern it had been forming for several months and is back firmly in a long term channel as well as holding above all of its key moving averages.
It is somewhat extended here, and a pull back would give the markets a chance to catch their collective breath as they try to hold their current levels. However, it appears that the U.S. Dollar has broken its multi-year downtrend and is likely to continue to grow stronger over the next few months. Astute traders should continue to keep a close eye on the dollar through instruments such as the dollar index or the eur/usd forex spot pair as it has and will continue to be a very important indicator of our market’s strength.
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The Week in Crayons
After spending nearly two months trying to stabilize from the free fall we had in early August, the markets finally broke out from the rising channel that has contained our price action during that time. Unfortunately for many market participants, it was to the downside. The swift move down was felt by most equity classes as the U.S. Dollar raged to the upside on the heels of this week’s FOMC meeting. Keep an eye on dollar strength as it will continue to put pressure on the markets now that the “free money” trade is apparently off the table.
The sharp mid week reversal is evident if we look at a chart of the SPDRs S&P 500 etf (SPY). I wrote last week that the real battle for the bulls would be in holding the now rising 20 day moving average if we pulled back off the top of our range.
Well, so much for that. We blew right past those levels on Wednesday’s plunge and eventually found support at a very important level of support at $112. While this level has held as support on several occasions now, our lows just above $110 now become a magnet that will likely need to be retested at some point in the near future. This week’s action was undoubtedly negative, and any bounce back to the 20 sma(which is now turning back south) should be looked at with suspiscion.
Looking at the bigger picture as we examine a weekly chart of SPY, we can see that we are beginning to fail at our 200 period moving average as we attempt to hold on to the $112 area. Notice that this area not coincidentally is also the site of our eventual breakout from last years multimonth consolidation following the flash crash in early May. If we fail here, the lows of that range become a critical level of support that the bulls must hold. Note that the measured move from the bear flag we appear to be completing here would indicate a drop right to those same levels.
While many have disputed whether or not our recent consolidation was in fact a bear flag, it had many of the characteristics of one and has certainly had the psychological makeup of one. It is important for technical traders to step back and understand what participants are doing instead of getting hung up on the exact criteria that define a pattern. While many declared that the head and shoulders pattern we completed earlier this year was too “obvious” and too well publicized to work, it obviously ended up being a valid pattern that saw its target move completed in a matter of days. While this may or not be a bear flag, and we may or may not ultimately fail from here, traders should be aware that there is a strong potential for a move southward to the key lows we formed last summer and should remain on the sidelines or with significant cash levels until we stabilize. If we are able to hold at these levels, the $122 area now becomes a significant price ceiling that the bulls need to overcome.
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The Week in Crayons
While we continue to remain mired in the middle of a broad bear flag in the markets, each week that we hold the lows of this channel is a positive step towards building a viable base. We closed green each day this week, and now find ourselves yet again at the upper levels of our recent range. We have multiple levels of overhead supply and are likely to stall out as we begin to probe these resistance areas.
Looking at a chart of the SPDRs S&P 500 trust etf, we can see that we are now approaching a descending 50 day moving average as well as some topping candles we formed just under $124 a couple of weeks ago.
While this area now becomes a critical level for the bulls to overcome, the real battle will be on holding the now rising 20 day moving average in the likely event that we are held in check at these levels. If we blow past these levels, look at $126 to serve as stiff resistance as this was the bottom of the head and shoulders pattern we broke down from in early August. If we pull back and cannot hold our 20 day moving average, look for a retest and probable probe below the bottom of our rising channel.
As I mentioned for the last several weeks, we remain in a poor swing trading environment and traders should continue to take very quick trades as we oscillate between the extremeties of our trading range.
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The Week in Crayons
“Despite the bearish undertone to this week’s close, not much has really changed in the markets over the last few weeks. We continue to probe the boundaries of our bear flaggish pattern as the markets come to terms with our new price neighborhood. While many bulls are understandably frustrated or worried that we stalled out this week, as I mentioned a couple of weeks ago it was highly unlikely that we would have a V shaped recovery back to our highs in a couple of weeks.”
That was the intro to last week’s review, and as befits our markets indecisive behavior, it basically still applies to this week’s action as well. We have yet to make any kind of definitive move out of our current price levels and continue to erratically bounce and drop as we approach our near term boundaries.
Looking at a chart of the SPDR’s S&P 500 etf (SPY), we can clearly see that we are still mired in a rather large bear flag. While we were able to find some support into Friday’s close and stay well above Tuesday’s strong reversal candle, it is very important to note that we failed in holding above the 20 day moving average and fell quite short of last week’s topping candles before we turned back down towards the bottom of our short term channel.
This price action has bearish implications and suggests furthur movement to the downside. Tuesday’s lows just above $114 now become the new line in the sand for bulls to defend. If SPY cannot hold that level, it would likely suggest a retest of our recent lows. On the positive side, the markets have seen some reduction in volatility as we continue to slowly meander upwards in this ascending channel. If the bulls can reclaim the 20 day moving average while seeing a further reduction in volatility, this flag could become a nice launching point for a rally back towards the bottom of our previous range.
We remain in a precarious place in the markets right now and traders should continue to maintain a cautious posture as they wait for a better environment to appear.
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The Week in Crayons
Despite the bearish undertone to this week’s close, not much has really changed in the markets over the last few weeks. We continue to probe the boundaries of our bear flaggish pattern as the markets come to terms with our new price neighborhood. While many bulls are understandably frustrated or worried that we stalled out this week, as I mentioned a couple of weeks ago it was highly unlikely that we would have a V shaped recovery back to our highs in a couple of weeks.
Looking at a chart of the SPDRs S&P 500 etf (SPY), we can see we are still for the most part in what appears to be a bear flag. Notice the topping wicks on Wednesday’s and Thursday’s candles as we came up into resistance at the top of our channel. This led to Friday’s swift reversal and drop back to the middle of our near term range where we eventually found support at the 20 day moving average. While there is certainly more room to the downside, traders shouldn’t get to bent out of shape about this pullback unless we were to breach support at about the $112 area.
One interesting thing to note is that while flag continuation patterns typically occur within periods of reduce volatility and volume, our current retracement has still exhibited some rather volatile candles as well as some spikes in volume that are atypical of your run of the mill continuation pattern. While the jury is obviously still out on the state of our markets, this does lend some credence to the theory that we are currently in the process of forming a base out of this flag pattern. Watch the price area around the 20 day moving average as we move into next week. If we can find support here and work our way back up to the top of our channel, we are likely to seek out a test of the 50 day moving average somewhere around $125. If we cannot hold here, then look for support at the floor of our channel somewhere around $114-$112. We remain in a difficult environment for swing trading, and I would recommend for traders to continue to value capital preservation over growth until we see better conditions.
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Futures Trading Hours for Labor Day Holiday
| Global Futures Treasury Department Hours |
|---|
| Friday, September 2, 2011 |
| Early Cut Off – There will be an early cut off of 7:45 AM PT for checks and wires on Friday, September 2, 2011. |
| Monday, September 5, 2011 |
| Closed – The treasury department will be closed on Monday, September 5, 2011. No checks or wires will be processed. |
| CME Group Electronic Trading |
| Friday, September 2, 2011 |
| Regular Close – CME Group Equity Products, NYMEX, COMEX®, and DME Products on CME Globex, TAS/TAM Products, Livestock, CBOT, KCBT, and MGEX Grains, CBOT Ethanol, Dow Jones UBS ER, Weather, Real Estate, TRAKRS, Dairy, Lumber, Eurozone HICP, KOSPI 200 Futures on CME Globex, Bursa Malaysia Products on CME Globex, EUA Daily Futures
3:15 PM Early Close – CME Interest Rate Products, CBOT Financial Products, CME Group FX Products, GSCI, Wood Pulp, Crude Palm Oil, The Green Exchange Products on CME Globex Please note: Modified grain pre-opening between 2:30 PM – 3:15 PM |
| Sunday, September 4, 2011 |
| Regular Trading Hours – CME Group Equity Products, CME Interest Rate Products, CBOT Financial Products, CME Group FX Products, NYMEX, COMEX®, and DME Products on CME Globex, Real Estate, Eurozone HICP, Wood Pulp, Bursa Malaysia Products on CME Globex, The Green Exchange Products on CME Globex, EUA Daily Futures
Closed – Dairy, Crude Palm Oil, GSCI, Weather, CBOT, KCBT, MGEX Grains, CBOT Ethanol, Dow Jones UBS ER, TRAKRS, Lumber, Livestock |
| Monday, September 5, 2011 |
| Closed – Dow Jones UBS ER, TRAKRS, Lumber, Livestock
Regular Trading Hours - Eurozone HICP, KOSPI 200 Futures on CME Globex, Bursa Malaysia Products on CME Globex Trading Halts (Order Entry, Modification, Cancellation Allowed) 10:30 AM – CME Group Equity Products 11:00 AM- EUA Daily Futures 12:00 Noon – CME Interest Rate Products, CBOT Financial Products, CME Group FX Products, Real Estate, Wood Pulp 12:15 PM – NYMEX, COMEX®, and DME Products on CME Globex, TAS/TAM Products, Real Estate, Wood Pulp, The Green Exchange Products on CME Globex Halted Products Resume Trading 5:00 PM – CME Group Equity Products, CME Interest Rate Products, CME Group FX Products, NYMEX, COMEX®, and DME Products on CME Globex, TAS/TAM Products, Dairy, Crude Palm Oil, GSCI, Weather, The Green Exchange Products on CME Globex, EUA Daily Futures 5:30 PM – CBOT Financial Products 6:00 PM – CBOT, KCBT, and MGEX Grain Products, CBOT Ethanol |
| CME Group: Floor Trading |
| Friday, September 2, 2011 |
| Regular Trading Hours |
| Monday, September 5, 2011 |
| Closed |
| ICE |
| Friday, September 2, 2011 |
| ICE Futures US
All Markets Open Regular Trading Hours – Softs, Open Outcry 4:15 PM ET Early Close – Financial Products, Index Products |
| Monday, September 5, 2011 |
| ICE Futures US
Closed – Softs 11:30 AM ET Early Close – Index Products 1:00 PM ET Early Close – Financial Products ICE Clear Credit Closed ICE Futures Canada All Markets Closed ICE Futures Europe 1:30 PM ET Early Close – Crude and Refined Products |
| KCBT |
| Sunday, September 4, 2011 |
| Closed
Electronic Trading |
| Monday, September 5, 2011 |
| Open
Overnight Trading for September 6 trade date Closed Daytime Trading |
| Eurex |
| Monday, September 5, 2011 |
| Eurex is closed for trading and exercise in Hurricane Futures, Brazilian, Canadian, and U.S. equity derivatives. No cash payment in USD. |
In the Spotlight — HOS
Like many equities, Hornbeck Offshore Services (HOS) has rallied sharply off of a potential double bottom earlier this month and now finds itself underneath some overhead supply. The $25 level was the scene of an early January breakout and had supported HOS throughout the first half of the year and could now be setting up as a key area of resistance. Just above this level, we find all of its long term averages converging and turning downwards. While HOS has the potential to squeeze higher with the rest of the markets, watch for reversal candles around this level as a signal for a high probability short opportunity.
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Wednesday Trading Summary – $4980 in profits roughly
Overall I had a good day for trading. A nice back and forth between bulls and bears gave us a wide first hour of trading.
I took a short pre-market and profits at the early AM swing highs.
We were able to grab the momentum off the open for a nice long for a few points.
The one mistake I did was trying to buy the breakout over yesterdays close, trying to anticipate a breakout isn’t ever a good plan. I knew we might try to support near 778 again (prev swing low here I covered pre-market), so I added on the way down at each reversal.
Ended up riding it back up into resistance at 684, this time it broke. Figures.
Caught 2 nice shorts before 11 am and netted a nice profit for the day.
One of the members in our chat asked if /ES was a good short up near 1175. Indeed it was. Nice parabolic buy rolled all the way back to the lows. We found support again near 678-680, and ended the day making new intra-day highs.
I missed some of the afternoon trades managing a GLD options position. Opportunity cost wise I could have made more on trading /TF, but was good to take a break for a bit.
Charts and summary attached. Very nice trading opportunities. These are 3 contract lots.
Gold Short trade using DZZ on Aug 22nd -Aug 24th for Premium Members
Had you been in our chat room Monday this week
To JOIN our GROUP & get these type of trades in real time :
CLICK HERE for: 14 day trial : http://sg22.ly/p8BTPy I think we have one of the best groups for traders on the internet. Members always willing to share information and help each other out. Great Community that I’m proud to be part of
we made a great short play on GOLD using DZZ ( double gold short )
Some in chat did an option put plays on GLD(which were up 60%-200%+) , DZZ or HBD.to ( horizon beta ETF) either way worked out nicely for us.
I took the easy profits today on DZZ : my target was towards $5.10 but said I would take the profit if we hit $4.50-$4.75 area which we did hit today ( i didn’t get greedy & took the easy $4,390 profit on only a 1/3 position– if was full position i would have scaled out yesterday/today & kept some) but amazing easy trade for us.. A bit of luck & analysis helped – great commentary we had in chat on this last week and early this week waiting for a top on #GOLD.
Charts below that members got on Aug 22nd when we did the trade with the chart analysis:
double click the chart to make it bigger :
Sells below today of DZZ that members get in Real time: Sold a bit soon but still great profit of 20%+ for 2 days.
Today’s charts on DZZ & why I took the profit today : Stuck with my original strategy of selling into this range:
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Stockguy22
In the Spotlight — DPZ
After printing a wide assortment of spinning tops and doji candles over the last several days, Domino’s Pizza Inc. (DPZ) finally had a decisive candle as it closed at its highs on Tuesday while pushing its way through a near term downtrend and its 20 day moving average. It has shown great strength relative to the rest of the market, and looks ready retest and possibly make new highs soon. Keep an eye on it to see if it can build on Tuesday’s momentum into the rest of the week.
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Tuesday Trading Summary
I was on the wrong side of the market today, but sticking with it and trading the position let me come out with a win.
I would have been much easier to simply buy and hold. My initial long was fast, and I tried to trade the numbers @ 10am. Instead of waiting for the market to show me direction, I shorted the no great econ data. Wrong choice.
I had a stop at the overnight highs and planned to add right up to them, around 665-666.
I added to the short on every swing high, not a bad plan. I had a chance to get out with a profit on the dip at 10am, but got greedy. It gave me another chance when we found resistance at the prev swing high and initial balance high.
I didn’t take the long after 11:30 AM and I have no good reason why. Missed a lot of profit.
I grabbed a short when started to roll over just after lunch. A good trade, but failed to really after that because I got myself worked up from the morning being ‘short in the hole’.
Tomorrow is a new day. Let’s get on with it.
Summary of Monday trades …
Just some scalps today – trading a small account to see if I can turn another 25k into 1000% in a year. All shorts.
Had I followed my system gains would be larger, but that doesn’t work in all markets. You don’t shoot for home runs, you shoot for consistency of returns.
In the Spotlight — DBA
While the broad markets are sitting just above their most recent lows and threatening to break down even lower, many commodities in the agricultural sector have been behaving strongly. One way to take advantage of this relative strength is with the Powershares DB Agricultural Fund etf (DBA). DBA was able to break its multi-month downtrend last week and is currently sitting above all of its key moving averages as they begin to curl upwards underneath it. Keep an eye on DBA into next week for signs of continued strength, as it is one of the few charts in the current environment that has not seen much technical damage.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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The Week in Crayons
A poor finish this week erased most of the bounce the bulls were able to manage from last week’s lows and has brought the markets back to the brink of another breakdown as we sit just above those critical levels that held us. While the weak action is certainly not positive, it should have been expected as it is quite unreasonable to think that we were going to “V” bounce right back to the top of our yearly range after such a drastic fall from the top. The lows held for now, and we are basically in no man’s land as the markets begin to assimilate themselves to their new price neighborhood. Several classic fear indicators such as the VIX, bonds and gold have soared this week and indicate that the potential for lower prices is still quite strong, so traders looking to trade to the long side should play it cautiously for now and wait to see if we can hold these lows through the next couple of weeks. Those looking to short this market either just missed their trade or are now booking profits and waiting for better risk reward setups to appear.
Looking at a chart of the SPDRs S&P 500 trust etf (SPY), we can see that we are either in the midst of forming a wide range bear flag, or have just broken down from a narrower rising flag and getting ready to break to new lows. Notice the rising volume on the drop as opposed to the rather light volume as we drifted higher.
The $112 price area now becomes a critical level of support, and if we lose this level, we are likely to retest $110 and probably form new lows in short order. Those looking for higher prices need to see us hold these levels and close the gap we formed on Thursday’s action. One small silver lining for the bulls is Friday’s seemingly negative action. While at first glance it appears to be a bearish candle like a gravestone doji, trader’s should keep in mind that context is very important to candlestick analysis. In this particular case, a gravestone doji or shooting star is formed at the end of an uptrend and hints that the bulls are losing control of the current market. However, in a downtrend such as the one we are currently experiencing in the intermediate time frame, this inverted candle is actually a hint that bulls are starting to push action higher even if they weren’t able to hold it. Of course, without confirmation it means nothing, but those hoping for a bounce should keep an eye on the coming price action to see if we do indeed get some support here. The healthiest behavior for the markets right now would be to continue to back fill these levels as volatility decreases. Even if the bulls cannot probe much higher from here, it would be a decent victory if they can stall out the current flag and turn it into a base.
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$TF_F inside my mind from 10:30 am until close
This isn’t everything that goes into my trade decisions but its a good portion. I also look at how the market is trading, so buyers seem weak. Are the trades mostly firing off on the bid or the ask? What does jul0625 think ? (had to throw that in there b/c he made a great call near 1150 to short today)
Here is my range bar chart for TF, with a 5 min as well. I have 4 screens, 1 screen is a 6R TF, one screen is a grid with 5 min charts, and one screen is a grid with 15 min charts. The final screen is for looking at women stockguy22.com chat and twitter.
So you should be aware that I am looking at ES, TF, NQ, 6E, GC, ZB, and CL on 15 min charts. If you aren’t sure why I do this or you don’t know how these all interact will each other, that sounds like a good topic for you to use http://google.com.
Check out the chart for my thinking. Blame public education for my bad grammar.
$TF_F bottoming wicks and a fib level bounce – op-ex then what? [charts]
Intraday chart – no real buyers to speak of and higher volume – not a good sign considering most of the bounce was on low volume. We couldn’t get back above the open and after a short lived rally, everyone agreed that value is lower.
120 min chart, fib ext level held with some pretty big wicks on the candles. Price probed lower and was quickly rejected near 650 area, which is not surprising considering options expire tomorrow and that typically limits the range.
There is going to be one of two possibilities here, we just made a higher low or we are going to test the previous lows near 620.
I’m long some IWM and SPY and selling covered calls; high premium + time decay = yummy. The indices will always go up eventually, so this is a good income strategy. I am also long XIV, VIX reversion play as a higher risk in case we rally, thanks to the dedicated guys in the chat.
Congratulations are in order to several members of our chat for getting long some SPY puts and selling them for 300-1000% profit, not bad for an overnight play.
For me it was a good day, I got stopped out on one short, but ended the day up nicely. I will post the summary below.
Someone asked what do the people with a long bias in their trading plan do in times like this. My response, as an intra-day trader, was to say that having a bias should not be part of a trading plan. But if you are still long and in the hole, you really have two choices, you can sell calls, or you can wait for a bottom.
I’m not a fan of buying puts in this environment, the premiums are high and the move is getting long in the tooth. Your opportunity to buy puts was when the market made a triple top last month and volatility was low, or even the first day after the downgrade by S&P.
If you are a deer in the headlights, its too late, make sure you are in decent companies and look into options strategies to sell calls against your stock.
EOD Summary
$TF_F looking at the retrace if we can get over Fridays candle
Watching the 700 area very carefully, I am expecting a run for 750 on better than expected economic data this week.
The Week in Crayons
After a continued surge lower during the early part of the week, the market finally found some support as buyers started to cautiously step in at levels that hadn’t been significant since the months following last year’s flash crash. The million dollar question now is, are we pausing before a continued fall, or did we find another multimonth bottom here? The great thing about trading is, that we don’t have to guess, we can just wait and let the market show us what it will do.
Looking at a chart of the SPDRs S&P 500 trust etf (SPY), we can see what appears to be a rather wide bear flag forming at our current levels.
While the protypical flag formation is usually narrower, I would not necessarily discount this developing pattern just yet as it seems our current markets prefer to go big or go home. As I mentioned last week, look for volatility to begin to contract as we come to terms with our new price “neighborhood”. A quiet retracement into the middle of this week’s range would be constructive for the bulls, but if we print some fat red candles down to $112 next week, then look for a probe lower as the bears continue to test the dip buyers mettle.
A key signal that we have formed a productive bottom here would be a break AND HOLD above about $119-$120 on SPY. As we can see on a 15 minute chart, this was the level we ended last week at, and becomes a key gap area the bulls need to reclaim.
Watch this level into next week as it was the ceiling for the market this week and could become a key floor for price action if the bulls can get above it next week. If we drift lower, $115 should offer decent support. Another key level of support to watch into next week is the ascending trenline marking the higher pivot lows.
This continues to be a difficult period for swing trading, and my advice is to back off unless you are taking very quick (or day) trades, or are a position trader that likes the current levels of support on a particular equity.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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What Would Gandalf Do?
As a short term swing trader, the bloodbath we have experienced in the equities markets over the last couple of weeks has obliterated practically all of the setups I favor. For the most part, my watch lists are now littered with broken charts that will need a long time to repair themselves. However, for position traders that look for stocks at sharp discounts, now is the time to begin bargain shopping. While I personally don’t take many position trades, I do look at the weekly charts during times like these and see if I can find some charts that are approaching long term support. Basically, I look for a strong battleground the stock is approaching, and wait for Gandalf to hold off the bears and shout:
Below are some of the charts I have found that are near Gandalf levels.
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Insights to Identifying Potentially Lasting Market Bottoms
Back in February 2009, with the markets plunging relentlessly day after day, after day… I still recall how many traders were waiting in anticipation for some sort of crazy, panicky, high volume day to mark a capitulation bottom. This latest market downswing took the DOW down nearly 30% in just over two months from 9,088 to a low of 6,470 on March 6th, 2009.
Many traders whose market analysis and insights I respect seemed to be waiting for some massive “fireworks”-type event that would all but shout “THE LOW IS HERE”; a sign that all the weak hands have most likely thrown in the towel, and that it was now time to BUY BUY BUY hand over fist.
Of course, Mr. Market will never make it quite that easy, even for its smartest participants to figure out what its current “jig” will be. The DOW closed below 6,700 for several days before breaking out higher and closing above 6,900 on March 10th, 2009 on a bit higher average volume. It also marked the first day since this leg of selling began in early February that the DOW was able to close above its downward-sloping trend-line. However, that super-charged high volume capitulation day we were all looking for and expecting to occur never materialized. While in September and October 2008 the VIX volatility index hit highs just over 80, in February and March 2009 the VIX topped out in the low 50’s. This peak was 35% lower than its earlier spikes, even though the market was now trading at lower price levels.
I have long been a student of market behavior, mass psychology (or perhaps I should say mass psychosis), and price action. While I have observed this type of behavior in the past, it disturbed me that I couldn’t quite piece together why this debacle completed its course in such a relatively quiet and unassuming way. Certainly, after such heavy multiday liquidation, it seemed almost necessary that at some point everyone left would throw in the towel and say, “I’ve had enough”! I thought about this for a long time, and remained on the lookout for any insights that could help me better understand the market dynamics that were in play at the time.
Recently, while re-familiarizing myself with an old 1931 trading classic, “Tape Reading & Market Tactics” by Humphrey B. Neill, I found my answer in chapter 5 – and it hit me as if I had just walked into a brick wall:
“Many factors must be taken into consideration when we are interpreting the volume of turning trends. For example, the volume on June 18, 1930, which marked the approximate bottom of a severe decline, was 6,000,000 shares. At the end of the decline in August, 1930, owing to the decrease in the number of active margin-accounts, the selling climax came with only 3,400,000 shares traded. I well remember that day, because I was short of the market, and was trying to decide whether there was sufficient volume to mark the turning point or whether the selling was likely to carry much farther. However, the action had many of the ear-marks of a “clean-out,” of a temporarily oversold condition. Although there was a terrific churning of stocks, little headway was made for approximately three hours. There was no progress on heavy volume. That was our signal.
However, when the market temporarily reversed its trend later in the year, in November, following a decline which had continued steadily for fifty-one days, we did not have the big volume day. Why? Because margin accounts with brokers were at the minimum; brokers’ loans were down to the lowest on record. Actual liquidation had gone on for weeks. Liquidation from strongboxes and necessitous selling by large interests are not dumped upon the market as are stocks held on margin by the public. [emphasis added] (The speed of the crashes in the fall of 1929 was caused by this panicky dumping of margined stock.) Therefore it was necessary to estimate the extent of liquidation already accomplished and to wait for the signs of the turn.”
There was the answer in black and white. First Neill lays out the scenario, which in this case took place about a year after the 1929 crash: “following a decline which had continued steadily for fifty-one days, we did not have the big volume day.” The reason? Because most of the weak hands, along with most of those trading on margin, were largely wiped out in the earlier market panics. As Neill states, “The speed of the crashes in the fall of 1929 was caused by this panicky dumping of margined stock”. This last move was steadily fueled by heavy liquidation day after day for 51 days, and this time around it was the professionals, the institutions, and the market specialists (the strongboxes and necessitous selling by large interests) that were “throwing in the towel”. Institutions holding huge positions in stocks could not throw out their positions using market orders all at once even if they wanted to. They are forced to sell a bit at a time, day after day, in a very meticulous and controlled fashion.
This sounds like what must have unfolded in February and early March 2009. The remaining “smarter” participants and the “big money” funds were liquidating their positions. Mutual funds and hedge funds meeting redemptions, risk managers raising cash and reducing risk, pension funds hoping to preserve some semblance of value, you name it. When big money throws in the towel (so long as the liquidation is not the result of heavy margin selling) it will almost always (and generally by necessity) be a slow, steady, and controlled liquidation process. The turning point will materialize once the heavy selling subsides, and the market finds stability at a price level that once again attracts accumulation by strong-handed buyers.
The book was right on, and I recommend anyone serious about trading to revisit this old classic trading book, as the most valuable market insights are truly timeless. In retrospect, I have observed variations of this pattern unfold many times (even intraday), and have often sought to use it to my advantage. On a larger scale, it is especially noticeable with public companies that receive massive news coverage over highly emotionally-charged issues. Think Toyota Motors (cars driving themselves) or British Petroleum (massive gulf oil leak). One minute, thousands of new headlines and commentary a day. A few months later, nary a mention. Swine flu, anyone? But I digress…
Take the above example from Toyota Motors (NYSE: TM). You can clearly see the height of the media coverage and outrage into the issues revolving around “sudden acceleration” of Toyota cars into early February 2010. Volume well exceeded 10 times its normal average on that last day of panic selling. The first move off that low runs right into downward resistance before turning back down, albeit on much lower volume. In addition, while implied volatility in TM nearly doubled at 44% into the early February down move, it topped out around 37% the second time around before sharply reversing and breaking above the downward trend line on a closing basis. As a side note, notice how the trend line I chose was the least “steep” I could draw (indicating reduced downward momentum). While TM move lower later in the year, it did recover to nearly $82.50 before rolling over.
British Petroleum PLC (NYSE:BP) is another good example. By the end of June, when all the weak hands, the bargain hunters, and the margined players were out of the picture, BP went on to make another new low, taking out anyone left who had not yet thrown in the towel. This new low occurred on much lower volume (as well as on lower option implied volatility) than other recent panic lows that took place on heavy selling. Once BP’s stock closed back above $30/share, breaking its key downward trend line resistance, it fueled a powerful 35% move back up before finding support around the $35/share level.
As a final example, notice the large volume spike that took place in Boeing (NYSE:BA) in late June 2009 when fears again materialized regarding more delays with Boeing’s new 787 jetliner. Notice how the final low again took place on much lower volume as compared to the initial panicked selloff that took place. As with the other examples, implied volatility on BA options was also lower this time around. As price broke above its downward trend lines, BA staged an impressive recovery for a stock that no one seemed interested in at $40/share.
When markets top, they often go out with a roar once “everyone wants in”. Likewise, markets will often find a bottom once everyone’s thrown in the towel, given up, and lost interest. I suppose we can sum it up by saying that more often than not, “markets will top out with a bang, and bottom out with a whimper”.
Alexander Paul Morris has been involved in the markets for over 15 years trading stocks, forex, options, and futures. He is the designer, creator, and programmer of the tymoraPRO tradeSCAN trading platform and scanning system, which received exceptional reviews in both Active Trader and Technical Analysis of Stocks & Commodities Magazines, and was designed to empower traders with a real-time trading edge.
You can directly follow Alexander on twitter @alexpmorris.
The Week in Crayons
After half a year of broad range consolidation on slowly expanding volatility, this week’s brutal distribution took most of our main indexes well below our 2011 range while sending volatility levels higher than they have been since the “flash crash” we had last year. From a technical analysis perspective, healthy consolidation should take place in a quiet manner with decreasing volatility, while expanding volatility usually signals an impending reversal. The swan dive we saw in the S&P 500 index this week shows us what happens when volatility cannot quiet down as traders continue to disagree on the proper price levels for a market. Below is a chart of the average true range of the SPDRs S&P 500 trust series etf (SPY). Notice the growing volatility as we chopped around throughout the first half of 2011.
We are now at pretty high levels of volatility, and while it is not completely out of the question that they continue higher, the likely scenario in the coming weeks is that of diminishing volatility as we begin to back fill and retest the levels we have blown through over the last week.
Looking at a chart of SPY, we can see that we almost reached the measured move from the head and shoulders pattern we formed throughout this year in two days. We eventually found some support around the $117 area which funny enough also happens to be the price level we were at just before last year’s flash crash. Much of the fuel for those two days of brutal selling was likely from burned buy the dippers that emerged on Wednesday’s hammer candle that ended up being a vicious bull trap.
Watch for choppy action as we begin to find equilibrium around these levels, with Wednesday’s price action serving as a pretty stiff level of resistance as trader’s that are still involved from that day waiting for those levels in order to get out of dodge. Friday’s lows are likely to be retested in the coming weeks as well, as the bears are likely to see if they can force the market lower now that they have gained control of the intermediate time frame.
Looking at the long term time frame, the bulls are still in control, but their grip is tenuous at best right now. @captkirk888 , one of the great traders in our stockguy22.com virtual trading floor shared this longer term chart of SPX with us. It is interesting to note that each time we have dipped below the 20 period moving average on the monthly chart, we have for all intents and purposes been in a bear market.
This week’s close puts us right on the average, and it appears that the bulls will have their work cut out in keeping us above it in the coming weeks if we are to stop from slipping into the bear market scenario. Also, note the Slow Stochastics readings. They are beginning to turn under 80 which has also been a fairly good indicator of the long term health of the S&P 500.
While the picture is looking quite gloomy for the bulls right now, one small glimmer of hope resides in the Nasdaq Composite. In looking at the PowerShares QQQtrust (QQQ), we can see that the Nasdaq is actually still in its yearly consolidation range and was able to find support at its base on Friday showing great relative strength over its peers.
Of course, QQQ is still at risk from many of the harbingers of reversal that already took down its peers as it is seeing massive volatility growth as it attempts to consolidate and is now well under its 200 day moving average on heavy volume. The question over the coming weeks as the markets begin to quiet down and realign is whether QQQ will follow its peers down as we head lower, or whether it will become the new leader that pulls the rest of the markets up as it recaptures it higher price levels. This is a question that is likely not to be answered anytime soon, and as I have repeatedly stated, traders should continue to trade lightly if at all during this tough environment and patiently wait for better times.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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In the Spotlight — SLV
While silver has lagged gold over the recent months, both stand to benefit as jittery investors flee the market for safer havens. While gold has pressed on to new all time highs, silver as seen in the iShares Silver trust etf (SLV) is noticeably behind its shiny brother. However, after a brutal fall in early May, SLV has built a decent base and is now flagging above its key moving averages as they curl upwards just below its price action. This type of action typically precedes a strong move higher, and traders should keep an eye on equities tied to the precious metals as they are currently one of a very small group of equities offering decent setups.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
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In the Spotlight — MFN
While most of the markets have been backpedaling over the last few weeks, Minefinders Corp. has been pushing forward towards the all time highs it formed in late April. It has been flagging in a pretty tight pattern over the last couple of weeks on light volume and was able to hold its rising 20 day moving average on Monday. If it can bounce upwards from this support, it has a good chance of breaking out of its bull flag and possibly break its April levels and enter “clear skies”.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
The Week in Crayons
As befits the state of our current markets, we took the elevator down this week to revisit the lower portion of our yearly trading range and pulled the rug from under the bulls that had pressed their longs as we approached the top of our range. We remain in a poor trading environment at this time as we continue to see volatility expand while price stays in an overall static state. As I have mentioned over the last several months, traders should remain patient and trade lightly and take quick profits in this environment while waiting for better conditions to emerge.
Looking at the action for 2011 on the SPDR’s S&P 500 etf (SPY), it becomes clear that although price has fluctuated quite a bit, we have essentially gone nowhere. In fact, most of the key moving averages are now zig zagging sideways as we chop around in search of our next direction. The last moving average that still has some upward slope to it is the key 200 day moving average, and it is starting to flatten out as we begin to really test it.
Friday’s action brought about the second retest of this moving average and gave us our first breach of it although we eventually held and closed higher. Keep in mind, that the more often a market tests a level, the more likely that it will eventually break. Friday’s close also left us below a critical level that had stymied us throughout late June. Watch the price action just below $130 early next week, as it will likely offer up as strong resistance if good news doesn’t emerge over the weekend to prop us back up. If we open and hold below this area, the bears are likely to press their shorts and try to get a retest of our June lows as well as a close below the 200 day moving average. A break below these levels would complete the head and shoulder pattern I mentioned a couple of weeks ago and could be the impetus for a further move down. However, keep in mind that traders that have tried to jump in early on the next major move have repeatedly been burned, and the prudent approach continues to be to wait for the market to align itself properly and prove to us that it is ready to break out of this range one way or the other. If the fools in Congress were able to give us some good news over the weekend and we are able to open above $130, watch for a gap test around $133 and eventual resistance at the mid $134′s as we encounter our most recent pivot highs as well as a descending trendline. Because of the uncertainty surrounding the markets at this time, traders should continue to maintain a defensive posture and wait patiently for a better environment to emerge.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
In the Spotlight — RENN
The weakness in the market over the last few days has negated many setups that were looking promising coming into the week. Renren (RENN) is one stock that has shown relative strength as it has held up remarkably well in a hostile environment. It has formed a cup and handle over the last two months, and looks ready to challenge a key resistance level at $12. If the market can stabilize here and bounce, RENN should offer a quick trade to this key level on any break of Thursday’s highs.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
Correlations and Price Swing Patterns on ES TF NQ YM futures in relation to DX (usd futures)
I am going to try to post these correlation charts more. What I am noticing is the markets while predominantly inversely correlated to the USD, can and do at times move in degrees of postive correlation with the USD.
I bring this up because of the current state of politicis in Washington. I have a feeling that if a debt deal is struck we may see a USD / market rally scenario.
More research needs to be done, but the breaks in correlation seem to be at places of market stress. ie temporary market tops, or some news related issue.
Note: this uses a 100 period Pearson correlation for smoothing
TF [ Russell 2000 emini] – wide blue line is DX correlation – other lines are ES YM NQ TF
ES [S&P 500 emini] - wide blue line is DX correlation – other lines are ES YM NQ TF
NQ [Nasdaq 100 emini] - wide blue line is DX correlation – other lines are ES YM NQ TF
YM [DOW emini] – wide blue line is DX correlation – other lines are ES YM NQ TF
Looking for drugs?
Apparently drug demand is strong judging by Valeant Pharmaceuticals (VRX) recent performance. It has been consolidating quietly for about three months now just under its 52 week highs and is starting to get interesting. While this setup may need a little more time, it offers one of the few remaining setups that is not extended while also not being a laggard. Keep an eye on its narrowing range, and wait for break out of it on strong volume.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
AET
The Healthcare sector has shown great relative strength over the last several weeks with stocks like CVH, HUM, WCG and UNH leading the way. Aetna (AET) is probing its recent highs here on the daily chart and is poised to follow its peers higher in the near future.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren’t a member, what are you waiting for?
DNDN
After some strong selling on high volume, DNDN had a sharp reversal in the after market on Thursday on news, and had a strong follow through on Friday on high volume as well. Looks like plenty of bears might be trapped and ready to be squeezed. A move over $41.50 or so would confirm a breakout from its recent consolidation and would likely offer a quick trade for a point or two.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you aren't a member, what are you waiting for?
The Week in Crayons
Posted by stockdarts on February 13, 2012 · Leave a Comment
Much to the chagrin of bears everywhere, the markets continued their relentless march up for yet another week as the rally to open 2012 continues. While there continues to be sporadic bouts of selling intraday, there has been a strong and pervasive bid that has supported price action and has consistently thwarted all attempts at selling this market down. From a technical perspective, nothing has changed in about six weeks now as we remain perpetually oversold and extended as we slowly squeeze higher.
This is clearly evident in a chart of the e-mini futures contract for the S&P 500 which shows all of this year’s price action contained within a narrow rising channel. Almost the entirety of this move has occurred with an overbought stochastics reading as well. Also note the preponderance of longish lower wicks on many of the candles during this rally indicating that while there have been some attempts to push price down, it has inevitably been met with a strong afternoon bid.
While this traditionally is a sign of strength, it can also be a hint of future weakness when this behavior occurs after a prolonged rally. However, while it may become tempting for traders to gamble and try to pick a top when the market behaves like this, the more prudent course of action is to assume that the market will continue to behave in the same manner until it breaks out of this channel. Ironically, a breakout above the channel would result in a possibly unsustainable acceleration of the current trend leading to a higher probability short than a corresponding breakdown from the channel which would likely lead to a more benign sideways consolidation. However, while it is prudent to anticipate what the market will do, it is all conjecture until the theories either succeed or fail and astute traders must also recognize the present and profit from it…and the present remains a buy the dip environment until proven wrong.
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