Thursday, January 21, 2010

Day in Review....... Finally!

Well after the announcement of new reform plans for some of the too big to fail institutions we finally broke out of this range. Market has been consolidating in box formations like the one shown above break out and trend and back to consolidation again, that has been the pattern since March.

Trades for today, jumped in on the short side breakout CONFIRMED by VIX and daily volume. Covered @ 1113 and reversed long. Had about 5 pts in my favor, moved stop to break even and got hit. Gave up some nice paper gains, risks of trading only one contract I guess.

I am currently long ES again@1109 and holding overnight, why you ask? well the box trading range we were in was approximately 19pts. Subtract 19pts from 1128 (low of the previous box) and you get 1109. ES traded 1108.50 and has bounced, so far have caught the low of this reaction within 2 ticks, that's how we do things around here:) I expect a small gap up tomorrow as this is a low risk entry.

My current view is we are heading back down to close a gap @ 1097.75 pre-holiday. I don't see the market trading below 1085, so bears please don't get your hopes up on this one. Remember gaps ALWAYS get filled, we now have open gaps in the 1140's from yesterday and today.

Wednesday, January 20, 2010

Wednesday analysis

Not expecting a trend day today, consolidation in range is my best guess. Some Fib levels to keep a close eye on for long positions above. Also yesterday's volume profile chart, VPOC is 1144 keep that in mind as possible target for long trades today, remember market is always looking for value. Keep these high volume areas in mind for trade execution, good luck!

Tuesday Review

Well the market held onto long setup yesterday, but who expected that kind of upward momentum yesterday, be honest?

The market has become complety decoupled with the equity markets now, just look at what the Euro and USD did yesterday, not a healthy market in my opinion. To have an up trend day in the face of that completely threw me off. After I got stopped out of my first short trade of the day I had to just walk away. I was going long on Friday, when should have been riding the trend short. I was going short yesterday, when I should have been riding the trend long. I am a much better rotational day trader, as I like to fade overextended moves. But on trend days that strategy will only get you run over. I have to work on first recognizing potential trend days earlier and learning to work with them and not against!

Tuesday, January 19, 2010


Our first scenario/level worked out perfectly overnight! (Bottom chart)We had our sell off back into strong support. I am out of my short trade, key levels to be watched now is the next measured move short level at 1132 and high volume area 1135 for potential short entries. Be careful though!

(Top Chart) As the ES showed weakness and made a new lower low, the rest of the 3 indices have not made lower lows and are now in good long setups, so be nimble and don't get carried away on the short side, yet!

Monday, January 18, 2010

Market Analysis for Tuesday

Friday did some technical damage to the market, the one hour chart above showing the last 20 day trading sessions has been trading in a nice price channel that was finally broken on Friday. Possible new bear channel could potentially be forming. Looks like the market is currently back testing this broken channel. Bears have a good short setup here with the 50% fib retrace as confluence.

Price levels to watch for:

Short Setups

1137. 50 - Channel trend line resistance, and 50% fib retracement level

1139.75 - 61% Retrace

1142.50 - 76% Retrace

Long Setups

1127 - 1128.50



Open Gaps

12-18-09 - 1097.75

12-21-09 - 1107.75

12-31-09 - 1110.75

Wednesday, January 6, 2010

XLF breakout on the weekly chart

You heard me refer to the breakout on the XLF yesterday, well here is the visual evidence. After much weakness the last 2 months in all the financials across the board, the bulls potentially have something going here.

Now we must close the end of the week above this trendline otherwise this will be just another shakeout. But if it holds could be the catalyst for SPX 1220 at least, yes that's right 1220!

Now that doesn't mean we couldn't get a small correction first to entice more bulls to jump on the bandwagon, but it is something to watch carefully right now.

SUPPORT/RESISTANCE FOR 1/6/2010 Trading day

Ok, so I am seeing some weakness among the other major indices (YM, NQ, TF) so I expect to see some weakness in the ES early on at least. We did have a breakout to the upside on the XLF weekly chart, which I will post sometime today. If that holds could be a huge catalyst for the move up to the mid 1200's in the SP500.

For today, I expect another rotational day with a little wider range than yesterday. I could see another 15 point range day today as the market continues to build value.

Top chart shows the range extensions for today using yesterday's price action, I have outlined the key S/R levels on the chart. The bottom chart shows market profile, in other words where the volume was transpiring during each trading session. This information is invaluable for us traders because we now know if the market is net long/short at the key levels and when their positions are underwater. Yesterday we actually had more total volume than the previous day which was a wide range up trend day. As I have noted on the Market Profile chart we built a lot of value above 1127 in yesterday's action which is so far reassuring to the bulls. But moves below put the bulls underwater, they would most likely add to positions on the first move below, but the second (if there is a second) move might cause a lot of them to give up their positions. But I have marked the levels on the Market Profile chart as well.

As I type here at 4:30 am, the Asian markets are up about .50% each and the European markets are so far flat with slight bias to the downside. The DX, Gold, and Oil all hovering slightly above their daily pivot, Euro trading at S1. So far supporting my rotational day theory.

Tuesday, January 5, 2010

How to make something out of nothing.

Here's a quick review of today's market action and how I analyzed it, and most importantly how I traded it. To set the back drop here, when I have my day trading hat on (which is all the time nowadays) I am looking to short the high of the day and buy the low of the day, cash out by close rinse and repeat. What you won't find here very much anymore is projections on where this market is headed months from now. Please, it is hard enough to get a handle on what is going to happen an hour in advance during the trading day nowadays, never mind a month or months. Whoever tells you they know what is going to happen in the future in this market with certainty, stay away from:) However I will post a quick rant sometime before the weekend, but those type of posts will be few and far between.

No I have found through giving up a lot of paper gains these last few months that it is far more profitable to intraday trade these moves and capitalize each day than to see you P/L fluctuate around like those who have held on to positions especially the last few months. The problem is this type of trading is difficult and more stressful, but for me more rewarding to see hard work pay off. I hope to show you some of these lessons I learned the hard way and hopefully track my progression through the new year.

So here it goes, first off we have to set the theme for the day. We just had an uptrend day yesterday with a wider than average range for the last couple of weeks. Usually the day after such a move is consolidation, small range market action while the market builds value in a new trading range. Which was exactly what we got today, with a whopping range of 8 points from high to low, how does one make money on a day like today?

Range extensions is the answer, we need to find the overbought/oversold conditions and counter them, forget trading in the range on days like this it will get you chopped up and spit out. On a normal day you usually look to draw you fib extensions from the high to the low of the previous day and vice versa, but after the uptrend day you would typically look to draw extensions from the globex high to low and vice versa for initial support/resistance because the bigger the range the farther away the extensions will be and after an uptrend day you typically won't see a big enough range to test the extensions. Which was the case today.

As you can see on the 5 min chart posted above range extensions worked beautifully on both the short and long counter trades. Price sold off into the 1025 area extension which happened to be the value area low as well, I took that long trade for a counter. Typically my target is usually the midpoint of the day or the globex session whatever I am using, which for today was 1128.75.

I played conservatively and went long @ 1025.50 and sold @ 1128.75 for 3.25 pts. Then price rallied into the extension long target as the XLF showed strength early on. I then shorted the 1132 level back into the midpoint @ 1128.75 for another 3.25 pts on the short side. So in an 8 point range day I was able to come away with 6.50 points or $325 per contract for the day, making something out of nothing! Boy if we had those wonderful 80 pt ranges like we had last fall I would be rich, oh well got to make the best out of the situation!

I will continue to post support/resistance levels each night or early morning with extensions and hopefully these will all start to make a little more sense.

VIX and daily range fluctuation estimates.

I will begin to post my daily reviews after the close today and show you how I played it. But for now I wanted to talk about something that I hope will be interesting. I have mentioned beforehand I look at the DX and VIX on an intraday basis to help with execution on the ES.

I have noticed a pattern on traditional rotational days that the ES has been moving in 10-12 pts for fluctuations for the most part before beginning a counter trend move, with a typical daily range average of 15 or so points. This pattern fascinated me and I began to see patterns in previous times throughout the last 2 years, I began to wonder why this is so.

After doing some homework I began to see that the VIX has something to do with that. Not only does the VIX provide a great inverted indicator of the market action but it also tells us how the typical average daily fluctuation can play out.

Here is the current formula: You take the current value of the VIX and divide it by the square root of the number of days in the year:

EX. VIX = 19.73 SQ RT 365(no. days in year) = 19.10
so 19.73/19.10 = 1.03%

As long as the VIX stays around these levels we can expect about a 1% typical daily fluctuation on rotational days.

1% on the ES being around 1000-1100 is 10-11 pts!

Try back testing this, its pretty interesting. Again trend days will usually blow this typical fluctuation measurement out of the water, but since rotational days happen over 70% of the time, technically you could use this rule and combine with good money/risk management could win more than you lose.