Saturday, February 27, 2010

Friday, February 26th review

Rather uneventful day today, not a lot of traders in the NYSE pit today due to the storm. We had some consolidation of the gains on Thursday.

Globex session tested the 76% fib level mentioned in Thursday's review, after the opening bell we pulled back to test the Value Area high, which was also a 50% long from Thursday's low to the close. We had solid support in the 1094-1096 area there as 1094 which was my line in the sand was the midpoint of the entire day Thursday as well. That area held strong and was immediately met with initial buying from longer timeframe traders.

Not a whole lot of volume, so you really can't read anything into this. Next week should be interesting, Double Top to 1130's or pullback to midpoint at 1076-1079? That will be the question. Still holding firm to us seeing 1230ish by summer.

Trade of the day
1- Turned out to be the only trade of the day, buying the midpoint and value area high.

Thursday, February 25, 2010

Thursday February 25th, what a day!!!

Well what an amazing day we had today, I love this type of market! Obviously we saw weakness overnight and broke below my bull/bear line in the sand from yesterday's post. So was anticipating weakness in the morning.

Top chart is the 30 minute chart showing the last few trading sessions, from the most recent highs to Tuesdays sell off day. Wednesday was an inside day that retraced back to the 61% level for the bears. Bears defended it well, and later on defended the 50% retrace level, so lower highs lower lows, you know whatever the "news" or the unemployment claims data at 8:30 was, it was going to be sold into because of the current structure of the market.

Needless to say we sold off on the "news", check out the -23% range extension level on the charts, called the low of the day to the TICK!!!!! This is not a fluke, this is black box trading at it's best, and happens a lot. We rallied back up to test Tuesday's low, where we were met some more selling pressure.

Market retraced to test the Initial Balance low, and it was all downhill from there for the bears, as we rallied strong into the close on high volume!!

Now I felt like today was not going to be a downtrend day from the get go, the tape just didn't look right. Now I am more bullish than most in these times, but check out the third chart above. This is the VIX chart for the day, as you can see it was moving down pretty much all day, not confiming continued selling.

So we had a good day, what happens from here? Good question, check out the second chart above to see the 4hr chart of the ES from last lows to last highs, spanning about 2 weeks or so. We rallied back today again into the next measured move short on the longer time frame, when we hit the -23% target the bears handed the market back to the bulls to take over, now that we are in the next short setup the bears need to defend this setup or the correction will be over and 1130's will be achieved next, on the way up to 1230 in the next few months.

The key levels are 1102 - 1106 for the bears to defend, for the bears out there short these levels with stops above 1106 targeting the midpoint of this move up off the 1040 lows coming in around 1076.75. So your risking 4-5 points to potentially make 30pts, that's a great setup!

For the bulls, wait for a pullback to today's point of control to enter position, if 1106 seems to be holding abandon ship, if it breaks first target should be last highs at 1112.75, then 1130's. Not as good of a setup as the bears have right now, but still good enough.

We have GDP and New Home Sales as big economic news tomorrow, expect some decent action in the AM session at least. My bull/bear line in the sand for tomorrow is 1094ish.

Trade of the day
Obviously to buy the -23% range extension, trail it all the way up for big money!!!

Wednesday, February 24, 2010

Wednesday, February 24th Review, Bernanke does it again!

As I stated in yesterday's review, don't be surprised to see the bulls recapture most if not all of the losses from yesterday. Scenario played out beautifully!

As you can see in the top chart, the overnight session spent most of the time building value above the Value Area High (sign of strength), and opened just below it. Market internals were good as well. We had new home sales data come out, which was not very good at all. The market sold off right into the perfect long setup for the bulls at the Point of Control and IB low, you had to take this long position on first touch! Another reason why I say that market structure determines direction and not news, the news only provides a place to shake out or stop out weak money over to the pros. If you don't understand market structure, you won't understand why the market reacts the way it does to "news".

So the new home sales numbers shook out the weak longs and made for great long setup for the longer time frame buyers, as prices rallied fast without much pullback to jump in on. Rest of the day was uneventful as prices consolidated gains in the 1100-1105 area. Market closes just above today's Point of Control.

The volume chart shows you the value built higher from yesterday, with 1103 being the high volume value area. Tomorrow we have unemployment claims numbers @ 8:30am, my bias is bullish for tomorrow if prices can hold the 1098 level, below it more long liquidation may occur, and 1085 - 1087 will be my target. However I believe the market is headed for 1130 soon before any significant reaction will occur. 1230 area should be reached by summer.

Trade of the day
#2 - Long at POC and IB low off the New Home Sales data, doesn't get anymore easy money as that!

Tuesday, February 23, 2010

Tuesday February 23 Review, Consumer Confidence Dissapoints!

Well market had closed at it's highs the previous 5 trading sessions, so what do you do to alleviate the overbought condition? Send out some really bad consumer confidence numbers and bingo.... problem solved!

Market rallied and double topped during globex session, prices where immediately rejected as Dollar rallied and Euro sold off.

By 6:30am we were barely holding yesterday's IB low and well below Value area low. The market opened below value (sign of weakness), but A/D initially wasn't looking bad as Decliners had only a 1/1.5 advantage, initially this is a buying opportunity as Market internals not confirming price under value.

Thus we saw prices rally to test the Point of Control and close its gap around 9:47 am. Consumer Confidence numbers came out at 10am, they were well below estimates, thus bringing in longer time frame sellers and the market quickly sold off on the news.

A/D line became increasingly more negative after the numbers getting to -3/1, with heavy negative breadth as well.

The rest of the day was rather uneventful as bulls/bears battled, the bulls defended last week's midpoint and the bears tried to defend the IB low, market ended up closing inside the IB, but well below value.

Look for Bernanke tomorrow to move this market one way or the other, although we saw a lot of selling, the NYSE tick never hit any extreme levels, so it wasn't heavy volume panic selling. Don't be surprised to see this reverse and bears lose all of this ground tomorrow. Regardless, we must keep an open mind in this market.

Trade(s) of the day-
#3 -Short the Point of Control right before the numbers were released by far! It was a risky trade but would have paid off exceptionally well in a small amount of time. My type of trade!

#4 - Long at the -23% range extension off the IB, black box trading at its best!

Monday, February 22, 2010

Monday February 22nd Review

A rather uneventful Monday today, we had a typical rotational day building value higher and higher up the ladder. The advance-decline line was virtually flat the entire session. I haven't seen that in awhile, regardless there were trading opportunities outlined in the charts above still on a day like today.

After a small gap up into resistance during the globex session, we sold off and opened the day session at the value area high, we proceeded to close the gap in the first 30 minutes of trading.

There was the gap fill and the value area low (VAL) as confluence, that held all throughout the Initial Balance which offered a great low risk entry for a long. Once we bounced, we ran right into the Point of control, which we ran into more selling which knocked the market back near day session lows.

We then go on to make a flag formation, as buyers and sellers both compete for positions in a flat market. On the break to the upside, target should be now Value Area High (VAH) which again was met with sellers, right back into the VAL once again.

Even with the uneventful day, we still had opportunites to play ping pong with the value areas and make money, it is no coincidence that the market stopped exactly where it did. There is structure in Market Profile, these value areas are like magnets for price. They can be both targets and entries.

In a flat market like today, fading moves outside value areas are acceptable. When the internals are heavily favored in one direction, as in a trend day. Then it is ok to follow the trend by buying pullback to a value area.

Market is on its way to 1230's.

Sunday, February 21, 2010

The Big Picture

Here's a look at the big picture, using the weekly chart of the ES. Again the broken trendline which I pointed out in the middle of all that mess over in Europe, was what I believed was in play. Turns out I was right as we got the pullback into the long position.

I want to point out something, let's re-examine the sentiment that was in the markets on each low from the March lows. We made our market bottom in March when the government had just taken over 40% of some of the largest institutions in the country and complete nationalization was the heavy talk on the news.

We made our next low when the talk was "sell in May and go away" the dreaded head and shoulders pattern that even I must admit was caught up in. And once again the sentiment was, this is it for the markets.

We made our last low a couple of weeks ago when the talk of Greece and European debts made sentiment feel like fall '08 once again. We bottomed that weekend when things seemed like it was all downhill from here.

I want to point these things out to establish the pattern in this market. The usual pattern in a normal market is to be a buyer when things are bad, and when things look like they can't get any better, although it's not an invitation to sell right then, but to be cautious. Fall 'o8 was a historic event that only happens once a decade or generation. I am still bullish and am sticking with my prognosis of the 61% retracement level around mid 1200's probably by summer. The only thing that would convince me otherwise would be if markets accept value below SPX 1050.

Take a look at the drop in the SPX during June and the last drop in January, you will see a 9% drop each time. As long as the market keeps the rhythm there is really no need to get bearish yet.

Markets will always favor the long side, because of the potentially unlimited returns it brings, whereas shorts can only make 100% returns at best. This game is all about making money.

In conclusion, I believe the market will hit 1230's or so by summer. In any case I don't see any further weakness dropping any lower than SPX 875's. It would take a catastrophic event at this point to even get anywhere close to testing the March lows, at least for the rest of this year.

Again, just my .02

Saturday, February 20, 2010

Friday, February 19th Review

Wild day in the market, announcement of the Discount Rate sent some panic selling initially during Globex. My thoughts on what happened was it all was a hedge on options position and probably suckered in many bears along the way.

Regardless we continued to hold the 1093 volume area again, which triggered short covering. By the time markets opened we were back in value from the previous day.

We had some nice trading opportunities to ride out the short term trend. OPEX friday is usually not the day to take a bunch of trades, trades should be limited to high probability setups only.

At around noon the market hit an important level. The 2x or double the initial balance. This is a profit taking area on a black box level, and called the high of the day to the tick!!

Market closed @ 1106 which is right below the point of control for the day, these bulls are resilient.

High Volume area came in at

Market Stats
IB Range - 6pts
RTH range - 12.25
Full day range - 18.50
Volume - 2,095,859

Thursday, February 18th Review

Market continued to hold high volume area at 1093's again in Globex session, moved higher and opened just below Wednesday's point of Control @ 1097. We broke weekly high during IB period which shows signs of strength. We pulled back immediately after the IB was formed, right into the magnet which is the VPOC once again @ 1097, which made for a great long setup.

The market was stuck in a flag formation throughout the afternoon session, broke to the upside and rallied into the close, once again closing at highs for the day. Resilient bulls again.

High volume areas created today:

Market statistics
IB range - 6.25
RTH range - 11pts
Full day range - 13.75
Volume - 1,831,933

Wednesday, February 17th Review

Today was an uneventful inside day in the market, not many setups. Market held one of the high volume areas at 1093 that was noted in Tuesday's review, during the Globex session and proceeded all the way up to 1100 which was pretty solid resistance.

IB opened up above Tuesday highs and value which is bullish, rallied back to the 1099 resistance level but couldn't maintain. Yesterday's gap became the magnet level for shorts.

We fell back into the gap fill and test of the high volume area held in globex, great low risk long trade entry. Probably the best of the day as we then proceeded to rally to close near highs of the day.

High Volume Level

Today's Market Stats
IB Range 4.25 pts
RTH Range 7 pts
Full day range 7.5 pts
Volume 1,669,958

Tuesday February 16th, Day in Review

Three day weekend for the markets, globex session holds Friday's VPOC (Volume Point of Control) rallies past last weeks high which happens to be Friday's close and gap fill as well, comes back to test that same level during globex and bounces. So we had signals of strength early on.

9:30 am market opens at 1083.75, way above Friday's value and high, again signaling strength. The Initial Balance is the 9:30 to 10:30 am trading hour when most business transpires. Very important hour that you will hear me talk about a lot, I will refer to it as only IB for now on to simplify. We once again drop to test the high and close the gap during the IB period. It holds yet again, very bullish for the day, test of Globex highs at least coming.

We test globex highs around the 11am mark, it is met with some minor resistance initially. But gets broken to the upside by 12pm. Bullishness continues now as long as globex highs hold.

We see continued trading around this area for an hour or so, Globex highs still holding = bullish, odds favor a run-up into the close now. Which we get, market closes at it highs for the day. Bulls win for the day!

Volume profile chart shows heavy volume transactions at:
1081 Price levels

Above chart shows ideal low risk trade setups given for today.

Final Day stats
Initial Balance Range - 5pts
Regular Trading Hours Range - 14.5pts
Full Day Range - 20.5pts
Volume - 1,874,920 contracts