Morning Gameplan

Currently the futures are down a good 7 points on the SPX or 70 points on the Dow, however what I am looking at this morning is to put on a counter trend trade. I am going to try to fade this gap back up into it's daily pivot, there I will assess price action and see whether I should hold my long position for more upside action or sell my longs for profit and reverse to the short trade.

Here is my thinking, above the 15 minute chart from Friday into overnight and current. If you draw a fib retracement from the High from Friday to the low, you get a 50% retracement at 1030.25. Look where we hit and sold off, that very same area. These percentage moves are powerful, I can not stress this enough. After studying in this subject I no longer use a single indicator, just the TICK. Anyway the target for this short trade is the -23.60 line at around 1018. I will look to cover my short around that area. There I will look for the long to play the gap fill, more often than not this will be filled in the first hour at least half way, if it doesn't you know a trend day is developing and to place your next trade in the position of the trend.

Daily Pivot = 1029.50
Gap fill = 1027.50

Watch these numbers carefully, and good luck!

ES EOD

Well we did have that explosive move predicted, unfortunantly it came after a good 12 point sell off, so for those who didn't watch the whole day unfold it doesn't seem nearly as big as it was!

Looking back I think that was a brilliant first move by the market makers since CPCI was so high, I am sure it shook out a lot of weak longs as well as shorts just eager to cover for profits nowadays before the move up and eventually to new highs more than likely this week. Pivot points worked extremely well today, if you just sold pivot in the morning and bought the breakout in the afternoon, you would have made out very well as I did:)

The shakeout!

First off I know a lot may not want to hear this, but personally I can not wait until summer is over, just for trading purposes only. These summer doldrums have been painful at best, combine that with the consolidation patterns we have been having and you have chop that can chop chop your trading account if your not careful.

Anyway here's the 5 minute chart of the day session, I said early on to take profits early as possible. We sold off pretty well off the bell, however the volume was light, meaning not a lot of participation. Chances are it was a shakeout of weak longs before making new highs. We rallied off of support 2 at the 1015's, but we are still in a valid short setup around the 50% retrace of this whole move. I would be extremely careful opening any positions right here until we get a clean break either way. If this short setup becomes valid a target of around 1010 would be a legitimate target.

Serious Bull flag formed on the ES

Above is a 15 minute chart of todays ES session, notice the consolidating bull flag pattern formed. The break and ending of this move whether up or down should be explosive. At this point I would have to lean to the positive side.

It has been tough trading last few days, can not wait for the the fall, for the fact that our trading especially during the doldrums (11:30 - 2pm) should produce cleaner percentage moves and not the MESS we have been having lately.

I made my money on the long side in the morning session as noted in the previous post, I saw and pointed out the bear trap forming and went long until I was eventually stopped out with 8 points profit on the day. Then I let the others fight it out as I sat back and watched.

SPX update: 1039 becomes solid resistance

• Here is the weekly chart of the SPX for the last 2 years, I have drawn a retracement from the highs in September '08 to the lows of March. As you can see we bounced off the 61.8% retracement level in the am and sold off the rest of the day.

• We have one more retracement resistance level, if you draw from the highs in May to the lows of March (not shown) we have a retracement level at 1050's which should provide some resistance as well. These two levels are the bears last chance to hold this market down. Once we break above the 1050's we should have a run up into the 1150's area at least before any major correction may take place.

• I ended up taking the day off, I may take the whole week off. Simply because with key resistance levels and consolidation, it becomes a tough back and forth battle that I try to stay out of if I can do so. Let them fight it out and just jump on the side of the winner, riding the band wagon all the way!

A note on trend days

Here's a tick chart of yesterday's action on the ES, now in terms of trend days you look at the NYSE tick, advance decline, sector movement etc. One thing to notice as well is gap retracement - especially the first hour. Other than a brief buying period in premarket we had no attempt to retrace even to the 50% line which is coming in at around 991 (which is why I am looking to sell @ 991 if we get that high). Meaning program selling, distribution whatever you want to call it. The problem with yesterday that ALL of the movement came before 5 am from overseas pressure and most retail traders where left in the dust wondering whether to go long with such overextended levels or jump in on the short side as well, me being one of them, luckily I was able to bag a couple of points that where left to the downside. Boy these market makers are good!

Shanghai Index Breakdown

It is no secret the suspected recovery in China, and the collapse of the dollar have mostly been the catalyst for this entire market rally. And conversely why bad economic news from china could have the impact on markets worldwide like it has today.

Here's the chart for the Shanghai Stock Exchange Composite Index, in my humble opinion comparable to the S + P 500 of the Asian markets. In the last 8 trading sessions they have not only broken the up trend line, it closed below its 20 sma and last night closed below its 50 sma.

Ouch! That is a sign of weakness if I know it. Keep a close eye on this Index in the coming days/weeks because it could call a possible trend change reversal if unable to find support.

NYMO, McClellan Oscillator

Thursday we had a very bullish close which I noted, so on Friday am my bias was on the bulls side. With the thought of breaking off into new highs Friday, I was looking to buy the dips, looking for a reversal. Well the market sold off Friday AM with good volume, a lot more than I had expected. As posted friday, I was stopped out of two long trades before reversing short just to recoup the points I had lost. Now I hate losing anything, whether its $1 to $1000, I am way to competitive in nature to let 2 bad trades in a row go unnoticed.

Therefore I spent some time this weekend looking into what may have caused such a sell off. I did not find any real conclusive evidence, but I did notice a chart that I posted above that SHOULD have warned me that things were not right internally and that any kind of a breakout if any would have been short lived at least in the short term.

Here it is the NYMO, won't go into detail about what this is, I will point out some observations I have found in studying this chart. First obsever the blue horizontal line which is the zero line, a close below that usually creates a sell signal next day as noted, or at least short term market weakness. Also look at the extreme readings and how they can sometimes call short term shifts in market trends.

Last month as noted on the chart, when all looked lost for the markets breaking the head and shoulders pattern, the NYMO tipped us off by giving higher highs (bullish divergence) that price was in fact gearing up for a sharp rally. In contrast we have seen a series of lower highs forming on the NYMO (bearish divergence) which should have tipped off that some short term market weakness could be on its way.

Any good tool to keep handy, this reading along side the NYSI, or Summation Index (not shown) is extremely helpful in pointing out buying and selling activity. From studying my charts and internals closely I do expect an upday tommorrow though, but would not be surprised to see weakness for most of the week after.

ES current range, topping process or consolidation?

Here's the breakdown of the last week or so's action on the ES, check out the channel ES has formed here, question is, is it a topping process or is it a consolidation for the next move up? Well my bias is on the bull side, but I would not be surprised to see a reaction take down ES to the 965 level to gain momentum for a stronger move higher. Now if we break 965 then we may have something more going on here, but I don't see that happening any time soon.

Basic range has been between 1015 and 990 on the ES, we hit the upper channel this morning and look how the market reacted to that, futures we up over 100 points on the Dow, but by the time we opened it turned negative. Now that's a powerful channel!

Also, take a look at the pre-fed craziness as the Market makers drop the es slightly below the range, probably suckering in a lot of bears before taking off first thing in the morning to the upside. However the bullish divergences that formed on the MACD, STOCHS, and RSI would have kept you out of this trade or even gave you a much better opportunity to get long.

Also post fed days are known to be weird days anyway, that is why I didn't go long on the tick extreme like I usually would, I waited for it to break a resistance level before jumping in on the long side just in case it was a sucker move, even still I took my profits and ran this morning. I know a lot of really great traders that just shut down and take the entire Fed week off because of action like this. So if you got stuck in some bad trades this morning, don't be hard on yourself, I can guarantee you that more people lost money today than made money.

I'll post the chart of today's action with Tick later on.

Simple Volume Analysis

First off I wanted to answer a question I received as far as why I set such tight stops, yes it was frustrating to get stop out for small/loss+profit today only to see the market move in my favor immediately after, I set tight stops for the simple fact that it's FED day, weird things happen, I have seen it drop off my chart in a couple of minutes. I play things most of the time super safe, however I did notice in reviewing my trades I overtraded today, didn't realize it for some reason until after the bell. But that's why I started this blog, to track my every move and thought so I can go back and analyze and see where I went wrong and make sure I don't trip over the same rock so to speak.

Anyways, to the charts, as I am studying the characteristics of volume to price movements, one of the simple things I track is primary market total volume as seen in this chart. I look for extreme readings and divergences, first take a look at the extreme low readings we have had, most have produced a market top for the VST (very short term)

We had a bullish divergence before the March lows before the rally signaling a possible market bottom, same with July another bullish divergence formed, that could have signaled that some strength was going to carry this market back up to new highs.

Now this is just a simple chart, their is much more complex charts, like up/down volume among many others that give you a little clearer picture. But this is a good entry point to start in volume analysis, as I am seeing volume is a HUGE key to picking market direction and a powerful tool once you begin to use it correctly.

SPX sights set on 1200? US dollar update

Quick update on the US dollar (bottom chart), we got a bounce off the $77.50 level, today the DXY is down about 0.15%. The RSI is trying to break the 50 line on the daily, last time it tried that it failed, a typical bear market in anything should not see a reading over 50 for too long. If we do, that may be a signal that a bottom is forming, but for now to soon to tell. We have 2 more support levels @ 76, then 74 if it continues to fall. Again the reason I point this out and follow its direction is its relationship with the market I trade, which is the S+P 500 futures. A continuation of the drop in the USD, will only add more fuel to the fire for the bulls to take this thing higher.

Now, once again, long term price projections. I don't neccessarily trade off these projections, but for me it is interesting to try to formulate an educated guess, backed up by facts. This top chart is actually a weekly chart of the S + P. The large green and red bars are Volume by price, helps to show where the majority of volume has come at. It can also tell, how strong or weak support or resistance levels may be. Now as noted on the chart, if indeed this was a breakout of the inverted head and shoulders pattern, which I believe it was, a reasonable price target measured by measuring the distance from the neckline to the head, would come in at the mid 1200's level.

Now look at the volume we have had above us, little to none. Which could mean the path to be relatively clear to the upside, and resistance levels will be weak. However, the steepness of the drop we had last fall could be the reason why volume was light, it simply fell too fast to build up a volume base. Either way though, it is worth noting. So, in summary, this intermarket relationship may very well have the dollar continuing it drop, catapulting the SPX up into the 1200 area by years end even. I don't think that would be too far fetched. Remember though as traders, take one day at a time, there is still a whole heap of bad news and "bubbles" that could burst and throw a complete monkey wrench into this theory. Just food for thought, and speculation for the time being.

ES Update, possible Inverted Head and Shoulders

Here it is, the day in a nutshell. We hit our pivot point and sold off, should have stuck to my guns but played it too safe, I just noticed now we have an inverted Head and Shoulders pattern forming on the 5 min. Looks like 998 will hold and we may be off to another rally tommorrow. Let's see how this will play out.

SPX Breaks and closes above 1000

End of Day wrapup, we had a break and close above 1000 on the SPX, here's a daily chart of the index showing how powerful the uptrend has been. I made a few side notes as seen, higher highs on the RSI, means no bearish divergences all clear there. MACD shows no signs of slowing down, wait for a cross of the two ema's before considering short trade. Unless only for a VST (Very short term). The only thing I see is volume slowing down a little bit, however I don't know if that is just because August is usually a slow month with everyone on vacation, (which I should be come to think of it!) until we get more confirmation stay on the long side, you will thank me.

Studying patterns I can clearly see the biggest reaction sell off in this whole rally off 865 last month has been approximately 10 - 15 points. So I estimate if people start taking profits and bringing this market down, we should not breach the 985 level approximately, if we do 965 should hold and would be a great opportunity to jump in.

I went long today @ 992 on the ES, expecting a test of the 1000 area today, I was right! Sold everything @ 4:15 what a way to start the week!

Bullish Percentage Index

Another great tool for spotting trends and tops and bottoms is right here in the bullish percentage index of the SPX. Here is a daily chart, I throw a 5 day EMA as well as part of a crossover system. Also the top of the chart is the daily of SPX alongside, take a look and see how good this reading is at spotting trend changes and tops and bottoms. If we traded this as a crossover system on its own we could have made money (However I would advise against using this by itself!) But even if you did you would have caught the majority of the move to the upside and the selloff as well.

Take this along with our Summation Index and McClellan Oscillator that I showed in a previous post and you have a great way to spot and follow trends. As you can see first off we are close to making new highs in this index and second look at the previous times it has failed at this high of a level. Aagin something to keep in mind while trading, for me I will limit my exposure on the short side, if any unless/until we get a bearish cross on this index, then it may signal a short term reversal. But again, SPX > 970ish = Bull Market, it's as easy as that. Until that number gets taken out to the downside the trend is UP!

Good luck trading this week everyone, I will probably be staying up real late tonight to catch the action and maybe get some good positions opened for the day session tomorrow, we will see.