YM, ES and DJIA Analysis

[james_gsx 16]

Speaking of well... the ES. Any man will see what I see in the monthly chart.

 

Now while I was looking at this and laughing, I quickly changed my tone to an, "Oh shit!" Check out the 50sma (green) - it's around 1308. Now over to the daily, the 8sma is around 1305. That's pretty damn close, and could be a major point to watch for this week. Going back to 2001 when we crossed below the 50sma, bad things happened.

 

So I think this will be a very important area to watch for this week.

 

 

[OAC 10]

I am looking at the daily chart of S&P cash. I noticed that the last two candles formed a bearish engulfing pattern. Normally in an uptrend, this pattern would be rather bearish by showing possible buying exhaustion.

But in this case, being that we are in a sharp downtrend, this pattern can actually be bullish. It actually shows an expanding triangle formation on the lower time scale which can often be a reversal pattern especially when we are near previous major support. Thoughts anyone ?

 

[james_gsx 16]

OAC - here is what I see.

 

There is actually a technical term for this, I want to say it's a "tweezer" but I am not 100% sure. Whatever the name, it can prove to be a nice setup for a quick retracement play. Since the lows are the same, it shows someone came in and bought and didn't allow price to go any lower. Since there was previous support there, it makes for a nice risk/reward setup. A personal trade I would use would be a morning gap play. I would check out the TRIN which closed at 1.71 which is fairly bullish, and I would go long at the close then sell at the open with a gap higher.

 

 

Switching over to the ES, a lot of volume came in the last two days. We had a few small body candles and a "hammer" followed by this candle today. But the low of the hammer was never taken out, thus that is still a valid trade if you entered at the close (Personally I took this trade, but got out with a gap up this morning). I have talked about a retrace to the 8 ema, and we got that today as you can see on the chart. In a case such as this with such a favorable risk/reward I would actually setup a position to take out a portion with a move back to the 8ema where I would exit half, then hold on the other half to test the 21 ema. With such an exhaustive sell off and major support, I wouldn't be surprised to see a sharp rally to this level. We are 1266.50 now, so a move up to 1300 would be substantial, and the potential risk would be very little.

 

[firewalker 10]

OAC - here is what I see.

 

There is actually a technical term for this, I want to say it's a "tweezer" but I am not 100% sure. Whatever the name, it can prove to be a nice setup for a quick retracement play. Since the lows are the same, it shows someone came in and bought and didn't allow price to go any lower. Since there was previous support there, it makes for a nice risk/reward setup. A personal trade I would use would be a morning gap play. I would check out the TRIN which closed at 1.71 which is fairly bullish, and I would go long at the close then sell at the open with a gap higher.

 

Switching over to the ES, a lot of volume came in the last two days. We had a few small body candles and a "hammer" followed by this candle today. But the low of the hammer was never taken out, thus that is still a valid trade if you entered at the close (Personally I took this trade, but got out with a gap up this morning). I have talked about a retrace to the 8 ema, and we got that today as you can see on the chart. In a case such as this with such a favorable risk/reward I would actually setup a position to take out a portion with a move back to the 8ema where I would exit half, then hold on the other half to test the 21 ema. With such an exhaustive sell off and major support, I wouldn't be surprised to see a sharp rally to this level. We are 1266.50 now, so a move up to 1300 would be substantial, and the potential risk would be very little.

 

I'm under the impression you guys are looking for something you confirm your bullish bias. I can't see how this is a "nice risk/reward setup". The 'reward' is entirely hypothetical and why should price - if it reacts to support - bounce up to 1300? The risk however is worth paying some more attention to. Why did you draw your horizontal line at 1260? Because price reacted at it this week? If you connected the lows from January & March you'll end up with support at a slightly lower level. So where would you place your stops? Somewhat below 1260 or somewhat below the Jan/March lows?

 

Sure, there was potential for a long trade intraday. But anyone who looked at yesterday's price action will notice price failing to break clear of resistance at 1290-1292. This is much more significant, and if you got long on potential support that's where you should've taken profits (or at least scale out if you wanted to wait for more confirmation to upmove was over).

 

Of course, all of this assumes you entered not at the close of the daily bar (which was around 1285), but at or very close to 1260. Otherwise the potential reward is absolutely not worth the risk, with resistance so close.

 

As for volume, yes it was higher, but notice how the downtrend is actually accelerating. Momentum is picking up to the downside and VIX is still not anywhere near 'panic' or capitulation levels. This is not an 'exhaustive selloff' and should break the lows easily.

[james_gsx 16]

 

Frankly, I'm not even going to respond to that right now, maybe in the morning. I'm sorry, but I just don't feel like going through to explain myself again to someone who will just decide to rip it apart to whatever suits their own trading views.

 

Edit: Since I know most people will take that the wrong way and I don't feel like getting spammed with hatemail I'll do a quick run down for you.

 

It's a tweezer bottom setup, the risk would be just below the low. The reward in this case is the 8 ema or potentially 21ema - shit you could even use Fibs and a 50% retracement I really don't care. I simply estimated that by the time price could potentially hit the 21ema it would be around 1300. Yes, I pulled that fresh out of my ass. It's a simple counter trade setup to help OAC and what he saw in his chart. There are many ways to take this trade, you could wait for confirmation or you don't, it's all up to you. Or, you could short, it all depends on how you trade. Feel free to tear this apart.

Edited July 3, 2008 by james_gsx

[OAC 10]

I'm under the impression you guys are looking for something you confirm your bullish bias.

 

 

No bullish or bearish bias here. Just pointing out the interesting candlestick pattern here on the daily chart. Psychologically speaking, the fact the market open gap up and close below the close of previous day after two weeks of long decline would scare the living s**t out of any remaining longs and market has a nasty habit of rallying after exerting maximum pain. If any trading advice can be given here is probably to be cautious if you are initiating a short swing position here.

[MC 10]

IMO yesterday at the highs had shorts covering as well as longs ditching in anticipation for a short day today and the long weekend.

 

The pullback EOD was on relative low volume showing no pro interest in either buying or selling. Today should be wild with seemingly mainly retail running the show.

 

We'll see should be some fireworks in the market to get us ready for tomorrow. :o

 

Always JMHO

[firewalker 10]

 

Frankly, I'm not even going to respond to that right now, maybe in the morning. I'm sorry, but I just don't feel like going through to explain myself again to someone who will just decide to rip it apart to whatever suits their own trading views.

 

No need to feel defensive... I wasn't attacking your view, but I am nonetheless curious how such a countertrend trade can offer a decent risk:reward trade, given you are basically rowing against a very strong current.

 

It's a tweezer bottom setup, the risk would be just below the low.

 

So what exactly is the risk in terms of net points, given that you wait for the bar to close?

[firewalker 10]

This is not an 'exhaustive selloff' and should break the lows easily.

 

I'll just let the chart speak on that one...

[MC 10]

 

HRMMMM Could it be???? A longer period intraday chart with a test sans the 1 minute noise and micromanagement we all thrive on???

 

Yep...now back to my 5 minute noisy chart. :o

[firewalker 10]

HRMMMM Could it be???? A longer period intraday chart with a test sans the 1 minute noise and micromanagement we all thrive on???

 

Yep...now back to my 5 minute noisy chart. :o

 

I think tests occur on each timeframe, from one second to one day

[MC 10]

I think tests occur on each timeframe, from one second to one day

 

Well of course...but there are auctions going on within other auctions. And of course the timeframe you use should jive with your style of trading.

Do you not weigh the different timeframes in as a factor though? A test on 1 minute charts means much less to me than a 15 minute chart for example.

A weekly to me is MUCH more important and less noisy than a daily. I'm not training to be a scalper though...so a scalper might use tick or volume based charts.

 

It's all in the eye of the beholder and hopefully they are using the proper timeframe to match their trade.

[OAC 10]

Yesterday I was suspecting an expanding triangle being formed, and here it is today on the ES 15 min chart:

 

 

[firewalker 10]

Yesterday I was suspecting an expanding triangle being formed, and here it is today on the ES 15 min chart:

 

 

These kind of formations tend to make life difficult when trading from the outer edges... all the false breaks along the road.

 

If you don't mind me asking, does the presence of such a formation have any effect on your trading? I mean, do you wait and stand aside?

[OAC 10]

These kind of formations tend to make life difficult when trading from the outer edges... all the false breaks along the road.

 

If you don't mind me asking, does the presence of such a formation have any effect on your trading? I mean, do you wait and stand aside?

 

The simple answer is this is a very difficult pattern for the swing traders. But it is good for the scalpers because the volatility is usually good. Just be careful to go with the trend once we break out of this formation. I guess looking at your daily and intraday MP helps.

[firewalker 10]

Well of course...but there are auctions going on within other auctions. And of course the timeframe you use should jive with your style of trading.

Do you not weigh the different timeframes in as a factor though? A test on 1 minute charts means much less to me than a 15 minute chart for example.

A weekly to me is MUCH more important and less noisy than a daily. I'm not training to be a scalper though...so a scalper might use tick or volume based charts.

 

It's all in the eye of the beholder and hopefully they are using the proper timeframe to match their trade.

 

Although it might be more likely that scalpers use smaller timeframes, I would be incorrect to assume that you are a scalper because you trade off a smaller timeframe...

 

In the same way much of the patterns in a hourly chart disappear in a weekly one, much of the patterns in a 15-second chart probably disappear in an 30 minute one. But that doesn't mean they aren't there anymore. They are just 'hidden' from the eye imo...

 

I'm not sure what you mean by "weighing in the different time factors"... support on a daily timeframe is still support on a 1 second, minute, hour timeframe.

[MC 10]

Although it might be more likely that scalpers use smaller timeframes, I would be incorrect to assume that you are a scalper because you trade off a smaller timeframe...

 

In the same way much of the patterns in a hourly chart disappear in a weekly one, much of the patterns in a 15-second chart probably disappear in an 30 minute one. But that doesn't mean they aren't there anymore. They are just 'hidden' from the eye imo...

 

I'm not sure what you mean by "weighing in the different time factors"... support on a daily timeframe is still support on a 1 second, minute, hour timeframe.

 

I'm talking about tool selection, not saying everyone that looks at a tick chart is a scalper.

 

Multi timeframe based confluence of levels for one. You can and will see additional/different levels on a more granular timeframe will you not? So on a tick chart much of which is noise to a swing trader, is not noise to a scalper. Would you try to tighten a screw with a butter knife? It may work but it's not the best tool for the job.

 

If you look at a monthly chart that's in a bull trend and move in on tighter timeframes...each step in you see more and more detail. What's important to a scalper means very little to a long term investor and vice versa. If a long term investor is using a tick chart I don't think that's a logical fit and even as a rookie I would say that may be the wrong tool. Of course if you profit consistently who cares if the tool selection isn't what most deem proper. We all need to do what works for us, but often what works for the majority is the most applicable option no?

[james_gsx 16]

No need to feel defensive... I wasn't attacking your view, but I am nonetheless curious how such a countertrend trade can offer a decent risk:reward trade, given you are basically rowing against a very strong current.

 

 

I never actually setup a real trade, it was all hypothetical to explain what OAC saw in his chart as potentially bullish. You were confused because I threw in the ES chart to show the various moving averages as possible exit points, even though the ES wasn't the catalyst for the trade it was instead OAC's chart, the ES was just used as a simple example.

 

The counter trend trade was simple, a tweezer bottom is a very short term bullish pattern (think of it as a double bottom). The trade would be simple, buy at the close and sell depending on your risk management strategies. I don't know the exact amount of points, and I'm not going to go through and calculate it for you as I gave a simple enough example (below the low). I offered the 8ema, 21ema, 1300, etc as various exit points for this type of extreme short term trade. Obviously, one could adjust his risk depending on the possible reward, or you could wait for confirmation before entering the trade. All I simply wanted to show was how the chart OAC posted could actually be considered bullish, but then you tore it apart and it pissed me off. Now I think we can get back to discussing candlesticks, have a nice day.

 

Oh and btw, if you look at yesterdays SPY close at $126.18, we opened at $127.11. Not a huge gain, but it does go to show how that pattern could be a nice counter trend setup if used properly.

Edited July 4, 2008 by james_gsx

[james_gsx 16]

Well since eSignal decided to screw up my account, I have to use the SPY charts :o Nonetheless, it tells a similar story. Just to clarify, if my memory serves correctly the ES has a spinning top at support, and the SPY has a "hammer" at support.

 

My long term view is still bearish, but I wouldn't be surprised to see a small rally around this area. I wouldn't short, or necessarily go long here (except to hedge). I think the better strategy would be to wait for confirmation of this hammer, or wait for a close below 1,250 (ES) then a move back to that level to act as resistance. We've had 5 straight weeks closing in the red on the SPY, that doesn't setup any type of trades for me but it is something to take note of.

 

[james_gsx 16]

eSignal finally fixed my account. I told them if it wasn't fixed within a certain time frame, I would be taking my business elsewhere. Of course, it was fixed faster than any other problem I've had with them in the past. Go figure.

 

So the 8 EMA continues to show resistance. We had a few small body dojis, followed by a rather big range yesterday, then today a rally that closed near it's highs. Volatility is creeping in, and if the ES can move above the 8 EMA tomorrow I think it would be highly plausible to see a move to the 21 EMA, which happens to 1300 right now. Todays close is at recent support back in March, so time will tell if that holds.

 

 

[MC 10]

 

I've added some more volume by price support lines and updated the chart.

To me this shows the volume and where the majority entered the market after the Y2K bear. Almost 2 years of consolidation setting up the bear to bull transition. No doubt about it...this is THE key price pocket. Volume = market sentiment and it's staring us in the face. Now the question is do the big money players have chips on the table still, if so they support that line...if not they let it tank through and get in MUCH below that pocket of support.

 

The above I posted on the web on Jan. 23rd.

The levels I posted back then are coming up. 10,700 remains the most important level I can see. If we stay above that, the point of control is upheld and long term investors will hold albeit with a load of steamy crap in their pants at this point. If we break below there with conviction (especially close below) I'd look for massive bloodshed to accompany the crap in the pants.

I'm looking at that volume pocket as a fault line, if we break that open it's going to be like an earthquake when we have plate shifting at the earths core.

 

Here's an updated chart. In bell curve terms this is a chance to revert and test the MEAN. This testing is something the market does all the time on different timeframes. It's how value is probed in a 2 way auction. Goes higher, no interest...revert to the mean and see if there's interest. If there's no interest there it goes lower till there is no interest and then back to the mean. From the mean any direction could be tested FWIW, including chopping around and coiling at that section of price. My signature sums up how I feel about market movements.

 

All JMHO

Edited July 12, 2008 by MC

[ammo 10]

mc, thanks for the research,i'm not savy enough to post, transport, a chart,someone on tl gave me the link but the skill level was over my head,anyway,if you go back to 87 and look at the chart preceding the oct black monday dow you will see a 3 step pattern where we retraced to the bottom of the 1st step,that would be 10700 on your chart,if you look at the nikkei in 89 it had the same pattern and then made a 4th step,it sold off and blew thru the bottom of the 1st step,the dow chart you have up could have 4 steps starting around 10700

[brownsfan019 17]

mc, thanks for the research,i'm not savy enough to post, transport, a chart

 

How to post a chart on TL

[MC 10]

 

 

Still plenty of resistance ahead on the markets overall. DJI has no divergence on a weekly going into this move so perhaps the Nasdaq is leading off it's divergence. Either way Nas has been the stronger market all the way in this bear really. In case some newer folks didn't catch the tip on the charts...there is a nice ticker to help you spot divergence on highs and lows.

[james_gsx 16]

Good work MC. I bought several calls after the ES bounced hard off 1200. Today I sold those calls for a nice profit. Although I probably sold early I'm still okay with the profit I took.