YM, ES and DJIA Analysis

[brownsfan019 17]

Good points james. If one was short and still short on the shooting star, tomorrow is an important day as you noted, the low has not been violated. An aggressive short should still be short in my opinion and a conservative short was probably trailed out.

[james_gsx 16]

I finally got tradestation installed and ready to go :thumbs up:

 

Looking at the charts that were formed today I noticed that we still fit inside a wedge. But there are definitely some things to consider. Depending on how you draw your trendlines for the Nasdaq, the naz could be a leading indicator. Before all of this started, the Nasdaq was being used as a leading indicator by John Carter. I no longer use his service and just rely on myself, but it would be interesting to know what he's looking at.

 

I wanted to make sure I was looking at the big picture here too, so I looked at the weekly charts. One thing stood out, on the Dow, Naz, and S&P we are forming a (hammerhead?). But we are not breaking any form of resistance, and I still think the candle could mean something significant. I have too many images to attach so I will just post them via imageshack.

 

Let me know what you think Brownsfan...

 

 

 

 

 

 

 

 

 

[james_gsx 16]

One other thing, I know this is possible and maybe you can point me in the right direction to start searching. But how can I figure out where the majority of the volume was traded? Can't you use market profile for something like that? I believe it could help figure out who was in control and where.

[Nick1984 10]

A volume histogram should show you what price the most volume was traded at. Is that what you're referring to?

[brownsfan019 17]

James,

I'll try to dive into these charts over the weekend. I would have last night, but had a poker game to get to.

 

The analysis looks sharp though, good detailed work!

[brownsfan019 17]

James,

Let's take a look at your NAS daily, weekly and DOW daily, weekly.

 

NAS DAILY

 

 

 

We have an interesting formation on the NAS daily, right at the 50 SMA - a spinning top. The spinning top by definition is meant to show a pause or break of action since there was no decisive winner between the bulls and bears. It can also show a possible exhaustion of the current trend as well. Result - possible short to play based on the short-term trend as up AND using the SMA as a possible resistance zone.

 

=========================================

 

NAS WEEKLY

 

 

 

The weekly shows a very different picture. Here, we had a hammer 2 candles back that pierced the SMA but could not close below it. Depending on how you play that hammer, you should be long by now. Since the first major red hammer there, we then had a very bullish white candle and then followed up by another bullish hammer. Note the lower shadows of those two candles came close to testing that SMA zone again. Result here is that you should be long, although it has not been an easy long to maintain.

 

=========================================

 

DOW DAILY

 

 

 

The dow daily is giving an 'ok' bearish formation near the SMA. I'm not in love with this possible short, but there's definitely a possibility here to go short based on the shooting star at the SMA. Similar setup the NAS, which if nothing else, should give some additional confirmation.

 

=========================================

 

DOW WEEKLY

 

 

Dow weekly resembles the NAS weekly - should be long based on the red hammer 2 weeks back and again, should be holding long, but it's been a grinder to get into profit.

 

=========================================

 

It's not surprising to see the charts similar, which is good for an overall feel of the market. If playing these current short possibilities on the daily, the NAS looks like a better risk/reward setup. I'm just concerned that it actually broke the SMA and looks like it closed above. So, you get a better return on your money if the short works, but I would not be surprised to look back and see a failed short a few days from now.

 

And it all boils down to if your entry criteria is even met to begin with. For anyone reading assuming I would be shorting first thing Tue, I suggest you read through all the Steps that I have outlined in the forum. Just b/c a bearish signal appears, does NOT mean I would initiate a short at the onset of trading Tue.

[brownsfan019 17]

One other thing, I know this is possible and maybe you can point me in the right direction to start searching. But how can I figure out where the majority of the volume was traded? Can't you use market profile for something like that? I believe it could help figure out who was in control and where.

 

Good question, but not sure I can answer... I would check out the market profile area here on TL or even email TradeStation and ask.

[james_gsx 16]

Good analysis Brownsfan. I am remaining bearish, and I hope to be saying that based off what the charts are telling me. I worry sometimes that I get too excited for the market to fall and I get overly bearish, and vice versa for a bull market. But I will explain why I am remaining bearish.

 

On the Nasdaq daily chart, we had our second attempt to break the 50 SMA. Both times we closed right on the SMA - last time we fell a considerable amount. One thing that really sticks out like a sore thumb to me is the volume. Volume has been extremely light on this retest back to the 50. This leads me to believe that with the recent news most of last weeks buyers weren't institutions but dumb money thinking everything is golden.

 

 

 

NAS weekly, we see a bullish candle that closed above previous resistance. Lately the NAS seems to be following pivots very well (using former resistance/support) and the fact we closed above the resistance seems bullish to me. Now, I could see a quick rally up to 2630 before going lower, the low volume is what makes not want to be long here. I'd rather see better confirmation.

 

 

 

Now for the Dow. Again, we found resistance at the 50SMA. If you open up a simple 10 minute chart of the YM for Friday you'll see a major sell off (sorry my screenshot does not include volume) in the last 30 minutes, if you add volume you will see how much it intensifies. This tells me that a lot of people were not willing to take home their position over the long weekend because of their lack of confidence in the market. Then where the candle closes, it fits in very nicely with the current trend line. Again, very low volume.

 

 

Again sorry, this chart is a 5 minute chart and has no volume even though I mentioned a 10 minute. You still get my point though.

 

 

Now for the Dow weekly, this is where I think things will get interesting. Looking at basic psychology this last week the bears took early control only for the bulls to push price higher. But again, the point where the bulls took over fits in with the bullish trend line. But, in the short term we closed at the top of the bearish trend line - essentially forming a wedge. Volume is lacking which tells me everyone is taking a pause and we will see a breakout in the next two weeks. Right now I wouldn't be long or short, I'd be waiting for a breakout move and tag along. Seeing as how price is finding resistance around 13,500, I'd suspect we will see more downside, but that's not always true.

 

 

 

 

One thing I absolutely love about the DOW is the dow 30 components. We can quickly look at a quick chart of all 30 stocks and get an idea of where the market will be going. I did this (didn't save any charts just did a quick glance) and to be honest only a few stocks stuck out that could be a possible buy. Everything else looked bearish or uncertain.

[james_gsx 16]

I think the time to shift to a bullish sentiment is now. Using the Nasdaq as a leading indicator we saw a doji form right on the 50SMA yesterday, then today we had confirmation and a big close above the 50 SMA with increasing volume.

 

 

 

Now looking at the dow, we had a close right on the 50 SMA and volume is starting to increase finally. I think we could use the Nasdaq as a leading indicator and see some more strength this week.

 

 

 

On the Dow weekly we are seeing a move above the trend line, which happens to be a wedge. So I think this could be our breakout to the long side, or it could turn out to be a wick on a candle - but I'm doubting that. I think this week people will start to feel more comfortable buying again since the volatility has calmed down.

 

 

 

Good luck everyone.

[james_gsx 16]

I'm not exactly sure what you would call today's candle, if it even has a name. But yesterday we clearly saw a bearish engulfing pattern that pierced two candles. I combined some fib lines and found that the 61.8% line from the bigger swing high/low was right at the 50SMA - where there is current resistance. You could almost say that combined with resistance at the 50 SMA, 61.8% retracement, and bearish engulfing pattern that the dow could be setting up for an ambush play to the short side. I know I said I was bullish the other day, but things happen and I have to stay flexible.

 

We had that perfect hammer a few weeks ago and I believe the day to get out should have been yesterday with the bearish engulfing candle. We had a large move down last week, but that found support on the 38.2% fib line from the swing high/low (not on the chart, but it goes from 12,503 to about 13,400) which I find to be bullish. Plus that support was reinforced the next day on our big move up. Of course it's easy to say that now, not so easy when we fell several hundred points.

 

Again, if todays candle has any importance I'd be interested to know what it is. I thought it could be a piercing pattern, but it did not gap down so I'm not sure it would fit the criteria.

[neustaju 10]

Following the bullish candle you noticed, a rally enused retracing exactly 61.8% of the decline. Besides a bearish stochastic divergence present, Elliott wave principle states that a 5th *terminal* wave usually occurs when wave 4 takes the form of a "Triangle". This triangle is clear on monthly DJIA charts beginning Dec 1999 ending sep 2002. If this is true then there are 2 possibilites from here 1) I believe we are dropping to 11,997 minimum. However, by mid november I believe dow to be at 11,070 or 9,575. This downward move will be negated if there is ever a weekly closing candle above 13,450:helloooo:

To view charts click on http://www.megaupload.com/?d=L9Y8GW8Y

made with qcharts

[james_gsx 16]

You're right about the support on the .618% retracement - I just view that as the daily downtrend had to stop somewhere so that was a good place. I don't know really anything about Elliott waves, but that's an interesting aspect.

 

As far as my chart analysis goes, much of the same. If you went short on the bearish engulfing pattern you should still be short. The long term trendline on the dow is still holding on the weekly chart. But I expect that to fail shortly.

 

The Nas is a little more interesting, not sure what to make of these last two candles on the weekly chart. It looks like the bears tried to take control last week only to have the bulls push higher. Then this week the exact opposite happened - basically like tug of war between the two.

 

 

And the daily charts I see another island top, so next week should be another week for the bears. We'll see though, good luck everyone.

 

[james_gsx 16]

One more thing, I'll try to trade tomorrow but I am 99% sure I came down with strep so I might not be able to do it. I may just watch the markets and finish writing my new trading plan. The fact I struggled so much tonight just to do this simple analysis makes me wonder if I should trade live tomorrow, but we'll see.

[brownsfan019 17]

James,

Here's my take on the dow daily. It's late or I would look at some other charts, but off to bed for the trading day on Monday.

 

[brownsfan019 17]

I was curious to what the weekly looked like. Not so good right now for our hammer. It would not be surprising to see the hammer's low tested, which would coincide with our daily dow short. The daily dow could test the SMA, which would be in the same zone as the weekly hammer.

 

[brownsfan019 17]

James (and others following)...

 

Here's how that YM chart looks now. I am using charts from http://www.quote.com as I found stockcharts to be too clunky and cumbersome for what I needed here.

 

At this point, you can see we are a tad range bound here. We have some support around the 13,000 level (note nice, even number) and some resistance around the 13,400 level. I say 'around' as I view these areas more as zones vs. hard numbers.

 

We had a spinning top that if shorted should have made some profit. Depends on how and where you exited. If we assume that we stayed in that trade until a reversal appeared, we got a nice spinning top on Monday, which was confirmed today. So, if short @ 13,300 (approx) and now long @ 13,220 (approx), our short yielded approx 80 YM pts = $400/contract. Not bad for being in the trade for 3 days.

 

 

 

As for the current long, I would just be cautious that on a nice up day today, we may need to cover this position fairly soon. I see some resistance around 13,400 just glancing at the candles going back 3-4 months, so hopefully you can see that too. As we approach this area, I'd love to see a bust through this level on good volume to keep this long going or give me another reason to short again. We'll see how the next couple days unfold.

[james_gsx 16]

I agree, I see much of the same just a "wide" trading range.

 

 

I also think this is just psychological support around the 200SMA. No one is ready to see it move below that and stay under. But to be quite honest, even with a possible Fed rate cut I think the inevitable fall will come. Definitely a lot of indecision going on right now, but I believe it is pretty clear to see lately that the bears have control.

[brownsfan019 17]

I also think this is just psychological support around the 200SMA. No one is ready to see it move below that and stay under. But to be quite honest, even with a possible Fed rate cut I think the inevitable fall will come. Definitely a lot of indecision going on right now, but I believe it is pretty clear to see lately that the bears have control.

 

I'm not seeing a convincing bear control here. I'm seeing a range bound movement where no one is really in charge. It's back and forth until the bulls or bears say enough (could be news/econ related).

[brownsfan019 17]

So today provided yet another spinning top...

 

 

#1 was the long from 2 days ago.

 

#2 is today's green spinning top. You'll note that it's above the 200 SMA and below the 50. A nice sandwich going on here.

 

At this point, we'd be looking for a short if this new spinning top confirmed. If it does, the previous long would be a scratch or pretty close to it. Not all trades will deliver handsome profits, but you can't win the game if you are not in it.

 

It'd be nice if these patterns were a little farther apart, but perhaps that is telling us of the contracting price action going on currently. This coil will burst sooner or later and let's hope the candles put us on the right side of the trade.

[james_gsx 16]

I really wish there was something I could add here, but there really isn't. The YM, and ES just aren't in a swing trading position right now. But I think if we watch closely and keep up with our analysis we will be in good shape when the breakout occurs.

[brownsfan019 17]

I really wish there was something I could add here, but there really isn't. The YM, and ES just aren't in a swing trading position right now. But I think if we watch closely and keep up with our analysis we will be in good shape when the breakout occurs.

 

You're right James - either this range bound area provides trades or it doesn't, depending on how you trade. Once it breaks, I think quite a few traders will become interested again.

[james_gsx 16]

It's this sort of action (range bound choppiness) that occurs during the day and causes my biggest losses. So I definitely wouldn't trade it on a daily chart.

[brownsfan019 17]

It's this sort of action (range bound choppiness) that occurs during the day and causes my biggest losses. So I definitely wouldn't trade it on a daily chart.

 

This might appear twice, so sorry if it does. I typed a response and though I hit submit, but I must not have.

 

I am going to play devil's advocate here James - while range bound conditions can be hard to trade on the daily, I would argue that it's MUCH more difficult to trade range bound action intraday. Here's my reasoning - on the daily, you take ONE trade and either it works or it doesn't. On the intraday chart, you can take A LOT more than 1 trade and can take some heat depending on the conditions.

 

In addition, I think the daily provides very clear s/r levels, SMA levels, etc. whereas on the daily these levels are not as strong in my opinion.

 

Let me provide an example of our ongoing Dow discussion ...

 

Here's our daily YM chart:

 

 

 

#1 is our long we already discussed. Long at approx 13,220.

 

#2 is a little tricky due to rollover today. So the chart is deceiving - it looks like there was a giant gap up and that's not the case. It's late, so if my math is wrong here, forgive me. Based on exiting our trade this morning due to rollover, here is what I see:

Initial Entry of 13,220 on the U7 contract.

We exit the U7 long this morning @ 9:30am EST @ 13,390.

Profit from long = 170 pts = $850/contract (in trade 3 days).

We then go over to the Z7 contract @ 9:30am and go long @ 13,490 if we want to maintain the long position into the new contract.

 

Now, I am by no means a rollover expert and I honestly do not know the exact specifics here on how it works. I emailed my OEC rep to ask how OEC handles rollover day. I assume it's exit old contract and purchase new one simultaneously (or pretty close). Perhaps going into the new contract is not a good idea since the chart is different now. I'm not sure on that one.

 

Even if we JUST exit our long in the 'tight, range bound' conditions, it netted +170 pts for 3 days of work (56 pts per day average).

 

So, you tell me - which condition was easier to trade in hindsight? Was it easier to take our spinning top at a strong support level and ride it out for 3 days (or longer with rollover) or go into the intraday charts and trade? In hindsight, did you make 56 pts PER DAY over the last 3 days trading intraday? How about after commission costs?

 

These are not meant to be mean questions, I am just trying to open that box of thinking you have to take a peak and see what else is out there... and very possible... This long was called in real-time, right here. Did I take it? Nope. :crap: I'm so caught up in the intraday trading that I just passed on a 170 pt EASY trade. It wasn't any easier than this in not so great trading conditions.

 

Here's the ES chart as well:

 

[brownsfan019 17]

Here's a follow up observation - there's many theories out there of how to trade rollover day. But take a look at today - major bullish action. Why? Well, one idea could be that anyone long (like our trade here in the YM and ES) is that all the people that were long and needed to get long again, just bid this thing right up.

 

It would be interesting to go back and research rollover days. There's only 4 per year, so the research could be pretty easy if you have the back data. I would just like to see what each of the rollover days looks like.

[brownsfan019 17]

I decided to take a peak at the DIA, which is a nice substitution to the YM if futures are not your thing.

 

 

 

The same spinning top on the YM that occurred on the DIA with an entry of $132.30 approx. Current price = $134.30. Current gain = $2.00/share.

 

To make the $850/contract, you would have needed to trade 425 shares of the DIA. 425 shares of DIA w/o margin = $56,227.50 of capital required.

 

So, if anyone is wondering why trade futures, here you go - you could have either 1) traded ONE futures contract with as little as $2500 or 2) traded 425 shares of the DIA with $56k of capital required.

 

Keep in mind that with that leverage that it can work against as quickly as it can make you money.

 

For this trade - we are above 50 SMA, but with a shooting star type candle pattern. That's a concern. I would have liked to see a strong close above that SMA to feel good about this long. At the least, stops should be placed near the bottom of this shooting star and possibly consider a short if price trades through the low of that candle. We could see a channel type pattern going on here - bouncing back and forth. There's money to be made though, no doubt. :beer: