We'll See a Bounce, But Not the Bottom Yet

[PristineTrading 10]

In the Chart of the Week (COTW) dated Monday 9/17/12, I showed you why a short-term correction was near. This was regardless of the bearish October Phenomenon. As I said then, the time of year alone is not a reliable guide without other factors being in alignment. Those factors are - the right price action and speculative bets being placed on higher prices.

 

In that COTW I showed that this was happening and it virtually insured a short-term correction was close. As we know now, Friday 9/14/12 was the high day of the current move. If you would like a copy of that COTW you can e-mail me at greg@pristine.com or e-mail counselor@pristine.com for it and it will be sent to you.

 

 

In the chart above, the S&P 500 is displayed by the ETF symbol SPY. The bulls attempted to hold the prior low in the 143 area of SPY last week, but could not. With an area of Major Support (MS) in the 140 area, it's an obvious place to except a bounce from.

 

Ideally, prices would drop straight down into it similar as they did from early last week. This would create a small Pristine Price Void (PPV) for prices to bounce up into. Assuming we see this setup, I would not play this as a swing trading long. Meaning, I will not hold for a few days, since what is needed for a bottom is not yet in place. Rather I'll use the area as a reference point where the intra-day time frame will bottom and start a short-term uptrend.

 

 

Historically, correction bottoms do not occur without the majority convinced that the market is going lower and they make speculative bets on that. We are not seeing that yet based those option traders that are typically on wrong side near turning points. These are the under-capitalized, overly-emotional traders that bet big at the worst time. I've used their actions at a guide for many years and they rarely fail to signal when the turn is near. When these traders start loading the boat with put options (bearish bets) the odds are that a tradable low will not be far off.

 

Lastly, let's look at the NASDAQ 100 index ETF symbol QQQ

 

 

In the above chart is a Head & Shoulders pattern that formed in the NASDAQ 100 ETF symbol QQQ. The pattern is simply a new high that has failed (longs are caught) and break of prior support. I typically don't show or talk about the esoteric types of analysis that I studied in the past. However, I thought I would show this and how it aligns with the simple technique taught at Pristine.

 

The Head & Shoulders top theory is that the vertical length of the area between the head of the pattern and the neckline (the base) will give you the point where prices will decline to by projecting the same length below the base. In the chart, you can see that I've drawn a line from the head to the base and then placed a line of equal length from the base going lower. That is where prices should decline to.

 

Well, based on the simple analysis of what was resistance becomes support, we see that the Minor Support (mS) area is the same as the measured low projection. I studied this many times years ago and it was virtually always the same. The projection lined up with an area of price support; it could be a minor or major area. The other lines below are simply other price support reference points to be aware of should the decline continue lower.

 

Complex analysis tends to impress us when starting to learn about trading based on technical analysis. We are conditioned to think that the markets are complex and it's needed. Most online trading courses are based on this type of analysis. If you have to buy software or indicators to trade be wary of such education. If your charts of filled with things like indicators, wave counts, Fibonacci projections, etc. The only thing you can be sure of is that the confusion will continue.

 

All the best,

 

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[TheNegotiator 13]

So what do you make of yesterday's action Greg? Has the pattern failed for you to think we're heading higher or was it simply a shake out before a bigger flush down to 1400 ish in ES?

[Greg Capra 10]

Hi Negotiator,

 

Honestly, I didn’t think that ES would get as high as it has been able to, so it may not move to the lower levels I originally thought. However, in the next day or two short-sellers are going to start putting on positions.

 

As you can see from the chart I posted this area has been rejected twice. I’ve market the Topping Tail (TT) candles. Should the recent low that formed last week give way, prices will go lower. The 30-min. intra-day time frame (not shown here) is still in an uptrend, so I will wait to see what tomorrow brings before considering shorts.

 

The NQs have clearly shown relative weakness and it is right in the area where a reversal and move lower typically sets up after an initial break like we saw last week.

 

Thanks for posting your question,

 

Greg Capra

[TheNegotiator 13]

  Greg Capra said:

Hi Negotiator,

 

Honestly, I didn’t think that ES would get as high as it has been able to, so it may not move to the lower levels I originally thought. However, in the next day or two short-sellers are going to start putting on positions.

 

As you can see from the chart I posted this area has been rejected twice. I’ve market the Topping Tail (TT) candles. Should the recent low that formed last week give way, prices will go lower. The 30-min. intra-day time frame (not shown here) is still in an uptrend, so I will wait to see what tomorrow brings before considering shorts.

 

The NQs have clearly shown relative weakness and it is right in the area where a reversal and move lower typically sets up after an initial break like we saw last week.

 

Thanks for posting your question,

 

Greg Capra

 

Hey Greg,

 

I certainly see where you're coming from. But have a number of thoughts. We've been in a wide double-distribution balance since 9/7(1418.75-1468.00). Any short-term topping in the current market could have seen enough retracement already given the width of the balance. Given the Fed, Q3 earnings (so far and to come) and the election, the macro context is telling me there is likely to be less willingness to commit by larger players with quite possibly a positive skew. Within the technical context of the noted balance I am seeing that the latest test lower was just that and that sellers here would be getting "short in the hole". The price risk within the historical action of the current balance is increasing as we move higher although taking into account the possibility of a positive skew, there could well be room to extend the range to the upside. The NQ is absolutely showing weakness in comparative terms however, shorts could be in real trouble should it get much above 2800. Markets are by their nature always building up energy for the next move in some way or another and this could well be the energy the NQ needs. All that said, we have struggled to move higher and currently the NQ is dragging. IF it were to tip and start to accelerate lower, there would definitely be some downside in the ES to come. It will be interesting to see whether ES starts to hug one of the development areas in the dd and see if that has bearing on what it does next. There's still much uncertainty out of Europe and with news things can turn on a dime (or a sixpence as we say in the UK). Covering a multitude of possibilities therefore makes sense to me as we can never always be 'right' but what we can do is be prepared when we're wrong

[Greg Capra 10]

While I have a bias based on what the charts are telling me, I and all that follow the Pristine Style wait for a reversal that is in alignment with that bias. If the ES and NQ continue to move higher without a bearish reversal then no shorting will be done. We will stick with the intra-day uptrend. That being said, the odds are increasing that selling will increase in this area and we will see if those sellers can take control.

 

Here is an updated chart of what the option trader have done over the last few days. There actions suggest the markets are less likely to make much more headway higher.

 

Regards,

 

Greg Capra