A Look Back at a the 2009 Low and COTW

[PristineTrading 10]

raders (PTT) are taught about the proper mindset for technical trading. Also is the analysis and charts of multiple time frames at that time as a PTT would do it. It setup a bias to follow for the coming days and weeks. If you were a reader at that time it guided you well.

 

Pristine Traded Traders (PTT) view the interaction between buyers and sellers through recognizable price patterns that signal who is in control or who is taking control. This starts with an individual candlestick, then another and another. This Bar-by-Bar analysis as I have named it continues until a pattern forms that provides a clear message for the PTT. I developed Bar-by-Bar analysis years ago as a way to say objective once in a trade and to also stay focused when not in one. This analysis once taught keeps the PTT in the moment, not stuck in the past analysis or projecting the future, which of course can never be known.

 

Technical Traders look at past chart patterns to predict the direction of future ones that have not yet developed. Of course, the future patterns cannot be known and a problem starts when traders imagine future patterns in their mind and what they think will form (as they see it), if the trade is profitable. If the imagined pattern does not develop traders can become conflicted. No one knows how the next bar or bars will form. The trade can go in the direction thought, but prices can do that in unimagined ways. Pristine Tip: Projecting the future beyond the current pattern's message limits possibilities.

 

This is where rationalization starts about the present and all sorts of problems begin for traders. The worst of those problems is not adhering to a stop-loss. Why take a stop-loss when this was not part of the future pattern imagined? This trader is in disbelief of what is, cannot except the moment and is looking for any reason for the trade to be working, even though it is not. Another trader imagines being stopped out and quickly closes a trade for a small gain or loss, but the current pattern has not signaled that there is anything wrong with this trade.

 

In both examples, the traders were not focus on the present. Price patterns can develop in endless ways and once you are in a trade there is no point imagining what isn't there. PTTs have tools like Bar-by-Bar analysis to keep them in alignment with what is. Traders must have confidence in a method used and a trading plan to use that method.

 

Where patterns form in relation to prior support, resistance, what is the prevailing trend, the length of retracements, analysis of multiple time frames being aligned or not, whether relative strength or weakness has been shown, volume analysis and current market internals all are considered. The more of these that are aligned together, the greater the odds of a successful trade. Knowing how to interpret it all, in a systematic way is what makes up the Pristine Method® Seminars.

 

Following it the analysis and charts from 2009.

 

 

SPY has risen over the last five weeks and is coming into the prior area where sellers aggressively took advantage of any attempt to move higher. The PTT knows that sellers were aggressive in this area because of the three bar combination to the left of current prices. The Topping Tail (TT) signaled distribution on the attempt to move higher. Realize that TT was a large green candle before it was a TT and was preceded by a Bottoming Tail (BT) bar. Also, that BT was the third down candle. After that much selling and a BT, the following candle would typically be a green one. But it ended with a TT, a bearish sign.

 

The next candle was a green candle and we can see that candle opened below the prior TT candle's low or gapped lower. This green candle closed near its high and near the high of the TT candle. Buyers were stepping up and took control this week or so they thought. What happened next clearly put a nail in the heart of the bulls. The third candle was a potent reversal down that retraced almost to the low of the prior green candle. The concept of a Green Bar Ignored (GBI) tells the PTT that sellers took the field back in a big way and bulls are weak. It's not any GBI though. This combination of candles was bearish and as we know led to a sharp selloff and the March 6th low.

 

With the current move from the low now near the area of the prior selling, it suggests new selling in this area. However, the retracement from the low was nearly 100% of the prior decline and at this point we don't actually know that the move higher is over. Retracements of this amount are not typical in a bear market and signal strength.

 

The trend in the weekly time frame is still down and while we should see an increase in selling soon, the length of the retracement suggests the beginning of a bottoming process. The PTT will monitor the candles that form in this area and the volume associated with them in the coming week and weeks to determine how aggressive sellers are and reaction to that selling by bulls.

 

Let's move to the daily time frame.

 

 

The trend is up in the daily time frame, but a Major Resistance (MR) area is lurking just above. On Friday, prices gapped significantly higher from a Bullish Changing of the Guard (+COG) and it was quite impressive that SPY did not retrace back into that gap. Not only did it not retrace into the gap, SPY closed near the high of the day going into a long weekend. This tells us that traders are confident holding positions over the weekend and expect higher prices this week.

 

To recap, the weekly trend is down and current prices are coming into an area where sellers were aggressive before. At this point, the PTT trading from the daily time frame will start tightening stops and should prices rally or gap higher into the above area of MR they will start selling longs. Shorts positions cannot be put on since the daily time frame is up and a bearish pattern has not formed. Last week's low (green line) is Major Support (MS) in this time frame. A move below it will signal a change in trend and the PTT will then look for shorting setups.

 

 

The last few weeks have been unusually filled with larger morning gaps and choppy intra-day price action. If you look back at a 60-Min chart of SPY from the middle of February to the middle of March (not shown) you will see fewer gaps and fluid price movements with narrower average range bars. This means that there was much more confidence amongst traders then when SPY was declining into the beginning of March and then after the turn higher into mid March.

 

Even though prices have moved up overall, after March 18th a higher level of uncertainty crept into the market. The PTTs trained eye is aware to reduce position size to and/or be a bit more selective with plays when the broader market is displaying this type of nervous price pattern.

 

Gaps, many overlapping bars and unusually wide ranges communicate uncertainty amongst traders. If you have felt a bit uncertain for longer moments than usual intra-day consider it normal at this time. Now this relates to SPY, which of course is a broad market index and SPY affects many stocks. However, there will always be stocks that are "in-play" and will move in a fluid way. The concept of Relative Strength, Weakness and Sector analysis is the key to finding those opportunities. The PTT has many analysis tools.

 

Now, Friday's intra-day price action showed a change to a higher level of certainty. Should it continue this week with a several day advance into or just over the MS shown, odds are high that it would setup a correction. Pristine Tip: Downtrends and up trends end with price patterns displaying certainty or confidence in the existing trend. In other words, the majority believes in the trend at the end and several bar runs (consecutive) precede corrective price action.

 

I've marked support levels to be aware of on the 60-Min. chart, the first being Friday's low. Below it, prices have the void created by the gap up Friday morning that can be fallen into. The second green line would close the gap and should provide short-term support. The last green line is at Wednesday's low and MS on the daily time frame. Below it, the daily trend will no longer be up, the 60-Min. will be down and the weekly is already down and will have formed a -COG. Bears will have control and the PTT will aggressively scan for shorting opportunities.

 

What actually happens will unfold in the coming weeks. It is possible that SPY will not break daily MS and it will continue to trend higher and form a new higher low. We'll see, but what I have explained here is how the PTT will follow what unfolds in a systematic way in multiple time frames. Should the daily trend not break then a short-term bullish bias will be maintained. If prices can overcome the MR area above on the weekly time frame, then that downtrend will be broken.

 

The cycles or ebbs and flows from one time frame to another are ongoing and the PTT's job is to monitor and update them as they unfold to adjust his or her bias accordingly. Intra-day PPTs will follow the same analysis, but with smaller time frames. This does not mean the higher are totally ignored, but what happens over several minutes is more meaningful in those lower time frames to the intra-day trader. Intra-day PTTs can and do make money trading long in a 2-or 5-Min. uptrend when the daily trade is down and vice versa.

 

We now know that the low in 2009 was "the low" and the near 100% retracement I wrote about then did signal the end of the bear market at the time. SPY has doubled since that time. The analysis as it was explained then is done in the same way today. Market environments change, but we don't change our method of analysis. This method is the same regardless of what we trade.

 

PRISTINE - A Trading Style, Often Imitated, But NEVER Matched!

 

All the best,

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.