Thursday, August 28, 2008

The Fade - 08/28/08

Fading a new high or low is not my most favorite trade; however, it works best when you suspect a day to have a range that is more narrow than the previous day or days. When I do take this trade, I like to have a $TICK divergence, and I usually do not get greedy and settle for a point or two profit.
May not trade tomorrow. I have a lot of painting to do.

Wednesday, August 27, 2008

Market Data (End of Day) - 08/27/08


Morning Review - 08/27/08

I was having doubts about the market turning bullish in the first 30 minutes of trading, but it finally did after 1000 ET. The market turned slightly bearish at 1047 ET as the market approached the European close.
Volume in the US markets will get lower and lower in the next few days as traders take one last summer vacation as we approach Labor Day on Monday.

Market Data - 08/27/08


Key Pivot Points

If the market reverses, it is typically near some key pivot point, such as the previous day's high or low, the 0930 ET open or the morning's high or low. There are many more, but these are the major ones. If there is to be a big move in the market, it is usually after a test of a key pivot point.

A change from red to yellow or green to yellow, which is an indication of a reversal in momentum, is more significant after a test of a key pivot point in the market.
The key reversals yesterday were a test of the previous day's low, a test of the 50% correction of the previous day's range, and a test of the morning low.

Tuesday, August 26, 2008

Morning Review - 08/26/08

After testing yesterday's low, the market has given us a 50 % correction of yesterday's range. The market now awaits the FOMC Meeting Minutes at 1400 ET.

German Economic Woes and the Dollar

The Dollar is strengthening against the Euro due to concerns about possible trouble with the German economy. Crude and Natural Gas prices are currently more concerned about the dollar than Gustav.


Five day forecastt of Gustav and more.


Monday, August 25, 2008

Open - Low, High - Open and Range Analysis

On Friday, the High - Open difference weakened while the Open - Low difference stayed below 5 points for two days. As has happened in the recent past, this leads to a down day.

Morning Review - 08/25/08

The fast moving average on the 620 tick chart has been red all morning, along with the fast moving average of the 5 minute $TICK.
We got a small correction on the 1 minute chart between 1008 ET and 1032 ET, when the market resumed the negative trend. I like to see a bigger correction, but the small corrections is all that we get when the market is pretty much one directional.

Saturday, August 23, 2008

Weekend Thoughts - 08/23/08

I got a free copy of September's "Technical Analysis of Stocks & Commodities" magazine in the mail. This issue has a great interview with Suri Duddella, the author of "Trade Chart Patterns Like the Pros". I do not have a copy of his book, but I am familiar with his work through the TradeStation Forum.

In the interview, Suri has a nice discussion about the Trader Vic 2B and ABC or three-wave patterns. The ABC pattern is probably the one that I pay attention to the most, but should also pay more attention to the 2B type of setup, which is similar to the 1039 ET $TICK / Price divergence that we saw yesterday.

The first 30 minutes of open market activity can be an extremely profitable or unprofitable time of day to trade. It has not been my best time of the day to trade. It is a time of day when proper money management is truly important, since the market has a tendency from time to time to turn on a dime during this emotional and volatile period.

Yesterday, the market was bullish during this period due to Lehman news and the upcoming Bernanke speech. As the market bounced off the 38 Period EMA on the 630 tick chart, a good trade setup would have been an entry at 1284.5 with a stop at 1282.75, which was a risk of less than 2 points. The potential reward was close to 10 points, which could have been based on the up surge from 1277 to 1288 with a 50% correction to 1282.75. An example of assessing potential reward to risk.

Even though you should not rely much on the $TICK in the first 15 to 30 minutes, it did confirm the bullish attitude of the market in the first 30 minutes to help develop confidence in the trade.

In the case of yesterday morning's Price / $TICK divergence trade, you are not sure what the potential reward might be. The risk is the high. What can be done here is to trade in multiples of three contracts. Phase out 2 contracts as the market goes in your direction for two points, and keep the third contract for possible large moves with a breakeven stop for the third contract.


Friday, August 22, 2008

Afternoon Review - 08/22/08

1310 ET - The market gave us a correction all the way back to the 0930 ET open, and found some support. At 1221 ET, we got another price / $TICK divergence, but this time to the long side. We currently have a 62% correction to the upside. This divergence was significant because it occurred at the 0930 ET open, which in this situation some may view as support.

1410 ET - The $TICK started to show some weakness at 1336 ET, but the market came back and tested the recent high. The downside correction at 1401 ET appears to be working. The market typically is more likely to move at 1400 ET than 1330 ET, while going into the energy market close.


Morning Review - 08/22/08

1011 ET - Still have good up momentum with both price and $TICK. Little selling activity in the market ahead of the Bernanke speach at 1000 ET. Dollar stengthened overnight. Oil weakened a little.

1030 ET - $TICK starting to weaken a little. An hour a way from the European close. Will have to wait and see when short-term equity traders start taking profits.

1100 ET - Large divergence occurred between price and $TICK at 1039 ET. Market may be topping out.

1120 ET - Getting a nice correction following the divergence. Entering the lunchtime period and the European close.


Interesting Observation

The market stopped yesterday right at the 50% correction point of the last swing wave.


Thursday, August 21, 2008

ESU08 Range and High/Low Analysis

In the above chart, the True Range is based on the 0930 - 1600 ET time period. As can be seen, the daily True Range is seldom below the 10 day average for more than three days. Tomorrow's range may be larger than the average.

The Open in the above chart is the 0930 ET open. As can be seen, we were due for an up day. We may see the short-term trend start to revert back to the down side.

Afternoon Review - 08/21/08

1315 ET - The ES market lately has had some decent sized moves following the close of the European markets at 1130 ET. Lunchtime sometimes is not as quiet as it used to be. Momentum started changing back to the upside at 1252 ET. Little leary of that indication suspecting a false indication, since the market is at the top of its range for the day. However, it jumped to the upside by 4 points. I'm always a little hesitant to trade this time of day. But, the fast moving average on the $TICK 30 minute chart has been green since 1600 ET on 08/19/08, the fast moving average on the 5 minute chart turned green at 1300 ET, and the 1 minute chart turned green at 1252 ET. When all three time frames turn green, the indication should not be ignored. The market then jumped at 1302 ET.

1515 ET - Well, the short-term up cycle won over the bad news bears, at least for today.


Morning Review - 08/21/08

1030 ET - Traders are still working the narrow range that we have been in for over two days now. We are still in a short-term up cycle, but the upward push is weak. We are also still inside yesterday's range, which apparently is the market's current happy zone!

1137 ET - We are still in a narrow range. Even though the market is not moving very much, the tendency is more toward the upside than downside, since we are still in the upside part of the short-term cycle.


Early Morning Reading - 08/21/08

An interesting article on how "A Few Speculators Dominate Vast Oil Market".

Should we rescue Freddie Mac and Fannie Mae?

What is a GSE anyway?


PreMarket Review - 08/21/08

The market is trying to establish the two-day uptrend part of the cycle.

However, the dollar is continuing to weaken, which is preventing the ES market from advancing very far to the upside.

So right now, we are stuck in a narrow range between 1276 and 1261 for the ES Futures.

Wednesday, August 20, 2008

Afternoon Review - 08/20/08

1315 ET - The lunchtime correction was larger than I expected. There was no thought of going long, since all indication have remained negative since 1138 ET.

1400 ET - Indicators started looking positive around 1315 ET, however, market is just below the 0930 ET open, which by many is a resistance point. Not looking for a break above this point, since the market feels weak. Also, the market usually does not show its true intention until after 1400 ET as the energy and bond markets start to wind down.

1430 ET - Good down trend into the energy market close. Psychologically, it is the most difficult for me to enter a trade when the momentum first change from postivie to negative or vice versa, but that point is also when the most profit can be made.

1500 ET -After the energy market close, momentum change back to positive, as the market failed to make a new low. Today has been an interesting tug-of-war between the bears and bulls. The 0930 ET open is still providing resistance.

1600 ET - Nice strong finish at the close, and finally broke the 1271 barrier this afternoon. Crude may go to $150, but not today.


Morning Review - 08/20/08

1010 ET - The sell-the-dollar, buy energy and sell equities crowd is back, probably due to the Goldman Sachs Report this morning. Will wait and see how the market reacts to the 1035 ET crude report.

1143 ET - The crude report showed a larger increase in crude inventory than was anticipated. The report gave us a nice uptrend in equities, which should have happened in the first place. However, it is not uncommon for the market to retest the lows before reversing trend.


PreMarket ESU08 Review - 08/20/08

We indeed got a more narrow range day yesterday as expected. However, the trading range of the day occurred below the previous day's low rather than above it due primarily to the PPI report, which did not include the recent down turn in commodity prices. It was a day, though, where swing traders typcially liquidate short trades and start to initiate long trades.

In the above chart, you can see that the (High - Open) difference has been below 10 points for three days, which usually sees a reversal in the short-term trend. Overnight, the market has indeed traded to the upside.

One fade trade yesterday occurred at 1510 ET as the market tested the noon low. As the futures was trying to make a new low, the $TICK was climbing to higher lows. This was a good place for swing traders to start taking long positions, with both the energy and bond markets closed.
Fay apparently doesn't want to leave Floriday!

Tuesday, August 19, 2008

Following "S" Days

Yesterday was an "S" day with a large range. The next day typcially has a more narrow range.

7/24/08 is a day with a similar chart pattern as yesterday, and was also an "S" day. The following day was a narrow range day, which tested the previous day's low several times.

Mid-day 8/12/08 to mid-day 8/13/08 also has a similar chart pattern as yesterday. The following period had a bigger range than 7/25/08, but the market still tested the previous low at least once.

Late 7/31/08 had a sell off period, again followed by a narrow range period, which tested the previous low several times.

Oil is currently dropping in price as Fay becomes less of a concern.