Excuse the expletives in this mornings post. But Jeez it feels like its been a long week. Yesterday's trade in Australia was very volatile and I certainly experienced the full array of emotions yesterday. I think many traders thought that we were looking at a genuine breakdown, only for price to hold in and savagely reverse. When we failed to go lower, no doubt there was a whole host of short squeezing going on. That first big dip in an uptrend always gets bought. Urgh.
Anyway, the S&P500 sold off in the first hour or so, made a low, then rallied all day to erase all losses and close up. Sounds familiar right? I put that on the blog yesterday right? It is what it is. Yes its a bull market. Yes the trend is up. But you need to somehow characterise the market and "frame" it. As I said to one of my readers this morning, with the market in this position I have to either i) Wait for a climatic reversal pattern to short or ii) Wait for a consolidation pattern and buy a breakout. That's it it to me. Up here, you have to be nimble. That's my trading style. I'm not an investor. Read the label on the tin :)
So let me, again, show you some charts and information that continue to "frame" my perspective up here.
Firstly, lets have a look at breadth. We know that price has made successive highs over the last week or so. Now lets see what closing Advancing NYSE issues have done:
2nd Feb: 2473
3rd Feb: 2347
8th Feb: 1751
9th Feb: 1235
So price is making higher highs, and breadth is just not following through. Volume continues to decline. Bullish? Or is this telling you that the trend is actually weakening?
You might think that I sound like a broken record. Well my last S&P500 trade idea was actually a LONG at 1330 looking for mid 40s. That played out. Now I am looking at what is in front of me here.
DOW Industrials Daily:
Double Top zone. No doubt. Linda Bradford Raschke used to trade these setups as reversal patterns and called them "2Bs". Basically, wait for price to make a new high above the double top zone, then put a sell order below the low of the previous daily candle. That simple.
DOW Industrials Cash 15mins:
Not breaking out above the previous high but wedging= bearish. You can use the low end of this trendline as a short trigger when/if it breaks.
S&P500 Emini 60mins:
Looks pretty wedgie to me as well. We now have bearish momentum divergences and not new momentum highs.
NASDAQ 100 Daily
I put my hand up- I have been spectacularly wrong in the NDX view of late. I don't trade it but I use it for my analysis of markets and to help my trade ideas. This is a very very simple chart showing how overbought we are currently. The RSI hit 82 yesterday! WOW. I havent seen a reading like this since the Flash crash. I drew vertical lines here showing everytime the RSI has trade above 75. Correction at a minimum coming. Yes longer term peak RSI readings are actually indicative of a strong trend but that is much much longer term stuff.
Another thing I have found interesting of late is the DAX. I put this A=C pattern up on the Twitter feed the other day and so far it has coincided with the current high.
DAX Cash Daily:
A=C target. We are beginning to see some small reversal candles. Obviously more work to do but this coincides with the res levels shown above.
Use whatever confirm you want. I am putting on small short positions in the S&P500 eminis here and will add if i see confirm, stops above 1260.
Australia today. I will not dwell on this for too long. I thought the breakdown through 4235 yesterday would really open us up and put the nail in the coffin. Instead, we hit the first target at 4210, held, and then rallied very sharply all day. The way this moved off the low implies that we may actually see more highs to come! Indeed, the move off the recent high is just not an impulsive move but a series of "3"s implying some kind of triangle pattern/consolidation pattern.
XJO Cash 15mins:
My plan today in the SPI is very much based around this chart.
My SPI day trading plan: I will be looking to short into 2 resistance zones namely 4260/4265 and then 4275/80. Yesterdays move off the low was very strong as I said thus I will be looking to get into this short term uptrend and buy at 4235/40. An outlier level comes in at 4220 and wait for bullish confirmation down there.
My SPI range today: 4235 to 4275. Outlier levels 4220 and 4280