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Slip slide

December 13, 2013

The S&P emini contract presented an interesting reaction to the violation of the lower trendline. This is all on a 5min timeframe, but there are many stocks and even the Nasdaq index which are testing the lower bounds of uprends which have been intact for months.

The market ends unchanged, another indication of indecision. Volatility is picking up.

Wild intraday swings characterize the end of week action.  Weekly summary.

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Pay the Piper

December 11, 2013

Linda Raschke has always mentioned that “Price action follows Momentum”. In daytrading setups and intraday action, one follows the ^TICK index (momentum) to gauge upcoming price movements in the S&P contract. This works fine for the twitch-fingered short-term traders, but swing traders will look for other signals for momentum. This takes the form of longer-range indicators such as the ^VIX (volatility index), NYSE advance-decline ratio, or McClellan oscillator. The later is the one I wish to highlight.

The simple ideas is that we are now experiencing a situation of higher prices (all-time market highs on US exchanges), yet lower momentum. In this case, the Summation index, a gauge of how many advance vs. declining issues are present on the daily charts. Starting Monday, we are now in a consolidation sequence until this divergence is worked off and the Index curls back upwards. This is the third band in the chart below.

The during the next few months can be characterized as a policy shift from “Don’t fight the FED” to “Don’t believe the FED.” It seems Bernanke wants to say ‘were done with Quantitative Easing’, and that he will have to carefully manage his words to cover all the misappropriations of property, assets, and economic hidden agendas. In other words, his communication will have to pack a few white lies peppered here and there.

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Wolfe pack

December 10, 2013

A small wolfewave presents itself in the ES (E-mini S&P) futures contract in early trading. The overlapping wave structure is key to recognizing and trading this setup.

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Newtonian Physics

December 06, 2013

The markets lift solidly, leaving the weekly charts with another doji candlestick = indecision. Heck, even the volatility index VIX is experiencing extreme movements.

I mentioned AAPL a couple days ago, just as an analyst comes out and calls for a $777 target price. Yet despite the massive lift in the markets, the tech giant has faded lower. We still need to see how the larger daily Gartley pattern unfolds, but the measured move target filled perfectly to $572, then encountered some headwinds. Beneath the covers, red riding hood would find a pack of wolfewave players operating at the 15min level. Is there a correlation between the intraday action and the same rising wedge as shown on the daily charts; is the lower timeframe a reflection of the larger context? Inquiring minds wanna know…

Good Evening

December 05, 2013

Japanese candlestick patterns provide insight into the psychology of traders. Originally used on the 14th century rice exchange, they imparted knowledge about price fluctuations and help to time the buying and selling actions. This week we have a three-stick pattern building on the Banker’s index (leadership for the NYSE and general market), a “evening doji star”. Combine this with a negative divergence on the daily charts (higher prices, lower momentum), and coming at market highs, we consider this another consolidation signal, or a reversal setup if there are bearish headwinds that hit the market in the future. Big head’s up.

The other key consideration will be the reaction to the lower daily and weekly trendlines. “3 knocks and go with it” pattern setup is in effect on many individual stocks, so watching if the banks can keep this lower uptrend line intact will be key.

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Mirror mirror on the Wall

December 04, 2013

Today’s ES intraday action seems to be an exact reflection of what we saw yesterday (with the overnight Globex history also shown). I can only take this to mean the wave action is increasing in intensity. Furthermore, the ES (S&P futures) – EC (Euro Currency) seems to be broken following yesterday’s news. No longer can you use them as coincident indicators for day trading.

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Helicoper landing in 6 months?

December 03, 2013

Wolfewave setups are always amazing – going into wave 5 it feels like there is a thundering herd of bulls or pack of hungry bears ready to gorge and devour anything in their path.   It always feels a bit wrong to trade, just like any reversal setup.  Today we have a pre-market getting very worried about the possibility that Bernanke will stop his magic hat trick sometime in the future.  This is most likely the spark of uncertainty that will cause the markets to pause and consolidate.  Do I hear a howl in the distance?

Below you see the results of intraday action (did somebody get headwind of this policy/rumor perhaps) and the opening bell news.

TSLA became a mo-mo stock earlier this year, sparking the imagination of many an investor, only to be disappointed by a “fire” incident and commiserate sharp pullback in the stock price.  Similarly, we should carefully watch the market  leaders, AAPL and GOOG as they have to work off a rising wedge pattern and monster gap.  They are the true tell of the tape as money managers rotate among bets ahead of the new year.

Apple has been rumored to have changed hands from momentum players on the ascent to $700, to value investors who piled in on the pullback to $400. Pattern players on the other hand see that AAPL responds very nicely to Fibonacci extensions and pullbacks. Right now, it is completing a Gartley AB-CD pattern with a measured move target (wave CD) right around $572 on the weekly chart. This also represents a 62% pullback from the highs.

Google is a real mess and will probably consolidate from these levels. There is a “3 waves and a dome” pattern see on the daily chart, but more interesting is the overlap in the price structure over the past month.

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Dancing the Tango

December 02, 2013

Market correlations are an amazing science and trader’s tool to ensure success. We often look for “confirmations” of new highs between the indexes to ensure that the uptrend is intact. This is the underlying basis for the Dow Theory – any new high in the Dow Jones Industrials must be confirmed by a new high in the Dow Jones Transportation index. The best source for modern-day correlation analysis is the MRCI.com page. This well-established website has been cited many times by Linda Raschke for their in-depth analysis. Below is an example showing just how closely all of our US markets are linked:

This is a nice snapshot in time as all markets are walking in lock-step. What we will want to watch in the future is any breakdown in this relationship as volatility picks up (an imminent event based on VIX signal).

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DeMark my Word

December 01, 2013

Sheesh, another 1929 setup, just like the playbook that was used into the 2008 abyss.  This one comes courtesy of Tom DeMark who is also fascinated by market correlations.  Interesting reading at McClellan Financial – Chart in Focus.

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