If you’re feeling as though the market is bouncing aimlessly up and down, you might be right – but in these times, it’s often helpful to draw classic Fibonacci retracement grids to help you determine what levels the market might “ping-pong” off of.

Here – let’s take a look at the dominant short-term Fibonacci retracement levels currently in the S&P 500:

I started the Fibonacci Grid at the 2010 price high on April 26 at 1,219 and ended the grid with the July 1 low of 1,010.

From that, we see the respective 23.60% (a lesser-known number), 38.2%, 50%, and 61.8% retracement – all of which are standard in most charting platforms.

Does that help us make sense of the ping-pong?  Or at least, does it at least tell us where the walls are in the game?

Sort of – Fibonacci is not magic, but price does tend to react time to time from these levels.

Not to the penny, of course, but enough to give us a reference where we can monitor our lower timeframe charts, so we can see if there are any divergences or other signals that appear at one of the key price levels.

For now, the market is literally ping-ponging between the key 1,115 price and 1,090 level – both important Fibonacci retracements.

A pong above 1,120 likely pings the market to 1,140, just as a ping under 1,090 pongs the market to 1,060.

That was my attempt at ping-pong humor.

I suggest keeping these price levels handy in the week ahead.

(The chart above is also included in tonight’s Idealized Trades report for members).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Well that was interesting – the S&P 500 so far has played ping-pong between the 200 day SMA at 1,115 and the 50 day EMA at 1,094.

Let’s look closely at these two levels which have become almost exactly today’s high and low price.

Today underscores the importance of watching key daily moving averages in your intraday trading.

On the current down-swing, you can know in advance that there may very will be intraday support at either the 20 or 50 day EMA, which rest at 1,089 and 1,094 respectively.

You can set-up trade targets to play intraday swings to these levels, and then look to see if you can trade long for a potential bounce – particularly if you see little divergences or other buy-signals – which occurred at 11:00am CST.

So that takes care of short-term support, but what’s also quite interesting is that this morning’s pop-up gap paused and formed the intraday high at 1,115, which happens to be both the 200 day SMA (1,114) and the 50% Fibonacci Retracement (1,115).

That could have prevented you from rushing in to buy the market this morning until we cleared above 1,115  – which we did not.  No break, no buy.

On the down move, price found support at the 50 day EMA.

This is a great example of how intraday traders can use simple reference levels off the daily chart to enhance intraday trades.

So the market must either break above 1,115 – triggering a wave of “Popped Stops” and a short squeeze, or it must slice through support at the 1,090 level.

One of the two will happen now – it can’t stay between 1,115 and 1,100 forever!   Be prepared.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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It’s mid-day, and so far the S&P 500 has formed a clean – nasty – bearish engulfing candle on the daily chart – that’s a very powerful signal.

Let’s take a quick look at the formation of the bar and then look what happened the last time – June – when we saw this exact same pattern – it’s not bullish.

First, the daily chart for reference:

In this price purism chart of the SPY, I’m showing the three most recent “Engulfing” daily candle bars, both of which formed at key turns in the market swing.

The first was the insidious bull trap of June 21 that strongly warned of a major turn lower in prices -that occurred right on cue.

Recently, on July 20, we had a clean bullish engulfing candle that thwarted the down-swing in process, leading to the most recent swing higher in price.

Today, so far, we have a clean bearish engulfing bar.  The caveat is that the bar is NOT complete yet, so to make the signal official, we would need to see a close under $110.40.

Let’s now step inside the most recent bar and see the half-way point of the session, as of 11:20am CST:

A quick glance shows us how today’s bar gapped over the high of yesterday (barely) and then “engulfed” yesterday’s action fully, pushing solidly beneath yesterday’s low at the $110.50 level.

That’s how a Bearish Engulfing Candle forms.

To highlight the distance, I’ve emphasized the difference between yesterday’s high and today’s high, as well as yesterday’s low and today’s low.

If this signal plays out as anticipated, we could be seeing the confirmation of a turn lower in price.

To see what happened during June’s bull trap Bearish Engulfing candle, let’s step inside that bar:

I showed what happened the next day after the engulfing candle – so don’t include June 22nd’s info in the formation of the Bearish Engulfing Candle of June 21st.

We had a narrow range day (actually three doji candles in a row) prior to the bearish engulfing candle, which sent prices much lower on the downside resolution of the up-swing.

The main idea when stepping inside candles on the daily chart is to see how they formed on the intraday charts, which reveals a clearer picture of the supply/demand relationship between buyers and sellers.

Watch to see if today officially closes under yesterday’s low to complete the bearish engulfing candle, and if so, be on guard for lower prices ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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I highlighted a dual trendline cross this weekend in Crude Oil, and so far we are seeing the downside action suggested by this big bump into overhead resistance.

Let’s look at the daily and then intraday charts of Crude Oil to see the combining of two trendlines, and a new – important – price level to watch for clues.

First, the Daily Chart of $WTIC Crude Oil Index:

Without getting into too much detail, I wanted to call your attention to the dual trendline cross at the $79.50 level as highlighted by the red arrow.

The horizontal line represents short-term overhead resistance at the $80 index level, and then the rising line represents the “Polarity Principle” of price, in that how the same price trendline can be used both as support (on the way up) and resistance (on the way down).

The other main point to watch is the dual EMA convergence at the $77 index level – so far, it’s holding as support.

So, one of the two HAS to break – oil can remain between $77 and $80 forever.  Either the dual trendlines will break or the dual moving averages will break.

As traders, we have to be prepared for either outcome, though it sure seems like price ‘wants’ to break to the downside.

Let’s now zoom inside the intraday chart for a ‘price purism’ look at the trendlines:

Viewing TradeStation’s @CL crude oil continuous futures contract, we can peek inside the formation of these daily chart trendlines.

Price hit a brick wall at the $79.50 area and this week is turning down sharply – right on cue.

I’m showing a very short-term rising trendline that ends at the $77.00 level – and price broke under that level today.  As of this writing, price tested the $76.00 level but then recovered into noon CST back to $77.00, so this will be the short-term defining line for traders to watch.

Back above $77 and we could see a vicious bear trap, but as long as price remains under $77, the chart seems to indicate lower prices ahead.

Keep up each week with detailed analysis not just on crude oil, but the five major markets (stocks, bonds, gold, oil, and the Dollar Index) by becoming a member of the Weekly Inter-market reports.

Watch $77 very carefully for clues to a trap, which would send price higher as shorts rush to cover (“Popped Stops”) which would imply a positive breakout for stocks, or alternatively if the chart signal carries forward, be on guard for possible lower crude oil prices, which would likely correspond with lower stock prices.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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It’s mid-week and time for an update on key market internals as half the week is behind us.

Are market internals confirming the recent push higher?  Let’s take a look.

First, the S&P 500:

The quick answer is “No, not really,” as seen above in the Breadth, TICK Extremes, and VOLD.

All three have been tailing lower since their respective peaks on July 22nd.  Price has pushed to new swing highs, despite NOT being supported by healthy market internals.

As always, that’s a caution sign that internals are diverging and momentum is weakening – doesn’t imply immediate reversal, but it’s not bullish.

Look for a solid break under 1,105 or preferably under the known reference level of 1,100 to confirm a reversal and end to the upswing.

June showed us that markets can extend on deteriorating divergences, but the longer they do so without a meaningful correction, the higher the risk is for a mini-crash (like the 10 day down-streak from 1,130 to 1,010 in June).

There’s something interesting I wanted to point out in the NASDAQ market-specific internals - and it’s slightly bullish.  We’ll see how that signal plays out soon:

Using the same three metrics – Breadth, TICK, and VOLD – but this time using NASDAQ-specific internals, we see a similar picture to the S&P 500, with all three internals forming peaks on July 22nd (suggesting higher index prices were likely yet to come) and then trailed off as price rose as anticipated by the strength in internals.

That’s the formation of a classic divergence, or non-confirmation that is so common ahead of a market turn.

But look closely – price broke lower today in the NASDAQ but TICK did not push to new lows and VOLD – though negative – is higher than its reading yesterday.  That’s bullish, and worth noticing.

It’d make our job a lot easier if internals were all heading lower along with price, which would suggest lower prices yet to come, but so far that’s not quite the case, and this is a bullish non-confirm short-term in the NASDAQ.

Though we’re under the horizontal support line right now, look for any push back above 2,280 to be met with further buying.

Otherwise, this little push-up in internals could be a false signal, and then look for a move under 2,260 to confirm a downswing likely ahead … though I’d like to see that met with a decline in internals to new lows beneath those on July 27.

Keep a close watch on these levels going forward.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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