For those who follow gold and the S&P 500 closely, you’ve certainly noticed that prices are diverging after GLD’s peak on March 3rd while the SPY (S&P 500 ETF) continued on to new recovery highs and *may* have peaked Friday.

Let’s take a look at the 30min combined chart to see the positive relationship… and where it recently hit the rocks.

(Click Image for Full-Size Chart)

The Gold color is the GLD ETF, scaled on the left axis while the black color is the SPY (S&P 500) ETF, scaled on the right side.

With few recent exceptions, these ETFs move in lock-step, with gold sometimes having a very slight lead in turns in the SPY (and sometimes vice-versa).

Everything has been perfectly fine in this relationship until Gold in early March (3rd) last week began trailing lower and diverging from the continually rising (non-stop!) SPY (and other US Equity Market Indexes).

It’s possible that the SPY formed an ‘exhaustion’ gap early Friday morning and will now begin heading lower, following the prior decline in gold prices from last week until present.

This is why inter-market relationships can be important - when one market cleanly deviates (diverges) with expectations, it can send a signal that “all is not well” and could precede key turns as the relationships head back into balance.

Keep a close watch on these two ETFs and how this situation resolves itself this week.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Continue Reading…

I wanted to highlight a few quick recent charts of how the US Dollar Index positively correlates (moves in the same direction) with the 3-month Treasury Bill Discount Rate.

It’s not the most fascinating topic, but it’s definitely important to know of this relationship, so let’s take a look at a couple of recent charts.

First, a ‘zoomed in’ view of the recent action:

You can view this comparison in StockCharts with symbols:

$IRX for the 3-month T-Bill Discount Rate (short-term)

$USD (US Dollar Index - a basket of 6 FOREX pairs)

What’s interesting is that - relatively - the indexes move almost in lock-step with each other, which makes sense.

While this isn’t the “Fed Funds Rate,” in general higher rates translate into a more attractive (expensive) currency, and lower rates translate into a weaker currency for a country.

We’re seeing this in the recent charts of short-term Treasury Yields and the Dollar Index as expected.

This is in line with talk of the Fed “eventually” (at some point in the future) raising the Fed Funds Rate… but that is an entirely separate discussion.

Let’s step the chart back to see the one-year comparison in yields and the Dollar Index:

In both charts, the US Dollar Index - green - is scaled on the left side of the chart while the 3-month T-Bill Discount Rate is scaled - in percentage terms - on the right side.

Thus the current 1.4 value corresponds with 1.4%.

The 3-month T-Bill Rate - and shortly after the Dollar Index - bottomed at the end of 2009 to give us the current simultaneous rallies we’re seeing.

I wanted to call this to your attention as an interesting comparison and method to sharpen your inter-market analysis skills.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Continue Reading…

Following up from yesterday’s post “Get Ready for Range Expansion Play from SPY Intraday Triangle,” we see that we indeed get the range expansion breakout trade as expected by the symmetrical triangle of yesterday.

Not only does it serve as a great example of real-time identification and follow-through of the pattern, but we see a similar though smaller compression triangle forming today at 1:00 EST on the SPY.

Let’s see this development and note key breakout trendline levels to watch.

(Click for full-size image hosted by Chart.ly)

I happened to capture yesterday’s triangle minutes before the expected price breakout, and we’re winding down to the apex of the current triangle now.

This means traders would be looking to buy a breakout above the $115.50 area or short a breakdown under $115.25 - again another 25 cent compression in trendlines.

I’m using a pure price chart above so you can see how to draw the trendlines and visualize the price compression better.

Be ready for another potential range expansion move from a breakout of this smaller triangle, and note the ‘apex’ level just under $115.00 as a possible support target, or the morning high of $116.00 to play a potential upside breakout resistance target.

See my prior educational page on “Trading Price Triangles.”

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade Continue Reading…

If you’ve been lulled to sleep by the recent intraday market action, don’t fret.

According to the long-standing price principle of “Range Expansion and Contraction,” the next move in the market is likely to be a range expansion breakout swing move, that will offer opportunities for those aggressive enough to take them.

Let’s take a quick ‘pure price’ look at the S&P 500 ETF SPY and note the symmetrical triangle compression and the boundaries to watch for a potential breakout.

I drew the dominant trendline boundaries in blue, with the lower line coming in at the $114.75 level and the upper line resting at the $115.00 level - giving us a 25 cent compression boundary.

These levels correspond to 1,140 and 1,145 respectively on the S&P 500 Index itself.

Traders often fear taking breakout moves due to the potential for a bull or bear trap (a false break) to occur, and that is indeed a risk for trading these compression set-ups.

True breakouts trigger “positive feedback” where one side is forced to take stop-losses while the other side puts on fresh breakout positions.

A break above 1,150 in the S&P 500 would likely trigger a flood of stop-losses as the index breaks to new recovery highs, but should a downside break occur, we would see bulls running for the exits while bears put on fresh breakdown positions.

The edge often comes from the breakout itself (and relatively small stops) due to the potential large range expansion move that can occur (again, relative to the stop - popularly on the opposite side of the trendline).

I’m also showing the compression in the 3/10 Oscillator and the intraday TICK extreme readings (to show what happens to indicators in a price compression zone).

I wanted to put this chart up quickly to show the potential breakout that could occur if not by the end of this session (one hour left) then potentially overnight or into Friday.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Continue Reading…

I love highlighting Measured Move Patterns (very similar to flags) in the markets due to the price pattern symmetry and structure - each one serves as a great educational reference of this not-so-common pattern.

Fewer people know what an AB=CD pattern is than do a bull or bear flag - though the two patterns are similar.

Let’s take a look at today’s AB=CD Measured Move and see how we could have traded it so we’ll know this concept next time it forms.

First, an “AB=CD” Pattern is more commonly called a “Measured Move,” and it is like a flag (we’ll call this a bull flag for comparison) except for two distinctions:

1.  The “impulse” or first leg (flagpole) is often more ‘drawn out’ or takes on a 45 degree angle while the bull flag is more steep/sharp/vertical

2.  The Retracement (flag) is almost always deeper than a standard flag pullback

Everything else is roughly the same… but with one more exception in trading tactics.

Most traders only trade the “Projection” of a Bull Flag (meaing the “CD Leg” in the chart above) and that’s usually all you get from a flag - there’s no reason to flip and reverse once a flag completes… but to take profits at the price target.

However, in an AB=CD pattern, some traders will trade the “CD Leg” measured move, while others will wait specifically to see if the pattern completes fully into the 100% Projection Target BEFORE putting on a short-sale position.

In other words, flags focus on the “price projection” leg up while AB=CD moves may focus on that, but mainly focus on the retracement down from the “D” target.

Confusing?

Take a moment to read over the information at my “Bull and Bear Flag” section as well as:

How to Project a Measured Move of a Bull Flag.

In the pattern above on today’s chart, a “Measured Move” Trader would be looking to short-sell any weakness (reversal candle, divergences, etc) at the $115.20 target, which was established by making a Price Projection from the “C” low (keep in mind that these labels are not Elliott Wave notation).

There actually were two opportunities to short at the $115.20 target - the first being the morning swing that formed upper shadow dojis just beyond the target, and the second chance being the afternoon bearish engulfing (like) candle before 2:00 CST.

Take a moment to study these opportunities and the “Measured Move” structure above, and see if this pattern - again similar to a flag - would be a nice fit to your trading style.

I described this pattern - and other intraday opportunities - in greater detail in today’s “Idealized Trades” member report.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Continue Reading…