As April 2013 began, we saw positive reversals and breakthroughs in “Risk-off” US Treasury funds TLT and IEF.

Let’s update these charts and note key levels and factors to watch for the rest of the month.

TLT is the iShares 20+ year bond fund that is tradable as an ETF.

We see the critical support inflection level at $115 and the  reversal up off this key level from the with the March 2013 low.

From there, price broke the 20 and 50 day EMAs (not shown) and then broke above both February swing highs $120 along with the 38.2% Fibonacci Retracement as drawn.

This gives the chart a positive and confirmed short-term reversal to the upside, and makes the current focal point on the $121.50 then $120  level.

I drew a Fibonacci Grid to highlight the recent peak high into the 61.8% level ($125.50) and we note the logical retracement lower against the strong upward rally from March.

For future planning purposes, we’ll be looking for a retracement to target a lower support level such back to $120.

A movement or break under $119 calls the reversal into doubt and suggests that the downtrend will continue perhaps even to retest or later break under the key $115 established low.

For future upside levels to watch, a breakthrough above $123.50 targets the prior swing highs as highlighted near $127.

While it would be on a powerful reversal swing suited for future planning, a breakthrough above $127 opens a profitable pathway toward the $132 peak.

As you would expect, the structure is similar but the levels are different in the 7-10 year IEF Fund:

While the more popular TLT fund rests in the lower region of its wider range or ‘downtrend’ pattern, the 7 to 10 year Treasury Note fund actually trades into the high of its broader range pattern as seen above.

In fact, the focal point is the $109 level from which the fund recently reversed shy of this target.

The blue larger Fibonacci Grid identifies $105.85 (the 2013 lows) and $106.80 (a horizontal polarity level) as the two support levels to watch.

Right now, keep focused on the dynamics into the current $108.30 polarity level and then the $107.20 level – a breakdown lower here targets the blue horizontal line on a steep pullback.

Otherwise, the IEF fund has moved back into the highlighted ‘neutral’ or range zone as defined by the majority of the price action from July 2012 to present (contained within the green Fibonacci grid).

Continue using these simple price (Trendline and Fibonacci) reference levels in your own indicator analysis and trade planning.

Follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

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This morning brought a continuation of the short-term downtrends for Gold and Silver as price collapsed toward a critical target zone which now calls our attention.

Let’s take a quick, simple look at the current structure and critical levels to watch for these markets at the moment.

Gold Daily Chart:

The key focal point is $1,600 which is a “Round Number” level aligned with the midpoint or prior value area of the mid-2012 triangle range pattern.

Today’s breakdown back under $1,600 and the rising ‘flag’ trendline does put a bearish bias and breakdown signal for gold, suggesting an eventual retest of the $1,560 low of 2013 or even $1,550 which is a critical weekly reversal/pivot level.

While the daily chart has turned bearish and confirmed the short-term downtrend in motion, let’s focus on the intraday level to watch as a potential pivot.

First, note the “Three Push” multi-swing negative momentum divergence pattern from mid-March in conjunction with the rally toward the $1,620 target zone.

This is a great example of higher timeframe targeting (key inflection levels) and intraday (lower timeframe) developments that provide additional clues the daily chart can’t reveal (like the divergences here).

Today’s pre-market and opening session resulted in a breakdown under the short-term $1,596 trendline as buyers failed to defend gold at the key $1,600 short term level.

A sudden sell-swing developed which broke the market to the prior swing low (short-term target) at $1,580; it’s this level where we’ll focus our attention.

We’ll be watching for any sort of upward retracement off this level and measuring the strength of the bounce-back rally, but if gold suddenly reverses and breaks under $1,580, it would trigger the higher timeframe target toward the $1,560 to $1,550 prior and critical support lows.

The picture is similar in Silver – here’s the Daily Chart:

Both Silver and Gold are breaking under their midpoint (value area) from the mid-2012 consolidation range pattern which puts the mid-2012 lows ($26.50) back in play as potential short-term targets.

Also like gold, silver faces an important short-term level into the current $27.50 – it’s the lower boundary of the falling parallel trendline channel drawn above along with a weak horizontal price polarity level.

Unlike gold, silver does not have a short-term pivot swing low to target – it pushed to new lows not seen since July/August 2012:

While gold experienced a visual breakdown this morning, silver led the way to the downside with the breakdown gap on March 27 which resulted in a snap-back retracement or retest of the key horizontal trendline into $28.70 which set the stage for the recent ‘collapse’ or breakout impulse to the current $27.50 level.

Momentum also has been weak (making new visual lows) on the breakdown.

As always, we’re constantly assessing the probabilities of pro-trend continuation (which suggests these levels will fail as support) and short-term retracement or even aggressive reversal opportunities (which is why we focus on these levels).

The current levels will either serve as short-term ‘bounce’ catalysts for aggressive traders, or a breakdown under these levels reaffirms the short-term downtrend in motion and opens an opportunity to play for the prior lows as seen on the daily chart.

Follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

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I hope you can join us this Thursday, April 4th after market close (4:30 EST/3:30 CST) for a live educational webinar sponsored by Trader Kingdom and Mirus Futures.

Entitled “Three Intraday Price Projection Techniques,” I’ll be describing three different methods for selecting a price target for your intraday or short-term swing trades.

Playing for a known, fixed price target not only allows you to have confidence to hold onto a winning trade longer, but also manage risk with a clearer target relative to your stop-loss price.

Here is the official description from the webinar registration page (link here):

“When putting on an intraday trade, it is essential to know how far price is likely to move toward your expected target. It is even more difficult to profit from a successful trade if you do not know what that likely target price will be!

Join Corey Rosenbloom, CMT, for this live webinar as he shares three different strategies for planning intraday price targets for your short-term trades.

Corey will explain how some classic price patterns have expected price targets built in to the pattern, but he will go beyond the basics to also describe a lesser-known tactic for using Fibonacci for targeting tactics.

While many educational webinars focus on strategies for finding or entering trades, you will not want to miss this opportunity to discover when to exit a trade at a specified target (it also helps with reward/risk planning).”

I will use recent (2013) examples from stocks, ETFs, and index futures markets and will show examples from various intraday timeframes (5-min, 15-min, 30-min, hourly); the lessons will be applicable not just to day traders, but swing traders as well (using lower frame chart patterns for precise entry and targeting from a higher frame development).

Thank you to Trader Kingdom and Mirus Futures for allowing this webinar opportunity and I hope to see you there!

The session will be recorded and the link will be emailed to those who are unable to attend the live event Thursday, April 4th.

Corey

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As we start April near all-time highs in the SP500, let’s take a quick look at pure price structure on three intraday frames and note key developments and levels in focus as a new month begins.

First, let’s view the larger short-term structure from the 30-min chart:

In simplest terms, structure refers to the progression of notable swing highs and swing lows price develops in a trend.

Uptrends are thus defined by higher swing highs and higher swing lows while downtrends develop lower swing highs and lower swing lows.

Structure forms the basis of technical analysis and refers to price itself – we add indicators to help guide our attention but at the core is the movement of the price and the patterns developed over time.

The larger structure continues to show a progressive uptrend that has developed a type of broadening trendline formation as seen above, and price has shown a tendency to ride the upper trendline as if pulled up by a magnet to successive new highs.

As we view lower frames, do keep in mind the “Open Air” to the downside and the recent recurring pattern of higher highs ‘riding’ under the top of the rising price trendline.

The 15-min chart shows the current boundaries clearly and these will guide our trading decisions:

Price has developed a lengthy sequence of higher highs and higher lows along with stronger swings (price movement) to the upside particularly through March 2013.

When assessing structure, we also study the distance of pro-trend and counter-trend swings (generally pro-trend ’swings’ or impulses tend to travel greater price distances than counter-trend swings or retracements which tend to travel less price distance – this is part of what makes retracement trading attractive).

We’ll define the boundaries on the 5-min chart below, but I did want to highlight a key point regarding momentum which is a derivative of price (it’s used for confirmation/non-confirmation analysis).

Generally, strength (or a spike) in momentum serves as a confirmation signal that suggests additional pro-trend continuation or in this case that higher prices are likely yet to come (again, a basis for trading retracements).

However, divergences or non-confirmations in momentum relative to price serve as warning signs that suggest closing positions (taking profits) or – for very aggressive traders – playing a quick fade or scalp against the prevailing trend.

In terms of momentum, the oscillator clearly shows a loss of momentum in the form of a divergence (you can view it on the 30-min and 15-min charts) which suggests caution at a minimum.

Divergences tend to precede short-term reversals, but price itself must give the signal in the form of a break under dominant trendlines or prior swing lows, and that will be where we draw our focus in the days ahead.

Unless we see a clean breakdown under prior swing lows or the rising trendlines drawn above, despite divergences, swing structure does remain in an uptrend.

The 5-min chart highlights these short-term boundaries on which to focus our attention:

In simplest terms, the key short-term trendlines that define the current pro-trend structure exist into 1,557 and 1,571.

Another successful defense of the 1,555 to 1,557 trendline/rising support level by the buyers suggests that the pro-trend structure will continue with another rally to the 1,572 level or even the highly anticipated 1,576 “all time spike high” in the SP500.

On the other hand, a real-time clean breakdown under the 1,577, 1,555, then 1,553 levels begins to open the market to a potential reversal of short-term structure (a movement here would break a short-term trendline and the prior swing low from March 27).

For real-time trading, watch intraday developments (market internals, reversal patterns, divergences, volume) as price interacts with these key levels and incorporate these levels into your own analysis (and indicators you use – always start with price).

Follow along with daily commentary and detailed analysis each evening through joining our membership services (daily or weekly commentary, education, and analysis).

You may also join me during the the Morning Market Briefing with TradeStation Tuesday mornings at 9:00am EST and will be discussing this pattern and others in the live update (it is free to register and you do not have to be a TradeStation client to attend).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

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As we end March and the first quarter 2013, let’s take a look at a simple reference chart of how volatility – in terms of intraday range and opening gaps – has cycled over the last few years while highlighting what the current conditions reveal about volatility.

Let’s take a look first at the SPY and explain what the pure price data reveal:

Let’s first discuss how I created the indicators and what they reveal.

The blue histogram shows the “Opening Gap Distance” which is the absolute value of today’s open minus yesterday’s close.

There’s usually at least a small ‘gap’ or change from the prior close to the morning’s open, but it’s instructive to see large gaps as well as a series of higher than normal gap occurrences (frequencies).

The red histogram is much easier to interpret – it’s simply the intraday range (today’s high minus today’s low), not taking into account any gap.

Volatility is cyclical and it shows up in a whole host of indicators including Bollinger Bands, Average True Range, but sometimes it’s helpful to look at the raw, unedited “intraday range” data.

Both histograms contain a 21 day simple moving average (roughly one month) which smooths the raw data and allows us to view the current monthly average opening gap and range distance.

Regarding the SPY (the SP500 ETF), the current 21 day opening gap distance is 52 cents; the current average intraday range is $1.12.

Let’s view the charts of the DIA (Dow Jones ETF) and QQQ (NASDAQ ETF) for reference:

For the DIA ETF, the current 21 day opening gap distance is 41 cents while the average intraday range is 90 cents.

For the NASDAQ “QQQ” ETF, the 21 day average opening gap distance is 25 cents while the average intraday range (high to low) is 58 cents.

It’s important to note current range and opening gap functions to get a sense of expectations and any adaptations that need to be made to current trading strategies.

Adjusting strategies and expectations can prevent disappointment during a string of low profit days during a low volatility market cycle period (‘you can’t squeeze blood from a stone’).

By the same logic, adapting to a cycle of high market volatility can accomplish the following:

• reduce ‘leaving money on the table’ (playing for typical small targets in a high volatility environment),
• prevent getting stopped out too frequently (using tight stops that work in a low volatility environment that no longer work in a high volatility environment),
• increase targets and thus intraday profits (playing for bigger wins when the intraday range is high),
• decrease account volatility (assuming one reduces position size in a high volatility environment).

In general, a shift to a high volatility environment from that of a low environment often calls for increased targets, wider stops, and (depending on your risk tolerance), smaller position sizes.  Some very bold traders may prefer increasing position size to take account of higher volatility/intraday range.

I’ll continue to update these charts as volatility environments change over time – and history shows they will (meaning we’re currently in a low volatility cycle that may very easily develop into a high volatility cycle in the future).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

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