SP500 Fails at Confluence Fibonacci Resistance

Mar 30, 2009: 9:50 AM CST

Last week, the S&P 500 rallied into a Fibonacci Confluence zone which was met with resistance.  At present, this zone is proving to be a significant resistance zone which halted the recent strong rally.   Let’s see this confluence resistance zone on the daily chart.

The main take-away is the following:

Drawing off the significant recent March swing low to two recent highs (namely the January high and the November high), we arrive at the following confluence:

837 is the 50.0% retracement off the November highs
835 is the 61.8% retracement off the January highs

Both these levels converge to form a simple Fibonacci Confluence Price (resistance) at 836, which recently served as resistance.

As of Monday morning, price had also broken through a weak confluence zone about the 800 level.

This could be the birth of a retracement swing down which we’ll all need to watch closely as it develops.

Corey Rosenbloom
Afraid to Trade.com

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Did 5 Waves Down Complete on the Shanghai Index?

Mar 29, 2009: 9:06 PM CST

Can we count out a full five-wave structure on China’s Shanghai Index?  Let’s take a close look at the index which has shown strength recently and may be on pace to etch out fresh 2009 highs.

I’ve started the chart at the October peak (which corresponds with the US S&P 500) and noted a quick fractal 5-wave decline which then gave way to an ABC Wave 2 correction that began 2008.

Price then experienced its primary 3rd wave down well in advance of the S&P 500 (Shanghai showed distinct relative weakness for most of 2008, generally falling all throughout the year).  A full fractal 5-wave pattern (which can further be subdivided) comprised this Primary 3rd Wave, which then gave way to yet another ABC corrective Wave 4.

Finally, price extended down to complete another 5-wave decline into the terminal Primary Wave 5 lows in November (just like the S&P 500), but ever since this time, price has rallied strongly and has even officially carved out a fresh uptrend (as evidenced by price highs and the EMA structure).

A lengthy positive momentum divergence has formed under price that preceded the daily chart price reversal well in advance.  Shanghai almost looks similar to Crude Oil’s daily chart in some ways.

Structurally, a Cradle (trade) formed into February 2009 which held, and this preceded the rally off confluence EMA support which flipped the trend back to the upside.

Currently, a 5-wave structure has completed into the end of March, which may be the beginning of a Primary Wave 1.  As for overhead resistance, the 2,500 level corresponds with the falling 50 week EMA (price has already broken above the 20 week EMA).

Watch this index closely for signs of continued strength, particularly if it can break above the 2,500 level.  Until then, watch the EMAs for support and let’s see what China’s Shanghai index has in store for investors.

Corey Rosenbloom
Afraid to Trade.com

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

Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”

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Strength in NIFTY but Still in Rectangle

Mar 29, 2009: 11:39 AM CST

India’s Nifty Index (as well as the $BSE Bombay Sensex Index) showed great strength in its recent price swing from 2,500 to 3,100 over the last two weeks.  Let’s look at the Nifty Daily Chart to see its current consolidation structure and note key points to watch.

Click for full image.

I’m sidestepping the Elliott Wave Count this week due to the complex corrective structure forming.  It seems easier to refer to the recent price action as a multi-wave complex correction and fall back on basic technical analysis.

Price has formed a lengthy and clearly defined Rectangle consolidation where the boundaries established in November 2008 have held price with support and resistance until the end of March 2009.

In my experience, it’s best not to get fancy inside a lengthy flat consolidation – your best odds come from waiting for a break-out from consolidation before getting involved with a trade.  In fact, the best opportunity comes when price breaks out and then retraces back to the break-out price – though we don’t always get a pullback, it is often the safest place to enter if it occurs.

That’s not to say you can’t trade within a consolidation – of course you can – but it’s often more difficult and it sometimes tends to be more stressful and you feel like you’re ’spinning your wheels.’

The boundaries are well-established:  3,200 on the upside for Resistance and 2,500 on the downside for Support.

We’ve formed a new momentum high on the 3/10 oscillator, but that’s not as meaningful as a new high in an established up-trend.

On the bottom panel, I’m showing the Nifty’s performance relative to the S&P 500 ($CNXN:$SPX).  A flat line means that the two indexes are performing in-line with each other.  A rising line means the Nifty is outperforming the S&P 500.

We have Nifty outperformance really since October 2008 – remember that the S&P 500 made a new low in March and the Nifty did not.  Thus, the Nifty is showing strength on a relative basis.  The Nifty also broke a consolidating trendline in Relative Strength in February which set the stage for outperformance to present.

I hate to be overly simplistic in my analysis this week, but the structure is clearly defined and the implication is that once price breaks out of the rectangle (be it on the upside or the downside), then odds favor a trend (or momentum) move to carry in that direction for some time.  Until then, odds favor waiting for the break or risk getting chopped around too much in your trading.

Corey Rosenbloom
Afraid to Trade.com

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

Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”

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Goldman Sachs Analysis Chart for March 28

Mar 28, 2009: 10:42 AM CST

Goldman Sachs (GS) has been on many trader’s radars because it has shown relative strength over the Financial Sector (XLF) and the broader S&P 500 since its November lows.  Let’s take a look at GS on the weekly chart (using two possible Elliott Wave Counts) and then at the Daily Chart, where we see a rising trend channel and its respective relative strength lines.

Goldman Sachs (GS) Weekly:

Let’s start with the two possible Elliott Wave counts.

The circled numbers represent one count which implies a 5-wave decline as we are expecting on the broader equity market indexes.  If this count is dominant, it helps clear up the “Which Wave 5 just completed” debate – it would imply that there is one more primary wave 5 down yet to come, and that it might be starting soon.

I have ‘fractalized’ Waves 1-3, and these fractal counts remain valid in both interpretations.

The second or alternate count implies something entirely different.  It assumes that we have completed an ABC large-scale Zig-Zag pattern off the October highs from 2007.  A Zig-Zag contains a 5-wave A, 3-wave B, and 5-wave C which is what we saw going into the November lows of 2008.  If this count is dominant, then it would imply we are completing primary Wave 1 of a fresh new impulse.

That would be a very difficult position to argue in such an environment (recession, bear market) but one at least need be open to the possibility.

Elliott Wave aside, price is coming up into resistance via the falling 50 week EMA at $120 per share.  Price has formed an impressive rally off the November lows, but I must say that the angle of ascent resembles that which you normally would expect a Bear Flag.

Goldman Sachs (GS) Daily:

I’m adding an extra component to the Daily Chart – that of two Relative Strength lines.  The main take-away is that Goldman Sachs has outperformed both the XLF and the S&P 500 since November – that’s a good thing for investors.  The implication is that “Stocks that are Strong tend to get Stronger.”

Otherwise, we have a rising trend channel that has developed off these lows, and price is now at the upper resistance line which corresponds with the falling 200 day SMA (and just shy again of the weekly 50 EMA).  This zone may prove significant resistance, especially given that two dojis and a hanging man have formed at this confluence resistance level.

Risk is a little high to buy Goldman Sachs here, though a break above $120 (or $125) would eliminate resistance.  Odds are that we at least get a pullback swing into support which may come in at best at the EMAs at about $100 (though that has not ‘worked’ in the channel) or at worse at the lower end of the rising trend channel around $80.

In the meantime, keep watching this trend channel and the larger structure for this newly annointed ‘darling’ stock.

Corey Rosenbloom
Afraid to Trade.com

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

Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”

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SP 500 Hourly Structure Year to Date

Mar 27, 2009: 10:39 AM CST

As a slight continuation of last night’s “Elliott Wave” update post, let’s look at the hourly (60m) chart of the S&P 500 from the beginning of 2009 until present (mid-day Friday, March 27) with a special look at divergences, moving average structure, and fractal Elliott Waves.

(Click for larger image)

The year began with a few days of higher prices… then the downward pulse began.

A Cradle Trade (confluence EMA crossover) formed where I’ve labeled fractal Wave 2 and then a deviant Wave 3 took us down to lower prices for the year.  The 5-wave structure that began the year ended at the lows of Fractal 5, and then a month-long ABC Flat Correction consolidated those prices from the earlier decline, and then an even more insidious 5-wave Structure took us down to the March 9th lows of 666 on the S&P 500.

Notice how that structure sub-divided with a lengthy fractal 5th wave.

We now appear to be coming to the end of an upward 5-wave impulse that many of us believe ’should’ have stopped at the 805 level (where there were multiple confluence resistance points there… all of which failed to hold as buyers were aggressive in their campaign – and short-seller stop-losses were triggered once 805 broke).

The final 5th wave appears to be forming a fractal ending diagonal, but it’s so difficult psychologically to bet against the bulls since they took over the battle (of supply and demand) earlier this month.

Beyond fractal Elliott structure, pay close attention to the 3/10 Oscillator as I’ve highlighted the year’s positive and negative momentum divergences.  Use this as an opportunity to see various divergences for yourself.  Sometimes Divergences precede a trend reversal but most of the time, they allow you to play for small scalps (pieces) only and hint that the next retracement might be stronger than otherwise expected.  Other times, divergent signals (like those around March 16th) fail entirely.

Do not build a trading strategy based on divergences.  Use them as a tool in your arsenal.

Also, look closely at the 20 and 50 period EMAs and how they managed to contain price (as support and resistance) many times, and how their crossovers helped you assess the trend structure as it was developing.

My favorite “Cradle Trade” set-up occurred as the 20 crossed the 50 EMA and then price rallied back to test that exact cross-over point.  The most recent “Cradle” formed again on a fractal Wave 2 that preceded the recent rally.

As a rule, moving averages (and trades setting up based upon them) have their greatest significance during a trending move and least significance during a trading range (like that from January 20 until February 17).

There are many lessons to be learned from this chart.  Continue studying it and feel free to share your insights in the comments below.

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