Price Compression Forecasting Intraday Break Jan 14 SPY

Jan 14, 2010: 1:36 PM CST

I wanted to show a quick chart of the current mid-day SPY (S&P 500 Index) on January 14th to highlight a good example of price compression/consolidation which is often a precursor to a price breakout in one direction or the other, according to the “Range Alternation Principle.”  Let’s take a look at the current intraday chart.


(Click for full-size image)

The main idea is that price alternates between periods of range expansion and range contraction, and consolidations often precede breakouts (and range expansion moves often end in a consolidation period).

Theory aside, let’s take a look at not just the price, but some of the indicators that help us identify price compression periods.

1.  Bollinger Bands (Look for a Compression or visual tightening in the Bands)

2.  Unbound Oscillators (such as the 3/10.  Look for compression in highs and lows)

3.  Intraday TICK (the TICK can show compression in highs and lows)

4.  ADX (Ave. Directional Index – A value under 15 indicates price compression)

5.  Basic Trendlines

These are some of the  helpful tools to use.

Compressions are known as “Value Areas” in Market Profile terms, and some traders thrive on trading breakout moves from such areas.

Keep a close eye on any break of the price above or beneath the Bollingers and trendlines I’ve drawn to play for prior highs ($115.00) or prior support lows ($114.50 and below).

This will serve as a good educational example regardless.

Corey Rosenbloom, CMT
Afraid to Trade.com

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January 14 Update on Australian Market Index All Ords

Jan 14, 2010: 1:20 PM CST

A reader from Australia recently asked me to post an update on the Australian All Ordinaries Index, and here is such an update on a key level to watch on the weekly frame.

As S&P 500 traders will note, the Australian Index has formed an almost identical pattern on the weekly frame and also is challenging the 50% retracement level of the “Bear Market.”

For the All Ords Index, the key level to watch is the 50% Fibonacci Retracement at 4,962 (where price is now) along with the ‘psychological’ 5,000 Index level, and beyond that the 200 week SMA currently at 5,114.

Any break above 5,000 sends the index in “open air” to challenge the 5,100 level, and any break above 5,100 in the next few weeks should set-up another ‘open air’ trade to the 61.8% line at the 5,400 level.

Also, note that the 5,000 level is a prior support zone from mid-2008 that could – according to the Polarity Principle – serve as resistance (along with the 50% Retracement price of 4,962).

Beyond that, we currently have a doji (indecision/reversal) candle at this confluence resistance level as a negative momentum divergence in the 3/10 Oscillator has formed – a non-confirmation of the recent rally off the late 2009 consolidation lows of 4,500.

As such, price is in an uptrend with positive weekly 20 and 50 EMA structure, so watch the rising 20 EMA at the 4,750 level as initial support on any pullback.

It’s always interesting to take a moment and analyze overseas markets to see how they compare with the S&P 500 or other major market index.

Corey Rosenbloom, CMT
Afraid to Trade.com

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BIDU: What a Difference a Day Makes

Jan 13, 2010: 5:06 PM CST

On news that Google (GOOG) might be pulling its services from the Chinese Market over long-standing disputes, shares of Google’s competitor Baidu.com (BIDU) surged today, bouncing off a critical weekly support level to recapture lost territory and now stands dollars shy of a new lifetime high.

Let’s see this bounce move on the weekly frame.

This chart highlights the price movement of BIDU starting in mid-2007 which captures the peak in late ’07, bottom in December 2008, and march to new lifetime highs in 2009 (and likely 2010).

The main thing I am seeing in regard to the current chart is the potential bull flag that just triggered today with a surge off the 20 week EMA at the $400 per share support level.

If this truly is a bull flag we are seeing (or more appropriately, an AB=CD Measured Move pattern), then we could see price rise at least to the $450 area and beyond.

Any break above the prior 2009 high of $443.25 should be met with more buying (and shorts covering), particularly on the good news that if Google does cease operating in China, then Baidu.com would be the only major search engine to service the Chinese population.

Continue watching this move and for updates on how the story plays out in the coming days/weeks.

Corey Rosenbloom, CMT
Afraid to Trade.com

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10 Year Treasury Yield Challenges Critical Overhead Resistance

Jan 13, 2010: 12:39 PM CST

It’s make or break here at the 4.0% level again for 10-Year Treasury Yields.  Let’s take a look at the monthly and weekly chart to emphasize the importance of the dividing line at the 4.0% area.

Ten-Year Yields Monthly:

The monthly chart is showing overhead resistance from the falling 50 week EMA (blue), currently at 38.  The way StockCharts labels the price, the 38 actually represents the yield level of 3.8%, which is how you should interpret the ‘price’ levels.

Yields have fallen lower in the prevailing downtrend each time the index hit the underside of the 50 month EMA – with the exception of 2006-2007 (and early 2000).

The level has held significant resistance since 2008.

Needless to say, it would be a very important development if yields broke above this level and subsequently above the 4.0% level.  Let’s see that on the weekly chart.

Ten-Year Yields Weekly:

I’ve drawn a yellow highlight at the 4.0% yield level to show that this level has held critical resistance since falling under in early 2008.

With the exception of a tiny spike in June 2008, yields have remained under this level.

The Federal Reserve has been interested in keeping rates low in order that businesses and individuals can borrow without paying high interest rates (and thus expand the economy), but  the cross-current of massive government borrowing and stimulus measures threatens to push yields higher.  Yields will also rise as the economy strengthens… but that is a topic for other discussions.

For know, chart-wise, we can see that 4.0% is a critical barrier between bull and bear.  Yields greater than 4.0% would represent a chart breakout and could lead to a sustained move higher… which would be paralleled with a sell-off in the bond and note market.

Remember that as Yield prices rise, Treasury Bond (or Note) prices fall accordingly, so the $UST (10-Year Note Price) chart would have an inverse relationship to what you see above.

The level to watch for support… or a downward break in the 10-Year Note price is $114.00.

Continue watching and positioning appropriately on any major change at the critical 4.0% level.

Become a member of our Weekly Intermarket Reports for additional analysis and positioning opportunities not just on Bond/Note prices, but the S&P 500, Gold, Crude Oil, and the US Dollar Index.

Corey Rosenbloom, CMT
Afraid to Trade.com

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A Look at Market Internals Now and Prior to the Fall Jan 12

Jan 12, 2010: 5:23 PM CST

Market Internals are good leading indicators of the likely pathway ahead for price, as they allow you to take an “X-Ray” of what’s really going on behind the scenes on a price move.

Let’s take a look at the key market internals through the whole recent rally and what they’re showing right now.

This is the standard chart of intraday market internals I use, which includes the following:

BREADTH:  NYSE Net Advancers on the session minus Net Decliners on the session ($ADD)
TICK:  NYSE TICK – NYSE Stocks “ticking up” at a given moment minus those “ticking down” ($TICK)
VOLUME DIFFERENCE:  Volume Flowing INTO Advancing Stocks on the session minus Volume Flowing INTO Declining Stocks on the session ($VOLD)

We saw new Breadth and new Volume Difference ($VOLD) Highs on January 4th, which signaled odds favored higher index prices yet to come (hidden sign of strength), but as price scaled higher almost in a straight line, market internals deteriorated until finally price ‘gave way’ and declined sharply today.

Market Internals do not signal trade entries themselves, but they can clue you in to the probabilities of trend continuation or reversal – on each new day of declining highs in Breadth and Volume Difference, odds also crept higher that a reversal was likely – like a rubber band being stretched beyond what is comfortable.

Today is either a quick snapback, or the beginning of a larger down-move to unwind the excess of the recent highs in prices and take us back to the 1,120 level at a minimum.

All Internals – including the TICK lows – made lower lows not seen since the end of December at the 1,120 level.

Unless we see signs of upward price movement and an increase in market internals, the signal seems to be to expect more downside action in retracement fashion.

Keep up with internals and analysis of the expected moves for the next trading session, along with educational lessons/commentary on each day’s activity by becoming a member to our Idealized Trades daily service.

Corey Rosenbloom, CMT
Afraid to Trade.com

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