NewsFlashr Editor Picks for June 17

Jun 17, 2009: 11:51 PM CST

My apologies for being slightly late for this week’s selections – here are this week’s “Editors Picks” from the resourceful NewsFlashr Business Blog headline site (in order of site rank):

Stock Trading to Go discusses the “Three Best Liquidity Ratios for Fundamental Investors” to use in their analysis. To those not aware of these, they are easily obtained from popular financial websites and can help in selecting stocks when technicals and fundamentals align.

Dr. Steenbarger of Trader Feed shares thoughts on “The Psychology of Leverage” in which he discusses risk, profit/loss forecasting, simulations, and capitalization.

John Forman of the Essentials of Trading shares “Three Big Reasons why Small Accounts Fail” in an enlightening post – summary: Wrong Mindset, Too Much Risk, and High Transaction Costs.

The Aleph Blog shares “Ten Points About the Debt Markets” which is a lengthy but segmented read that shares ten observations on treasuries/debt market worth reading and considering.

The Technical Take blog focuses on various “Market Internal Indicators” such as the stocks above the 40 day MA, up vs down volume, and leveraged bull/bear funds all in relation to the S&P 500.

The Stock Web takes a look at the top ten best performing commodity-based ETFs (complete with symbols) which gives a list of ways you can profit (trade) commodity ETFs.

The Zignals Blog takes a look at “Moving Forward in the S&P 500” which refers to historical occurrences of the S&P 500 in relation to key moving averages and the future movement when ’signals’ were generated.

The Dividend Growth Investor analyzes whether it’s better to “Diversify or Concentrate” a portfolio focused on dividend paying stocks.

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Elliott and the Recent Down Move in SPY 15min

Jun 17, 2009: 1:14 PM CST

I mentioned last night in a lesson/example on intraday Elliott Wave that a fractal 5-wave structure had completed.  If we look up to the 15 (or 30) minute intraday charts, we see another ideal example of the expected Elliott pattern.  Let’s see it as another example to try to learn this concept of how momentum lows and divergences fit into an Elliott pattern.

So far, we peaked at 955 on June 11th and have completed a 5-wave down impluse into today’s (June 17th) lows.  Without going into too much detail, here is the breakdown.

Remember that new momentum lows often precede new price lows.

We had a new momentum low in June 12th and then price formed a clean bear flag (which I also mentioned in an educational post as it completed) which led to the new price and momentum low of June 15th.

I’m using the 3/10 Oscillator but you could use a Rate of Change or any momentum oscillator for your momentum lows.

You likely should have recognized the large impulse down (almost vertical drop) as some sort of 3rd wave, meaning you could have anticipated the 4th wave reaction into resistance and then shorted the developing 5th wave down which has now completed.

I always say you can’t recognize the first or second wave easily (or at all) in real time, but you certainly can clue into the power of a third wave.  Reference back to my post “The Best Trades in the Elliott Structure.”

That being said, wave 4 retraced to the falling 50 EMA and the day’s “Pivot Point” as well as just shy of the 38.2% Fibonacci retracement of Wave 3.  This was a powerful spot to enter short to play for a possible 5th wave down.

The 5th wave down sub-divided into its own fractal 5-wave pattern which has now terminated for the time being at the lows of June 17th.

Notice also the positive momentum divergence that formed as the 5th wave completed.

What I’ve noticed – in terms of applying Elliott Wave intraday – is that you get new momentum lows at the end of the first and third waves (both of which hint that a continuation move is likely) but then the final fifth wave terminates on a momentum divergence, signaling a possible revesal.

We got that today.  Will it hold?   Let’s see if this plays out in some sort of upward retracement in real-time and follow that as the ‘next likely immediate swing.’

My Los Angeles Expo Presentation “Idealized Trades for the Intraday Trader” will be broadcast live with me in a chat room taking questions during the presentation.  It will air on July 1st at 12:00pm EST.  Click to learn more and for FREE registration to this special event.

Corey Rosenbloom, CMT
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Intraday Elliott Wave and Flag Lesson in SPY June 16

Jun 16, 2009: 6:35 PM CST

What a day!  Let’s learn a few critical lessons from today’s trading activity, particularly in regards to how Momentum fits into Elliott Wave, how bear flags are confirmed with dojis, and more!

SPY 5-min:

Let’s take it step by step.  We had a negative momentum divergence (not shown) on a retest of the intraday highs of $93.30 at 11:00am.  Many times, intraday highs are formed on momentum divergences as both the high and low show as an example today.

Once price broke down into noon, we formed a new momentum and new price low at $92.60 – this hinted that lower prices were yet to come.

We had a shallow pullback that formed a messy bear flag, but the goal is to short the first pullback after a new price and momentum low which fell shy of testing the 20 EMA (which would have been an ideal entry).

As price broke back beneath $92.60, this was your entry short around 12:30 which would have positioned you in front of the ‘waterfall’ move down into the 1:00pm lows.

If you look to the one-minute chart, or can envision it here on the 5-minute chart, we formed a Three Push pattern (complete with momentum divergence)  into the 1:30pm lows which preceded a nice retracement move up that ended just shy of the 20 EMA on a simple doji for beginners or an evening doji star candle for more advanced traders.

I deem this (the retracement to $92.10) the ‘highest probability’ trade (though not the most profitable trade) of the day, since we had an Elliott Wave structure overlying us, a nice retracement swing up into EMA resistance, and a clean doji formation.  The stop would be placed just above the 20 EMA and the target would be a test of the prior lows at $91.80 or just beyond.

In fact, at 2:00pm, a hammer candle formed (also on a positive divergence) which signaled an excellent exit (of the short-sale).

Price meandered about this level which now looked like a complete 5-Wave formation… which meant the best trade was to go long at the termination of the 5th Wave.

We got a nice pullback that nipped above both the 20 and 50 EMA… but notice the long, upper shadow candles where price failed to overcome this level – signaling an exit for your long trade.  Price then plunged into the close, a testament to the higher trend in force.

Look back to my prior Elliott Wave “cheat sheet” on “The Best Trades to Take using Elliott Wave” and I describe the (in this case) short-sell the 4th wave after you recognize a big possible 3rd wave and then buy long once you feel the 5th wave down has completed – today’s price action gives a great example of this principle.

For those interested in Elliott, refer back to my prior two posts:

Elliott Wave Introduction Cheat Sheet
Elliott Wave #2:  Wave Labeling

as well as a prior intraday post similar to this one entitled, “Perfect Intraday Elliott Wave Example and Lesson” from May 22nd.

Do you have to use Elliott Wave intraday?  Absolutely not, but I’ve found it gives a little more confidence in the trades I’m already taking such as bull and bear flags along with divergences.  It just adds one more tool to your growing toolbox of trading strategies and tactics but – of course – is by no means required.

For those who are really interested, you may view 10 Free Lessons on the Elliott Wave Principle as taught by Robert Prechter by joining Club Elliott Wave International.

You don’t have to know all the rules of Elliott to trade successfully – focus on the big picture instead of the intricate details.

Corey Rosenbloom, CMT

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Gold Update Video – Will Long Term Trendline Stop the Fall?

Jun 16, 2009: 1:46 PM CST

Adam Hewison released another timely update on the gold market this morning entitled “Gold Update – Will a Long-Term Trendline Stop the Hemorrhaging?

In a short (free) five-minute video (no registration required), Adam discusses a long term trendline (shown above), Fibonacci, sentiment, trade triangles, and Williams %R – which is quite a task in a short video!

I have to admit that in my analysis of gold, I missed seeing the trendline which is why it’s always good to have another perspective and get as much data as you can.

Adam notes that we have a four-times touched trendline that originates from the November lows, and price has currently pulled back to this level which also reflects a Fibonacci retracement and an oversold reading in the Williams %R Oscillator.

The trend is still up, but gold buyers are going to have to defend this technical (chart) level to head higher, and Adam shows key levels price might be drawn towards if we break beneath critical support at $920.

Without giving any more away, head over and watch Adam’s video analysis update on the gold market – thanks as always to Adam and staff for making these videos available to us.

Corey Rosenbloom, CMT

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Introducing Scott Andrews – The Gap Guy

Jun 16, 2009: 11:39 AM CST

I met a lot of great people at the Los Angeles Traders Expo – one of the other speakers I got to meet was Scott Andrews, who runs the “Master the” website, which provides information and subscription services related to gaps and trading strategies based on historical probabilities of gaps.  The goal is to help traders avoid risky gaps and focus on gaps with the highest historical probability of filling.

Gaps are of particular interest to me, because like most other traders, I will play gap fill trades provided the gap fits my criterion of “small gap” with odds of filling.

I have conducted historical testing using both Excel and TradeStation mainly on the DIA, but after speaking with Scott and attending his presentation at the Expo, I learned there are a myriad of ways to look at gaps and how to quantify then trade them – needless to say, I was amazed!

His presentation “The Ten Patterns Every Gap Trader Should Know” (which is available now to watch for free at the opened my eyes to the world beyond “Large” and “Small” Gaps.  I defined large gaps as “Gaps larger than 1% which often are precursors to Trend Days” and small gaps as “around 0.50% change which have greater odds of filling so initiate a gap fade trade.”

Among other patterns, Scott defined historical probabilities for what happens (in terms of filling) when a gap occurs below yesterday’s low, below today’s S1 or S2 pivot point, following a ‘doji day’ yesterday, after three up days in a row, and many other combination – more than you would think are possible!

While Master the is mainly a subscription site, Scott is now writing a free research blog at The Gap, which is where I wanted to call your attention.  He has begun releasing videos showing the day’s gap and the strategy used based on historical probabilities of filling and the price structure conditions surrounding the gap.

For example, he share the “Gap Zone Map” which highlights probabilities in terms of yesterday’s open, low, high, and close.

Also, he shares “Gap Fades by Day of Week” in one of his posts.  Did you know that Wednesday and Thursday have the best historical odds of a gap filling successfully?

Take a moment to study his “Stops are Overrated” post, where he demonstrates that the size of stop in relation to the gap yields some interesting yet counter-intuitive research – the larger your stop, the higher your win rate (in terms of successful gap fills) which makes sense, but raising your stop does not translate automatically into profits – that’s because when your larger stop is hit, it zaps away the profit from many smaller winning trades.

Scott is a West Point graduate and helicopter pilot/Army officer.  His quantitative  background and desire for structure/rules led him naturally to the statistics that comprise gap trading and he developed an entire trading strategy around it which has been successful.

Check out Scott at the Gap for more information, free research, and videos designed to educate you on the wild world of gaps!

Corey Rosenbloom, CMT

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