Columbus Day Editor’s Picks from NewsFlashr

Oct 12, 2009: 10:24 AM CST

Let’s start Columbus Day with a few selected posts from the NewsFlashr Business Blog section:

1.  Mish of Global Economic Trend Analysis takes a look at the “One-Hand Clapping Theory” and how it relates to the “inflation/deflation” argument in the markets.

2.  Dr. Steenbarger of Trader Feed shares a quick thought and link on Retirement Planning for Traders. It’s never too early to start thinking about that.

3.  John Forman at the Essentials of Trading shares a post on the Relationship Between Stocks and FOREX. He also shares a link to his presentation at the 2009 Los Angeles Trader’s Expo presentation on Cross-Market Analysis and Trading.

4.  Dash of Insight updates the ETF Sector Report and highlights areas to watch going forward.

5.  Options for Rookies explains how to use a Probability Calculator when Trading Options.

6.  The Technical Take compares four measures of Investor Sentiment and arrives at some interesting conclusions, including “The ‘Dumb Money’ indicator is extremely bullish; the ‘Smart Money’ is neutral; insiders are net sellers; and Rydex timers seem to be on the wrong side of the trend. Thus, stocks are [better] for renting, not owning.”

7.  A post from Precious Metal Investment that seeks to answer the question “What Caused Gold’s Record Leap?”

8.  Economist Robert Salomon post an Interview he had with the Effective Executive magazine. Continue Reading…

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SPY Enters Confluence Weekly Gap and Fibonacci Area

Oct 10, 2009: 2:44 PM CST

Going back to TA 101, let’s take a quick look at the SPY Weekly Chart and note a prior “gap zone” along with the 50% Fibonacci Retracement – both of which rest slightly above price currently.

Let’s first start with the gap.  During the “heart” of the financial crisis (and the downfall in the stock market), the weekly chart formed a rare ‘weekend’ gap which was frozen on the price chart as seen when October 2008 began.

Unfilled gaps have the tendency to act as “magnets” as price retraces back towards them, but they also can act as “resistance” as well.  Price is coming up into the highlighted gap zone which is also just beneath the 50% “bear market” Fibonacci retracement which currently rests at $112.31.

The low of the October 3, 2009 bar is $109.68 and the high of the October 10 bar is $107.15.  That places us just inside the gap zone with this Friday’s close.

Watch these price levels as we re-test them again.

Remember that the 50% retracement of the 1,576 high to the 667 low in the S&P 500 is 1,121 (for comparison).

Volume has also been diverging for almost the whole time price itself has been rising off the March lows – serving as a type of non-confirmation.

I would surmise that these confluence levels at the $110 level reflect the “Line in the Sand” between continued bullish and reversal bearish expectations.

It would be increasingly difficult to argue for a bearish case in the event price breaks cleanly, and remains above the $112 area in the SPY and the 1,120 area in the S&P 500.

Corey Rosenbloom, CMT
Afraid to

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More Divergences and Bollinger Band Trades on a Range Day

Oct 9, 2009: 5:55 PM CST

Like October 7th, Friday’s intraday trading action in the SPY or @ES futures gave us a range day, where the best trades came from ‘fading extremes,’ or particularly, in watching for tests of Bollinger Band extremes on TICK and/or momentum divergences.  I described these tactics in a previous post “Bollinger Bands, Divergences, and Candles on Range Days.”

Let’s take a look at today’s action for insights:

(Click image for full-size)

The basic concept is to use non-correlated strategies to put the odds in your favor, and arrive at “high probability” set-ups that reflect ‘confluences’ across these different strategies.  These also provide smaller stop-losses in relation to the larger targets, giving a nice ‘duality’ of edge to the trade set-up.

Once you feel the day is shaping up to be  a “Range Day” (as opposed to a “Trend Day”), it should clue you in to adopt a certain type of strategy and expectation for price movement, chosen indicators, and trade set-ups.

Without getting too deep, one of those concepts is the notion of “Bollinger Band, Divergences, and Candles” as shown here.

If you ever see a “spike” outside an upper Bollinger Band (standard setting) that forms on a negative momentum (oscillator) or TICK (market internal) divergence, then this is – in my opinion – one of the best trade set-ups to take on range days.

I’m showing three “Back to Back” examples of the concept here throughout the middle part of the trading day.

Once you see this structure setting up, a stop is placed 10 cents (at least 1 @ES points) above the most recent high (or beneath the low) and you are playing for a maximum target of a test of the opposite Bollinger Band… and in the event ANOTHER divergence with reversal candle sets up, then it becomes a “flip and reverse” situation.

This is just one of many lessons I teach and highlight in each day’s educational recaps and summaries in the Idealized Trades reports for subscribers (which also contain expectations and levels to watch on different timeframes for the next trading session).

I encourage you to review each day and perform “efficiency analysis” on your trades and compare your performance to what you perceived was available (now that you’re in a more calm mindset at the end of the trading day).

The more you learn, the more you’ll recognize intraday in the ‘heat of battle’ which could lead to reduced stress and better clarity in real time trading!

Make each day – good or bad – a learning experience!

Corey Rosenbloom, CMT
Afraid to

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Daily Triangle and Flag Targets for Gold Oct 8

Oct 8, 2009: 12:26 PM CST

Let’s take a quick look at the daily chart of Gold to note a recent “Bull Flag” pattern, and also revisit the “Triangle” breakout pattern that triggered as a potential set-up in early September.  We’ll note two potential upside targets if these are the dominant technical price patterns in gold.

Taking a quick look at these two patterns, let’s start first with the “Bull Flag” that is playing out currently.

The “impulse” or “pole” of the flag began near the $940 price, which was the breakout of the larger triangle.  The “flag” or “retracement” move occurred through most of September, and now in early October, we are getting the “Measured Move” of the trade that triggered an entry as the upper trendline was broken as price crested back above $1,000 per ounce.

For a price projection target, we take the “impulse” which is roughly $60 and then add that to the breakout point of the flag which occurs near $1,000 per ounce.  Thus, $60 plus $1,000 gives us $1,060 for a “bull flag” price projection target which is almost complete.

Beyond that short-term target, we have the larger “2009 Symmetrical Triangle” in gold as shown above.  To get a classical price projection from this pattern, we take the height of the triangle (from $800 to $1,000 which is $200) and then add that to the breakout zone near the apex (convergence) of the trendlines in the triangle at $960.

This gives us a potential “triangle target” of $1,160 to the upside to watch.

Stop-losses for the triangle would be placed under $940, or trailed upwards depending on your strategy as price continues higher to lock in profits.

Higher prices in gold are consistent with my prior post on silver where I noted there were “Fibonacci Confluence Clusters Overhead at the $18 Level.“  Silver now trades at $17.50, and price has risen near the target I mentioned since I posted the $18 target on October 5th.

Continue watching both gold and silver, and the expected potential targets as outlined above (using classic analysis).  If price breaks through them, it would be a strong bullish omen, though a slight retracement or pullback at these levels would be expected.

With all this bullishness and media focus on higher gold prices, I can’t help but say that any sort of unexpected down-move in gold would come as a surprise to so many traders, and could accelerate if these expectations are unfulfilled and stop-losses get triggered.  No sign of that happening yet though.

Corey Rosenbloom, CMT
Afraid to

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Hewison Video on Trading Gold and GLD ETF

Oct 8, 2009: 11:08 AM CST

With Gold breaking to new highs, Adam Hewison, who has been bullish on gold for quite some time now, released a new, quick 2-minute video entitled “An Alternative to Trading Gold” that shows his take on the current “Inverse Head and Shoulders” in gold and demonstrates the pattern and trading possibilities also in GLD, which he describes as an alternative to trading futures or holding actual gold, which is popular with many traders.

In this screencapture I took, Adam is showing the “Energy Field” (consolidation area) which is referred to as the “Inverse Head and Shoulders” pattern, in which Adam describes a possible target of $1,200 or even $1,300 as seen on the chart.

Adam writes, “There is no doubt about it – gold is getting a lot of press and media attention lately. So the question is, is the move in gold over or is it just beginning?

I don’t believe the move is over on the upside for gold, but in my new two-minute video I’m going to share with you an alternative to gold that should do just as well for many of the same reasons. This is a big liquid market and has great upside potential and is less volatile than gold.”

The inverse head and shoulders pattern is a classical technical analysis chart pattern, and Adam does his best to walk you through it.

Thanks as always to Adam for these videos and permission to share them.

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