The Fallout from Wednesday’s Fed Meeting

Mar 18, 2009: 6:20 PM CST

With all the spastic intraday moves that resulted from today’s Federal Reserve announcement (assessment of the economy – that it is contracting; that rates will be kept low; and that the Fed will buy treasuries) there were some major moves in the Stock Market, Bond Market, Gold (and Silver) Market, and US Dollar Index.  Let’s take a quick look at some examples on the daily chart to get a quick glance on what might be changing as a result.

Quick comments and charts only -

S&P 500:

Quick Take:  Key resistance at 800 (804).  If broken, it would be a major feat for the bulls.  We have prior support, a declining trendline, and confluence Fibonacci at the 800/805 level.  All eyes are on this level.


Quick Take: Sharp spike (like silver) down in the morning – massive recovery after the announcement.  Price is still in a range consolidatioin – a break above $950 could send us immedaitely up to challenge $1,000 with little effort.  Price is still in an uptrend, after all.

TLT (20y T-Bond Fund):

Quick Take: Price – like gold – is still in a range consolidation (rectangle).  We had a sharp spike outside the range today which quickly took us right back inside the consolidation.  There’s key support about the $100 level, though the upper trend-channel (which is the 50 day EMA) is declining.  For now, it looks slightly more bearish than bullish – though a break above $105 will test the ‘open airs’ above and could rally back to $120.

US Dollar Index:

Quick Take:  The Traders who got hammered the worst today – at the close that is – were the US Dollar Bulls.

Price sliced through the 50 EMA support like it wasn’t even there and now we’ve opened up the possibility to test the rising 200 SMA at $81 (or weekly 50 EMA at $82).  A bullish picture just last week is now shattered and odds seem to favor lower prices for the meantime.

What a day.  Remember the end of this week brings us “Quadruple Witching” where futures, index, equity, and single stock futures options all expire – the main take-away is that we’re likely to see large volume and erratic price movements as large funds square away their positions.

By all means be careful out there.

Corey Rosenbloom
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Bear Flags Galore in Silver SLV

Mar 18, 2009: 1:29 PM CST

Silver (and SLV) took a brutal hit today, and fell at one point 6% intraday.  It provided an interesting structure and lesson in momentum lows and bear flags.  Let’s see it as it’s developing.

SLV (Silver ETF) 5-min chart:

I’ve never seen so many bear flags in a single day (at least not that I can remember).  Each retracement took price back to the falling 20 EMA, where – in all cases – nice little dojis formed which offered excellent, low-risk entries (stop beyond the 20 or 50 EMA, entry on the candle after the doji).

I’ve also never seen such perfect plunges after a bear flag formed.  This is a good day for the record books.

Also, we learn a lesson on momentum – such that New Momentum Lows Precede New Price Lows.

Notice on each of the flags, we had three new momentum lows, which implied that – following a retracement (the flag) – odds favored the actual price low was yet to come.

On where I captured the chart mid-day, we’re seeing a distinct positive momentum divergence into the most recent price lows after 1:00 – momentum is NOT confirming this price low.  So many times actual intraday price lows are formed on positive momentum divergences.  I’d be willing to bet that we’ve put in the low for the day or at least that odds are reduced that a bear flag will form successfully off this recent retracement rally.

Still, just take today’s action as an educational lesson in momentum, “Trend Day,” and bear flags.

Corey Rosenbloom
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What is the Cradle Trade?

Mar 18, 2009: 9:52 AM CST

A few readers have been asking me to explain the “Cradle Trade” Concept with an example and I wanted to take the time to do that in this post.

The “Cradle” has become my favorite trade, and it is one that I discovered through repeated observation.  I’m sure others have figured out the same thing, but I’ve never seen a name given to this concept or trade set-up, so I began pointing it out and asked readers to come up with a name for it.  Some were creative, but the name “Cradle Cross” stuck which I shortened to the “Cradle.”

The Logic is the following:

Let’s assume price is in an uptrend and then price breaks beneath the 20 EMA then also breaks beneath the 50 EMA (exponential moving averages).  Eventually, the 20 EMA (shorter) will cross under the 50 EMA (longer), which will occur at an exact point.  This is the “Cross-over.”

Price moves in a wave-like structure, so if price swings back up to test this exact point, then this sets up the “Cradle Trade,” as price is said to have “come back into the cradle crossover zone.”  The trade is to get short as close to the cross-over price as possible and place a tight stop just beyond the confluence created by the EMAs.  The risk/reward is favorable, as the EMAs are expected to hold as resistance, and if they don’t, then the stop is small relative to the downside target if it is achieved.

The term “Cradle Trade” sums that up in a visual concept.

The main “Cradle” Trade occurred at 1:00pm in the TLT.  Price broke the 20 and 50 EMAs, those EMAs ‘crossed bearishly,’ and then price rallied up into the confluence resistance created by the crossover price at $101.60.  We expect EMAs to hold as support and resistance, and the logic is when both EMAs come together, that should be a confluence resistance area.

And if the ‘cradle’ doesn’t hold (price runs through it), then we have a stop just beyond (though, of course more than a few ticks) the crossover.  You can play for whatever downside target you feel appropriate.

Notice at the end of the chart, a New Cradle has formed as the 20 crossed back above the 50 EMA.

There are subtle nuances to this trade set-up that I won’t share publicly, but hopefully this gives a basic overview of the concept that is becoming one of my favorite trade set-ups at the moment.

For more examples, type “Cradle” or “Cradle Trade” into the blog’s search bar.

Corey Rosenbloom
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Intraday Tactics for St Patrick’s Day 09

Mar 17, 2009: 6:45 PM CST

The market was supposed to go down today, wasn’t it?!  I sure felt that way but price – after all – is king.  Let’s step inside March 17 ‘09 to see the “Idealized” Intraday Trades of the day.

I even included a money shamrock to spice up the chart today.

The bias was – for me at least – to the downside (off confluence Fibonacci resistance from yesterday and a shooting star daily candle).  In fact, I know of more than a few people who are surprised (and upset) with today’s action.  But we do the best we can.

Price initially ran up to test the falling 20 EMA before inflecting back down (failing to make new lows) and then ran up to test the falling 50 EMA, though it only formed a bear-flag (in hindsight).  Both of these were ‘idealized trades,’ though both (likely) wound up with a stop-loss as price reversed.

One thing I hinted at in this morning’s post, but didn’t come out and say, was the potential for a “Three Push” Reversal pattern to form – and that’s exactly what happened.  That’s why I write these end-of-day summaries – the more you see these actual patterns, the better you’ll be in real-time… whether you believe their signal or not (I was a little too baised to the short-side, while I saw the Three-Push, I chose to ignore it… at my peril).

Anyway, price broke up out of the declining (narrow) trendline at noon and then the EMAs crossed and converged to set-up my favorite trade – the Cradle Trade.  It was at this point the bulls had officially taken over the day and the squeezed the shorts (bears) into the close.

I even tried to read a Head and Shoulders Reversal pattern after lunch – it formed quite well… but it too failed as the bulls charged forward into the close.  The “Oops” on the chart reflects the actual and confirmed sell-signal… which was overruled by bullish action and a bullish break above all EMAs.

Afterwards, two more retracements formed to the rising 20 EMA, signaling good entries to those of us who weren’t blinded by our bearishness.

In the end, price is king, patterns help quantify risk and opportunity… and I think the Leprechauns had something to do with today’s bullishness!

Corey Rosenbloom
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The 10 Year Treasury Note Triangle

Mar 17, 2009: 11:48 AM CST

The 10-Year Treasury Notes Price has been in a pullback retracement since 2009 began, but a clear triangle pattern has now formed and price is reaching the apex.  Let’s look.

10y TNote Triangle

Price made a new high over $130 in late December, though we’ve seen a distinct retracement off this level ever since.  Although I haven’t shown a Fibonacci grid, we’ve retraced back to the 50% retracement (from the lows to the highs) which stands at $121.05, an area where price is finding solid support (with the exception of one blip beneath).

Price broke a descending trendline in early February which led to the current consolidation – or triangle – pattern we’re seeing now.

A positive momentum divergence has been forming under price since we had our first swing low of the year in 2009, which could hint that the likely breakout will be to the upside… though it’s probably best to wait for an actual break to materialize before trying to guess in which direction price will break.

So we see support at $122 and resistance at $124 and a tightly coiled market between those levels.  The moving averages are doing us no good (just like we throw out oscillators in a strong trend, we throw out moving averages in rangebound conditions).

Keep watching this closely.  An upside break could mean we would get a downswing in US Equities (Stocks) which would complete the Elliott Wave (5) Theory.  However, a break-down from this level could be construed as bullish for stocks.  There’s other cross-currents (the Treasury issuing Bonds, which increases supply and pushes prices down) so classic analysis might not be so easy in this environment.

It’s a tightly coiled market – watch closely for the spring thrust out of this area.

Corey Rosenbloom
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