Best Trade of the Day SPY Divergence Aug 10

Aug 10, 2009: 12:39 PM CST

I wanted to show a mid-afternoon “Best Trade” idea in the market today, which highlighted an internal TICK divergence with a momentum divergence as price filled the morning gap into the resistance area of Friday’s close.  Let’s see it:


(Click for full-size image)

I wanted to highlight this quickly to show how you could have profited from this very low-risk, high-probability position.

First, with a moderate size overnight gap, the initial “play” is to buy/long to fade the gap and exit at yesterday’s (Friday’s) close, which can be expected to hold as resistance.  Remember that an exit signal is not necessarily a “flip and reverse short” signal.

However, in this case, as price pulled up into this zone, we observed a multi-swing Negative Momentum Divergence on the 3/10 oscillator but more importantly, there was aNYSE  TICK Divergence as price formed the slight (so far) high of the day at $101.20 (or equivalent 1,007.75 in the @ES futures or other leveraged ETF).

The TICK divergence was more revealing than the momentum divergence, but as price formed two non-confirmations as price tested an expected resistance level, you could have entered short at any point as price began to inch down off $101.20, and especially when price broke the 1-min 50 period EMA.

The stop would have been just beyond $101.20 (perhaps $101.30 or greater) with a target of a test of the morning low (at a minimum) which was exited and achieved as I captured this chart to show you.

Barring any unexpected move up, the price you see here should hold as the high of the day.

This is an example of an explanation of a conceptual set-up that I explain to subscribers every day in the Idealized Trades Summary reports.  The goal is to understand these patterns, know what to look for, know how to recognize day structure and opportunities so that you can trade them in real time each day as they repeat and set-up.

Please take a look at the more information page of the new Premium Section of Afraid to Trade for subscription information (at $27.00 per month).

The more you see these patterns each day, the better you’ll be and more confidence you’ll have to trade these set-ups appropriately in real time.

Corey Rosenbloom, CMT Continue Reading…

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The XOM Triangle Lesson on Trendlines Aug 10

Aug 10, 2009: 12:02 PM CST

Exxon-Mobile (XOM) is forming a large-scale contracting (symmetrical) triangle pattern on the daily and weekly chart that you might want to examine further.  Let’s take a quick look:

Beginning with the late 2008 December highs of $82, a clear downward trendline can be drawn that (almost) perfectly connects the next four price highs, making the trendline confirmed at 5 price points – quite valid.

The lower line begins off the March lows (technically, you could have begun this line off the October 2007 price lows of $57) and is open to two interpretations:

Looking at this chart, the first thinner line connects the April lows and terminates just above $68.  This would count the July lows as a “False Break-down” (or ‘head-fake’).  This would suggest that price is likely to find possible support at $68… or upon a breakdown of $68, price would test the $65 lower trendline level.

The second (thicker) line connects the July lows to the March lows and terminates just above $55.  I’m less likely to ‘believe’ this trendline due to the following chart which gives us a broader perspective.

The trendline that ends at the $68.00 level is clearly more valid than the one that ends at the $65 level because it is “touched” four times beginning with the October lows.

This perspective pulls back beyond the 2009 highs to connect the May 2008 highs which further confirms this trendline.

This post – as well as my Educational Page on Trendlines – serves as an example of how to draw trendlines and capture the larger perspective.

Trendlines are MORE valid if:

  • They last longer than shorter-term trendlines
  • Are touched more times (price points)
  • Have angles that are not ‘extreme’ (aka vertical)

Knowing this can clue us in that the July lows were a FALSE break which gives us a bit more perspective that would be missed if you drew a trendline specifically to connect that point.  Think of the emotion and positions of people who saw a long-term trendline violated and short-sold here… only to have price rally up on them perhaps triggering their stops.  That’s useful information to know.

The play on XOM should be to expect a price breakout – one way or the other – from this long-term consolidation pattern and play the break of the upper or lower trendline for a large target play… with a stop on the opposite side of the triangle.

If anything, it gives us a chance to see this principle played out in real time on a major US Stock.

Corey Rosenbloom, CMT
Follow Corey on Twitter:  http://twitter.com/afraidtotrade Continue Reading…

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NewsFlashr Editor’s Picks for August 9 2009

Aug 9, 2009: 1:00 PM CST

Sunday afternoon brings us another update from the “Editor’s Picks” from the NewsFlashr Business Blog section:

Dr. Steenbarger of Trader Feed shares a few thoughts on the Dynamics of Trading Success for us.
In the post, he links to a prior helpful article entitled “What Makes an Expert?

Andrew Horowitz of the Disciplined Investor anticipates Friday’s “Jobs Report” and what it means for the market (with a nice chart from Bloomberg).

In addition, he recently released a Podcast “Recovery… or Sugar High” where he interprets various charts and looks at key stocks for clues to this ‘recovery.’

A chart from the Technical Take which shows a proprietary Sentiment Indicator which is registering an extreme bullish sentiment… complete with interpretation and graphs.

From Chris Perruna, an excellent comparison of the NASDAQ Top 10 Highs across various years, with data going back 30 years – a valuable resource post to bookmark for future reference.

In addition, Chris provides a current detailed Snapshot of Market Breadth – also worth bookmarking.

From Precious Metal Investment, they provide a perspective on what I’m finding to be true in my own analysis – that there are “Conflicting Messages from Gold Charts.” Worth a quick read.

The Zen Trader offers us a quick “Checklist for Success” worth referencing.

The Tishendorf Letter provides some helpful quotes from Peter Steidlmayer (Market Profile) on the “Profile of a Successful Trader.

Grindstone Financial asks “How Sustainable is the Current Financial Growth?” and makes comparisons to early 2000 with additional references.

Continue Reading…

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Excellent Intraday Three Push Example Aug 7

Aug 7, 2009: 4:04 PM CST

With the monthly “Jobs Report” coming in better than expected (the unemployment rate actually DECLINED in July, when the consensus was for an increase of anywhere from 0.1% to 0.3%), the market pushed higher from the open into what resembled a Trend Day.  However, by mid-day, the S&P 500 challenged overhead resistance and a “Three Push” negative divergence pattern (as well as an Elliott Wave fractal) formed at the highs.  Let’s take a quick look.

This time we’re taking a look at the @ES mini-S&P 500  futures contract (for September) so that we  can see the upward surge from the better than expected Jobs Report announcement (which I mentioned last night could certainly be a market mover).

After the initial impulse to the upside, the bias should have been to the long-side with the possibility of a Trend Day on the horizon.

We then formed three symmetrical “pushes” into the afternoon highs which formed a “Make or Break” Pattern.

The 3/10 Oscillator showed a crisp and clean three-swing divergence (as each new price high was made, the oscillator formed lower highs, which served as non-confirmations of the afternoon highs).  This was a sign of weakness, which should have put us in caution or “wait and see” mode to determine if bulls could keep pushing prices higher… they ultimately could not.

The “Three Push” pattern (as described in the Education Section) is a powerful reversal pattern with very low risk and high reward (opportunity) in the event that the final push does lead to the intraday high – which was the case today.  A stop is placed just above the high and if you see bearish candles at the third peak, that’s even more evidence odds favor a reversal.

In this case, we saw a simple 5-min shooting star at the highs.

If you look closely, a bearish Cradle Trade formed into the close of the session (these times are in Central/Chicago Time).

I describe how to identify how the day developed, and note key opportunities/trade set-ups as well as how to manage them in today’s “Idealized Trade” Daily Summary report - please check out the link for subscription and additional information.

I also describe the Elliott Wave pattern I labeled above, as well as the Bearish Rising Wedge that terminated at the final high of the day.

The bullish report was favorable for the bulls, but I certainly expected the welcome news to produce a full Trend Day up all day long, squeezing shorts.  As I mentioned last night, the two major resistance levels to watch are the 1,007 and 1,014 area… we closed right in the middle of these areas today.

To keep the bullish party going, bulls need to close firmly above 1,014 (preferably 1,020) and if not, then bears would certainly love to take some revenge against this powerful rally that began in early March!

Corey Rosenbloom, CMT Continue Reading…

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SP500 Faces Critical Resistance as Jobs Report Looms

Aug 6, 2009: 8:57 PM CST

I wanted to do a quick update on the broader technical structure of the S&P 500 in advance of Friday morning’s potentially market moving “Jobs” report.  Let’s take a look:


(Click for Full-Size Image)

The blue horizontal line reflects the resistance at the 1,007 level from the November 2008 highs.

The red Fibonacci lines are drawn from the 1,576 high of 2007 to the 666 low of 2009 and we see the 23.6%, 38.2%, and 50% Fibonacci retracements to the upside of the entire bear market so far.

The important levels to note in this chart – from a technical perspective – are the 1,007 high (which price has not overcome yet) and the 1,014 high (38.2% Fibonacci level).  Also, bearish candles seem to be forming at these confluence resistance levels.

It’s important to note again that the July “Jobs” (Employment) Report will be released at 8:30am EST, an hour before market open.  A better than expected result will likely blow price through these technical levels, while an in-line or weaker than expected number is likely to produce a downward inflection off these levels – locking in technical resistance.

There’s a low-risk (tight stop), high potential reward trade that can be made off current levels particularly if we have a weak open or negative price action stemming from the report.

According to Bloomberg.com’s Economic Calendar, the general consensus is for a loss of 300,000 jobs (the consensus range is from a loss of anywhere from 190,000 to 375,000 jobs) with the unemployment rate rising to 9.7% (but could range from 9.5% to 9.8%).  These are the parameters to watch for unexpected surprises.

If it were as easy as looking at a chart, drawing in lines of expected resistance, and then watching price inflect down simply off these levels, we’d all be rich.  We deal in probabilities and structure, and are at a known level of expected resistance.

Let’s see how the Jobs report will affect the dominant technical structure in play.

I’ll keep you updated on the Monthly, Weekly, and Daily structure through my weekly detailed Intermarket Reports which are available each Sunday evening to subscribers.

Corey Rosenbloom, CMT
Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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