Things change

I'll admit the market was looking bullish since the past week every intraday decline was met with demand to close the day near the highs.  That came to an abrupt end today when the market crashed through the trading range.  These is decisively bearish in the short term.  I would like to see a rally to test the broken resistance around 1825-29 before initiating a short position.  So lets watch and see what happens.  

Thanks for reading. 

Stuck

Last time we highlighted the trading range between 1836.8-1829.2 which saw a short lived break to support before priced traded back in the range.  This signaled to me the strength (not the weakness I was anticipating) of the market since the bears failed to take advantage of the break of support.  Instead the market is looking more bullish as we are now making higher highs and higher lows in this now expanded trading range.  A break of the 1838.6 would lead me to believe that price will look to challenge the all time highs.

The SPX 15 min candlestick chart below highlights the trading activity over the past two trading sessions.  Prices have been trading in the upper end of the trading range and the declines have been short lived.  There appears to be absorption of the supply coming in at the top of the trading range which looks bullish.  The important part is we can see clearly from the PnF chart above the trading range boundaries which appear to be expanding upward.  So we wait for a breakout and jump on for the ride.

Thanks for reading.

Follow up

Ever look at a chart and say to yourself 'What a great setup!' and wait impatiently for the markets to open so you can start on your journey to making that first million?  Then when the moment comes you freeze like a deer in headlights.  I felt that today when I was looking at the opening bell and it took all my might to fight that feeling and just do it! In our last post we saw a clear trading range which on a break would have giving us the clue to the path of least resistance. I'll admit I did have a bias to the downside and was looking to play that.  Below is the SPX 15min PnF including today's trading action and you can see the trading range even more clearly between 1836.8-1829.2.

The SPX 5 min chart below highlights the quick move this morning to the top of the trading range only to fail and break support (bottom trading range). Interesting enough we had a test of broken support which was a good opportunity to go short.  Also notice the speed of the drop once support is broken.  If you are short then you know you first target is 1810 and you stop should be the top of the trading range risking about 7-8 points with a potential gain of 18-19 points.  Not a bad risk reward. 

Thanks for reading. 

2014 and beyond

“Cheers to a new year and another chance for us to get it right.”
― Oprah Winfrey

Happy New Year all.  It was a great holiday and always seemed too short.  However, like a good blacksmith and continued to sharpen my blade of knowledge reading and understanding the workings of the market.  Okay so I read a couple of days when the weather was bad outside in-between drinks. This year I'll will be posting only when i see potential set ups that I would like to execute on.  The posts will be shorter (thank goodness) but still helpful I believe.

Without further delay below is the SPX 15min PnF chart highlighting in green the current trading range.  We simply wait to see which way it breaks and jump on board.  The red area highlights the potential first target (support and resistance) on a break of the trading range.   Simple right?  Just try trading in real time. Not so simple.  I would like to see a break (either way) and subsequent test of the broken support/resistance area before having the confidence to enter a position but sometime the market is not that kind.

Lets watch and see.

Thanks for reading.

 

Wow

I totally saw today's massive move! Did you? 

Just kidding!  It has been a while since my last post but if you look back at the last couple of entries those price levels were still very relevant.  Of course back then we had just hit all time highs so we had to maneuver the markets by looking at intraday levels and watch as they manifest themselves into higher timeframes.  Below is the SPX 15min PnF chart posted on November 21st entry.   You will notice that even back then the 1773 area was growing in importance as a significant level of support and resistance.


Fast forward to December 13.  The SPX 30min PnF chart paints the same picture of support and resistance.  Once again you can see 1773 area (this time 1772) acting as support as price dropped from all time highs.  I want to point out that the variance in support and resistance is due to volatility.  Just look at the box size and how it changes.   Again we are only taking about 1 or 2 points or fractions of a percent.

Fast forward to today's massive move triggered by the Feds announcing a reduction of the bond buying program.  I remember a time not too long ago that the mention of tapering would have trigger a decent decline but I guess times have changed.  Support and resistance does not change and once again 1773 (1771) reveals itself as a significant area of support and resistance.  Additionally, we can now see that 1810 is current resistance.  So we now have a boarder trading range between 1810-1773 which for a short term trader is a decent size trading range.   Today's volume was massive which at these nose bleed levels is either the start of a new uptrend or the beginning of distribution to those that honestly believe that tapering will lead to a continued move up for the markets (and lower bond yields).    I'm leaning towards the distribution option myself.  The market will reveal its intentions in the next couple of days since we are at a key inflection point.  So lets wait and see.

As for me, this will be the last post for the year for me.  The past couple of months have been tough personally which served to distract me from analyzing the markets and of course posting regularly.  This year has however, been one of the most educational for me in my journey to better understanding the markets which I plan on continuing into 2014 and beyond.  I've posted close to 70 entries and often find myself repeating the same content which is boring me and probably everyone else.  For 2014 I will be changing things up by posting only when I see a trade setup and initiate my own trades based on that analysis.  I think that will be much more interesting to write and read about.

I just want to say to all my readers and followers to have a wonderful holiday and enjoy the time with loved ones.  The markets will always be here tomorrow so spend quality time with those around you.  Acts of benevolence provide far greater rewards then monetary riches.

"Happy Christmas to all, and to all a good-night!"

It seems simple enough

Is the success to trading being able to identify a trading range and play the breakdown or breakup?  I honestly starting to believe that type of strategy is all it takes to make a few bucks at this stock market game.  I talked in the past about the break test and enter strategy which is really just the set up which begins with a break out of a range and looking for a test of the broke support/resistance area to confirm the break.  The entry is executed on a break of the previous high or for the more adventurous types (a.k.a impatience) after the test of broken support/resistance. Now that I am viewing the market in terms of trading ranges and breakouts there are a few things to understand.  First this is a high probability trade and not the holy grail you will get stopped out at times. That brings us to the next point.  Place your stop losses.  Use mental stops simple don't' work since we are greedy and fearful and highly unlikely to adhere to those mental stops. I use hard stops to take the emotion out of it. I would rather blame the market for stopping me out and taking a tiny loss than readjusting my 'mental' stop in my head a thousand times and losing big.  A mental stop is really no stop at all in my opinion.   To be successful at playing a breakout you first have to be able to identify the trading range.  PnF charts are excellent for that.  Even if you are looking for triangles or pennant patterns which I personally don't look for or use in my trading but they as valid as any other trade setup.   The awesome part about trading ranges is that you can see and trade them in anytime fame.  They are really just areas of accumulation/distribution before another directional move ensues.   The bigger the trading range and more volume transacted (think or it as fuel for the move) within the range the greater the ensuing directional move.

Lets look at the SPX 15min PnF chart below where I've highlighted the current trading range in green. You can see that the range only spans approximately 7 points therefore any breakout should move at least that much.  Remember this is a 15 min chart with an ATR of 1.15 but the point is this same logic can be applied to any time frame.  I encourage you to check out the PnF chart and look for these trading ranges and look for those breakouts.  They could prove quite profitable.

Thanks for reading.

Breakouts and Fakeouts

Oh what a tangled web we weave,
When first we practise to deceive!
Sir Walter Scott

In our last post we had expected a continued move down to our pre-defined support area of 1773.  We didn't quite get there before the market reversed and that might have been because the 10 day moving average (dma) which was slightly above our level of support.  The SPX 15min PnF chart below was taken at the close of November 20 when the markets closed lower but still above the 10dma.  Unfortunately, PnF charts can't plot daily moving averages taken from a typical bar or candlestick chart so we just need to be aware of them when analyzing the markets using just PnF charts.  What the below chart also reveals (which is why I find find these chart invaluable) is the small trading range which look to have resolved to the downside at the time until it found support (at the 10dma).   For the quick and nimble day trader they could of taken a short position on the break of the trading range and covered at the 10dma.  Yes, hindsight is a wonderful thing.

The current trading range highlighted in yellow (1795.2 - 1787) continues to develop today the SPX moving back into and to the top of the range (resistance).  Again this could be either accumulation or distribution but it is starting to look a lot more like accumulation.  We can take clues from the SPY candlestick chart below (last chart).  The move to the 10dma was transacted on an increase in volume.  This could of have been viewed as supply entering the market but when the 10dma failed to break and with today's move higher it looks to have been the large players accumulating from the weak hands.  I'm assuming the large volume had something to do with the FOMC meeting minutes that were released that same day but who knows and who cares.    Today's close was decisively bullish as we closed near the highs.  However, as we mentioned prices did move back to the top of the trading ranged so we are at an inflection point here.  Just remember the longer we stay in the trading range and the more volume that is transacted the larger the resulting move once the range is broken.  This should be interesting should we continue higher and back to all time highs.  I just want to hear more people talk about a crash as we move higher as I find it funny.

Thanks for reading!