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Sunday, December 07, 2008

Weekend roundup

I have a busy day today but I wanted to get in a quick post regarding Friday's action and the market in general.

Over the past few days, it seems that more and more people are bravely dipping their toe in the water and calling a "bottom" in the market. As you know, I don't make market calls and in general I don't care which way it moves - up or down - as long as it moves.

Having said that, I did the most simple of analysis by pulling up the Dow chart and looking at a weekly view back to 2002. In my opinion, the 2002 low is a magnet that has a high likelihood of pulling price down until it tests that level. Price got close to the 2003 low - close enough to say we tested it. In which case, I might view that action as an (quasi) inverted cup and handle with the Dow potentially carving out the handle right now. Again, no predictions but it still seems the path of least resistance is down. That does not mean the market can't rally into the end of the year...the Dow could easily do that and turn back down to fulfill the prophecy!

In all seriousness, until price can re-take the 50% line from the low to the high (2002 to 2007) we are solidly in a Bear Market. The good news? Bear Market rallies can be violent and offer a lot of potential!

On Friday, the NQ Futures staged a solid rally. I added two additional lines to the chart below for you to study - the black dashed lines represent the halfway point between the high (low) and the Fibonacci extension (FE). When I trade, I plot these lines on my chart because they often represent support/resistance and give me an indication if price will make it to the FE. I normally take these lines out when I post charts on the blog so they remain clean and simple. Use your own discretion as to whether you think they help your trading.

Back to the NQ - price declined to the aforementioned level, and I entered long when it moved back above the previous day's low and formed a hammer-type candle. Price rallied to the 50% retracement and formed another setup as it built a base above that level. From that point, it rallied into the close.

Finally, I posted about the Equity Watchlist a few days ago. Their list on Friday was full of winners, a few of which I traded. One I missed but I still wanted to post was HIG - it was simply a monster as it doubled in one session. There were multiple entries including a move above the ORH and a "beyond the Fibonacci extension" setup. But I was at max capacity with other trades (as far as my ability to properly monitor the positions); I can't complain...it was a great day.



Attitude Trader said...

Thanks X


Terry D. said...

Hello Trader X,

Your inclusion of those halfway dashed lines between the Fib Ext. and the High/Low brings up a question I've come across.

You say to watch that area closely to see if it stalls and reverses, but how do you tell if its just stalling to pause before it moves again, or it really is stalling and reversing since I find a large majority of my trades usually hit that area and leaves some kind of candle with a tail, and several times takes out that candle.

Thanks for the help, great site

Trader-X said...

Terry - for me, it is a combination of how far it retraces and a compelling candle signal. Typically if it hits the halfway point and pulls back I am looking for a good signal around the high (or low if I am short and it pulls back). If it breaks the high (low) and heads back towards the 50% level then it is usually a reversal as opposed to a pause and continuation.

The textbook scenario would be you are long and it prints high tails at the halfway mark to the FE, pulls back to the high and forms a candle...if it starts to move back up it will most likely hit the FE.

Anonymous said...

I agree with your assessment we will be in a Bear Market until we are substantially above this level. Everything else is just a pullback from the push lower.