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.



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Patience...and a little luck...never hurts

The NQ put in a double top at yesterday's high. I entered on a break of the bar's low indicated by the arrow. I was hoping for a better candle - a hanging man or a shooting star; it was somewhat mediocre instead. But it was a narrow-range, inside bar at strong resistance.

I was watching the trade closely to see if it broke through the short-term trendline (yellow). Once it broke that level, my target was the 50% retracement of the previous day's low to high. Price chopped around and drifted lower most of the day, which actually worked in my favor. Had the NQ reached my target earlier, I would have covered my position and moved on. But it did not approach the 50% retracement until the last hour so I decided to see how price reacted to that level.

As luck would have it, price sliced through the 50% and fell sharply for the next half hour. I covered on the first move above the previous bar's high as indicated by the arrow.



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Wednesday roundup - 120308

I will be leaving when the market closes as I have a function to attend tonight. I will post a chart or two either late tonight or in the morning. Also, I will be talking about a new advertiser who has a service I think many people will like.

Finally, I posted a chart of the NQ in comments of yesterday's post - check it out and the other comments if you are interested.

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A close below 8,000

The Dow closed below 8,000 but is still above the low set on 10/10.

It should be no surprise that the lows are being tested - in my previous posts on "Tracking the Dow chart" I noted the path of least resistance has always been down. This is the third attempt on 8,000, with the second attempt on 11/13 (last Thursday) providing a nice bounce and an outstanding trading opportunity.

Not to sound like a broken record, but I try not to make predictions. I trade the setups that appear, long or short. I mentioned before that a break of the 10/10 low presents a bearish scenario that could ultimately take us to sub-7,000 levels. Kernan from TRADEthemove.com contributed some thoughts on support if that low is broke.

The bottom-line is we are nearing a critical point - will the market bounce and sustain a rally, or are the "buy and hold" investors about to feel more pain than they thought possible?




On the trading front, the NQ Futures followed textbook action yesterday as price broke through the 50% retracement and pulled back for a nice short setup. Price declined to the previous day's low, chopped around a bit, and then continued to the Fibonacci extension (FE).

I entered a short on the "hanging-man" candle (as indicated by the arrow) and covered at the end of the day when price hit the FE.



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NQ - 102308

I don't have much time, but I wanted to put up today's NQ chart because it was textbook action.

Price opened just below the 50% retracement. It attempted to breakout above that level early this morning, but failed to hold and proceeded to fall back below the 50% retracement. The declined continued to yesterday's low where price chopped around, and then continued to fall to the Fibonacci extension (FE). That proved to be the low of the day and the NQ printed a nice hammer-type bar, reversed, and proceeded to rally. After some chop around yesterday's low, it rallied back to the 50% retracement and closed strong above that level.

There were numerous trade opportunities - I took three solid setups. I will let you study the chart on your own.



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101708 - today's action

I wanted to follow up on my earlier post about the ES and NQ.

If you were watching both charts today, you saw that the exact area the rally stopped on the ES was the Fibonacci extension (FE) of the previous day's low to high. Even if you were only trading the NQ, had you been watching both charts you could have:

1.) Taken profits from a substantial rally if you were long.
2.) Gone short for an opportunity that yielded more than 50 points (a nice addition to the long profits from the morning).

I don't have time to post detailed analysis on my trades today, but here are the charts* so you can see the synergies/interaction between the ES and NQ (with respect to what I pointed out above).

It is just another piece of the puzzle.

ES:



NQ:




*note - charts are shown with 15-minutes left in the trading session.

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A few quick thoughts on Futures - ES vs. NQ

My futures trading is split 80% NQ to 20% ES, reason being that (in my opinion) there are better (cleaner) moves and signals in the NQ. I don't have specific evidence that points to that conclusion - it is just my "feel" after looking at futures charts for about a year.

But if I trade after-hours, I always trade the ES (that is where I get most of the 20% referenced above). The reason is simple - the ES is more liquid than the NQ, and you can get in and out with less slippage.

Even though I focus on the NQ, I always have the ES chart up. I often see either the ES or NQ hit a level and react whereas I would not expect a reaction just looking at one of the charts in isolation.

Yesterday was a good example. The NQ broke the previous day's low, but reversed on the way to the Fibonacci extension (FE). The logical target was the FE, and there didn't seem to be anything to stop price from reaching that point. However, if you look at the ES chart, you will see that it hit its FE, reversed, and was headed back up; in this case, the strength in the ES was lifting the NQ. If you had both charts up, you would have been watching that level in the ES and you could have still exited the NQ with a nice profit (notice how the NQ also printed nice "offsetting bars" at that level).

ES:



NQ:




Check back over the weekend as I hope to post some thoughts on plotting Fibonacci lines.

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NQ - 101508

I have personal things to tend to, so I am quitting early today.

I closed the NQ trade below a few minutes ago. I entered on a break of the weak candle as indicated by the white arrow. That candle tested the previous day's low which had been tested several times earlier this morning (and failed each time).

My initial target was the Fibonacci extension of the previous day's high to the previous day's low. As I looked back at the chart, however, I noticed that the gap from 10/10 to 10/13 had not been closed (see the second chart); knowing that gaps have a tendency to close - and this one was within range - I adjusted my target to the close of 10/10 (indicated by the white dotted line on both charts). Price dropped somewhat slow and orderly through the day to reach that target.

I am not sure where the NQ will go from here, but I suspect the downside is limited. If I was trading, I would be watching for a valid long setup.





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NQ - 101308

On the chart below, my Fibonacci lines are plotted from the previous day's low to the opening range (OR) high. At the open, price began to fall. It found support at the white dotted line which represents the previous day's high. The previous day's high and low can represent significant support/resistance, and when they are not incorporated into my Fibonacci lines I still watch those areas for signals.

Price fell below the white dotted line and printed a doji or hammer-type candle. It closed back above the white dotted line and I entered on a break of the doji candle (white arrow). Price rallied back above the morning high, and I adjusted my stop to just below that level.

My target was the Fibonacci extension, and price rallied to hit it at the end of the day (it actually blew threw the FE, and rallied another 50 points...but I was happy with my profit).



Note - I am working on a post about the various ways to plot your Fibonacci lines for intraday trading - I will try to get it up this week.

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NQ - 100908

I will post some stock charts over the weekend - I have had a few good gap trades this week (and hopefully a few more to come). Here is a chart of the NQ from yesterday - the volatility is presenting some great opportunities. But a chart is a chart is a chart, so it doesn't matter if it is NQ, RIMM, WMT, or anything else - the same principles apply.

Here is what I saw:

1. A gap down and rally to the 50% retracement. Price broke through that level and immediately reversed with a bearish red candlestick that closed back below the 50% level. The next bar was narrow-range and could not rally to the halfway point of the previous (wide-range) red candle. I took this as a bearish sign, and entered short on a break of that bar's low (indicated by the first white arrow).

There was extra risk as the green candlestick closed back above the 50% retracement, but (in my mind) it was offset by what I outlined above.

2. My target was the morning low. I covered on a break of the bar indicated by the yellow arrow on the chart. This was a bullish reversal - a down red candle followed by a green candle that closed above the halfway point of the previous bar (long-time readers know this as a version of what I call "offsetting bars"). At that point, I locked in 30 NQ points.

3.) I entered short on a break of the candle with the long upper tail (indicated by the second white arrow). I thought price had the potential to move back to the morning low, but I placed my target more conservatively at the pivot where I covered earlier.

Overall a great day with 50+ NQ points.



edit - long-time readers know I use "candlestick", "candle", and "bar" interchangeably. And, while there has been a lot of point potential in futures with the recent volatility, keep in mind that you have to adjust the size of your position due to that same volatility.

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NQ - 100308

Below is a 5-minute chart of the E-mini NASDAQ (NQ) from Friday. I am going to explain how I use Fibonacci now in the context of how I used Fibonacci in the past - so, if you are not familiar with my trading you need to read past posts in this blog. A good place to start is by clicking "WELCOME, LINKS TO KEY POSTS, RESOURCES" at the top of the page. On that page, I link to several "key posts" one of them being "How I Trade, and Analyzing Charts".

You will notice 5 black lines on the chart (sometimes they will be white). These represent the high and low of the move I am framing, the 50% retracement of the high and low, and the 1.382 (line above the high) and -.382 (line below the low); I refer to these last two lines as the Fibonacci extension(s). Long-time readers will notice that I stripped out the 38.2 and 61.8% retracements. I did this to simplify my charts - I wanted fewer lines. I am still aware of their presence, but I don't feel I am losing anything because the 50% retracement serves as a benchmark for that entire area which I commonly referred to (in the past) as the "Retracement Zone".

As far as plotting my Fibonacci lines, long-time readers know that I used the previous day's low/high to the opening range high/low. The opening range (OR) was [most often] defined as the high/low of the first 15-minute candle. Now when I use 5-minute charts, instead of a defined period for the OR high/low, I look for the first pivot. Many times the new method and old method match exactly; notice the pivot on the NQ chart - it is the 3rd 5-minute bar which means it would have been the high of the first 15-minute candle. But sometimes the pivot comes on the 4th, 5th, 6th (et cetera) bars...in which case, I find it more exact to use that pivot point instead of the fixed 15-minute method.

Regarding the previous day's low/high - I still use this as long as the price action does not violate the current day's opening range. On the NQ chart, the low of the previous day occurs towards the end of the session, and price never violates the current day's opening range. I will show an example later where price does violate the opening range, and how I determine what point to use in that case.

Note how the Fibonacci lines frame the day's action perfectly. Price rallies to the (upper) Fibonacci extension and abruptly reverses. It falls to the 50% retracement where it chops around (as is expected in that area), then falls to the previous day's low, bounces, and makes a sharp move to the (lower) Fibonacci extension where the decline stalls.


My trades

The first arrow points to a textbook example of offsetting bars at the OR high - the first candle is down and closes below the high, the second candle is up and closes back above the high. The entry was a break of the second (up) candle's high. Since the OR high was breached earlier in the morning, I viewed this as a pullback and my target was the upper Fibonacci extension (FE). It was hit eight bars later.

The next trade was a bit riskier - but I entered the trade with that knowledge. Price had already broken back below the 50% retracement and then pulled back above it. The entry was a break of the engulfing candle (second arrow), and my target was the lower FE. Since the bars were wide-range, I adjusted my position size accordingly. The more conservative entry would have been at the third arrow (I did not take it, as I was already in) when price broke back below the 50% retracement and pulled back to print a version of a hanging man (though not perfect, as it had an upper tail). The lower FE was hit in the last 30-minutes of the session.



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