Set Your StockCharts up Like Corey
February 13th, 2009 by Corey Rosenbloom
I’ve had a number of readers ask me for my settings or style on StockCharts and I posted one article entitled “How I Set-Up My Charts” but I wanted to go over it again and provide a predefined chart link to make it even easier.
Clicking the S&P 500 chart below should take you to a recreation of the settings:
http://farm4.static.flickr.com/3330/3277432756_ecd5f59933.jpg
To recap, on StockCharts.com (which is what I use for educational blog posts because I like the clean format), I am using the following settings:
20 EMA (Green)
50 EMA (Blue)
200 SMA (Red)
Bollinger Bands (20, 2) which are ‘faded’ to an opacity of 0.5
I like to see volume (overlay)
I often display charts to “fill the chart” on the 620 setting
Finally, I customize the MACD to input 3, 10, 16 in the box to create the “3/10 Oscillator”
And I almost always use Candle Charts except when showing some Elliott Wave Counts, in which case I’ll use line charts (I also use line charts to demonstrate relative strength or percentage changes).
Keep in mind that I do my trading with TradeStation where I’m using custom indicators and a similar set-up, but using other tools in combination.It’s easier to explain the concepts I want to show by using StockCharts.com since more people understand and have access to it than TradeStation.
As always, thank you for your questions and feedback.
Corey Rosenbloom
(I have no affiliation with StockCharts or TradeStation other than I use their software)
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A Quick Update on the US Dollar Index
February 13th, 2009 by Corey Rosenbloom
Seems like this week I spent a good deal of time discussing Gold and Crude Oil this week, so let’s look at a related market that normally trades inverse these commodities - The US Dollar Index.It might give us clues as for what to expect in these markets.
US Dollar Index Daily:
http://farm4.static.flickr.com/3414/3276980988_cee4f2ed70_o.png
I wish the Dollar chart was showing more clarity, but like all other markets including the S&P 500 (US Equity Indexes), it seems to be poised in a tight consolidation (perhaps even ascending triangle) where we’ll know soon enough in which direction it will break, but it’s still better to wait for the actual break (above resistance or below EMA support) before ‘guessing.’
Structurally, we’ve completed a 5-wave Impulse to the upside (seems the 5th wave was the longest), all of which is likely part of a larger fractal that is resolving in a sideways (or triangle) correction.
I see an ascending triangle (traditionally bullish) pattern forming above confluence EMA (20 and 50) support which lends us to believe a bullish break could be in order, but there is also a negative divergence forming under price.Reference what happened in November the last time we saw such a pattern form - it led to a correction downwards.
There’s widespread belief that the Economic Stimulus Plan will create downward pressure on the Dollar but that hasn’t been seen just yet.
Officially - and until proven otherwise - the Daily chart is in a confirmed uptrend, as evidenced by higher highs & higher lows (see the 5-wave count) and also price is above all three key moving averages, and they are in the ‘most bullish orientation possible.’Bears need to watch out for those structural realities at the moment.
What are the short-term implications?
If the Dollar Falls (breaks support), it will likely cause a rally in Crude Oil and other commodities perhaps including gold (which is challenging resistance).For a deeper discussion on whether or not Gold will trade with or inverse the dollar, Mish (Mish’s Global Economic Trend Analysis) has a great article worth reading entitled “You Can’t Fool Gold.”
However, if the Dollar manages to break out to the upside and challenge resistance (and overcome it) at $88, then expect new lows in Crude (as low as it is) and the downward swing in gold to be realized.
Everything is just so neatly balanced for the moment - perhaps that won’t last long….
Corey Rosenbloom
Afraid to Trade.com
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Double Bear Flag and Strange Rally Intraday
February 12th, 2009 by Corey Rosenbloom
What a day Thursday’s trading was!It seemed all hope was lost for the bulls until the last hour.Let’s dig a little deeper to see some patterns you might have overlooked, including a rare fractal (double) Bear Flag and a “Three Push” Pattern.
DIA 5-min chart:
http://farm4.static.flickr.com/3357/3275947988_20c3c209d7_o.png
Again, what a day.Thanks to the end-of-day announcement of the bank plan news, the market soared to the upside, catching the sellers off guard.You can’t predict announcements using any form of analysis - that’s why you use stops and money management… so you don’t lose too much if you’re caught in the downdraft on the wrong side of the market when they occur.Hey, if everything was so easy, everyone would be doing it!
Let’s focus on the repetitive patterns (that allow you to trade them with edge) that set-up in the day’s structure - there was an extremely rare pattern I wanted to highlight for you.
First, the day started with a downside gap and a break through support on the S&P 500, setting up an expected miserable day for the buyers and potential for a strong trend day down.
Price proceeded lower into a new momentum low, and then price formed an upward sloping retracement (correction) that was bound - with one exception - by rising parallel trend channels.It formed the “Three Push” Reversal Pattern I’ve been discussing lately, and indeed the third push (on a negative momentum divergence) ended the correction and price then fell to new lows on the day.
Unfortunately, price took out most stop-losses for those playing for a trend day as it breached the 50 EMA.
Price then formed an initial down-thrust, formed another parallel channel retracement (notice the “ABC” … A up, B down, C up) that formed a more comfortable and recognizable Bear Flag that ended right at the falling 50 EMA (allowing entry there for a great risk-reward).The target was a measured move of the prior impulse.
But wait - was there a higher power at work?I pointed this out mid-day to a couple of people when I noticed we might be forming a massive bear flag (it looks more evident on the 15-min chart).
Let’s focus now on the larger-scale bear flag, and identify the smaller fractal bear flag that formed the “Measured Move” side of the pattern.
DIA Focus on the Dual Bear Flags:
http://farm4.static.flickr.com/3315/3275127285_a8f9b61442_o.png
Again, take the time to see this pattern on the 15-minute chart for more clarity.
What’s important from a technical standpoint is that the lows on the day formed on the Measured Move (projection) of TWO Bear Flags.Technically, it also formed on a positive momentum divergence, but I tend to ignore indicators on trend days (this technically was not a trend day in the end).
So price found a bottom, and buyers flooded the market (with shorts covering) as more news came to light about the Mortgage Subsidies Plan.No technical analysis could have forecast the magnitude of the move - all traders are captive to sudden news/price shocks at any time.
Look deeper into the intraday structure for more clues, and overlay some Fibonacci grids over the price action here for some interesting insights as well.I only have so much room to discuss all the developments intraday.
Corey Rosenbloom
Afraid to Trade.com
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Daily Structure and Support in Apple AAPL
February 12th, 2009 by Corey Rosenbloom
Seems that a lot of stocks are making possible rounded reversal patterns - Apple (AAPL) is no exception.We’ll soon know if these patterns are acutal reversals… or massive bull traps.Let’s look at Apple’s daily chart - if it is to mount a reversal to the upside, it will do so off current levels.If not… then it won’t take much risk (stop-loss) to know.
Apple (AAPL) Daily:
http://farm4.static.flickr.com/3455/3274304549_82c5442f6d_o.png
Similar to the chart of Research in Motion (RIMM) I discussed earlier today, Apple is making some sort of potential bottom or “Rounded Reversal.”
Price has broken the prior swing high to make a new swing high and could possibly form a higher low above (or at) confluence support.
Notice how the 20 and 50 day EMAs have now crossed bullishly, providing a potential floor of confluence support on the current down-swing.
We’re also coming off a multi-month, multi-swing positive momentum divergence.
We’re close to an official trend change to the upside on the daily chart, however we need to know the risk-point that this view will be proven wrong.One would expect the confluence EMAs to hold (currently around $93.00), but if not, we have a tiny swing low (as well as round number support) at $90.00 per share.A break and close beneath $90 would call the fledgling reversal into question, and a close (or penetration) beneath the January lows just shy of $80 per share would officially disconfirm the reversal theory.
It’s interesting to see a variety of stocks making this pattern.I’m of the mindset that if one fails, they’ll all fail (because they’ll all be carried away by a downcurrent in the broader market) and that if one succeeds, they’re all likely to suceed… but again the larger variable is the broader market, which is struggling at the moment, and threatening to challenge its November lows.
Keep a close watch on these stocks and others.Adam Hewison sticks his neck out and provides you with additional possible bullish cases on key stocks in his recently released video “Five Stocks that are About to Move” (Bullish set-ups) that he found and presented using their SmartScan software.
Corey Rosenbloom
Afraid to Trade.com
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Rounded Reversal in RIMM with Broken Support
February 12th, 2009 by Corey Rosenbloom
Research in Motion (RIMM) recently completed a Rounded Reversal pattern on the Daily Chart, though with this week’s earnings gap, the stock has broken through EMA support.Let’s see the pattern and its resolution.
RIMM Daily:
http://farm4.static.flickr.com/3337/3274573294_236b8ed28e_o.png
The Rounded Reversal is a calm, interesting pattern that expects a stable shift from sellers to buyers as price moves forward in time.It is always accompanied with a lengthy, multi-swing momentum divergence as we see here.
Price began making new lows steadily, though each new low was made with a higher low in the Momentum Oscillator.Eventually - although it is impossible to predict - the final low was put in place as buying pressure began to match and then exceed selling pressure, and an upswing in price began in early December.
The pattern gives a great ‘edge’ because the initial stop can be very close to your entry (though not unreasonably close) and once in the position, it is generally best to use a trailing stop or exit once key EMA support is broken - as occurred in this instance thanks to an earnings announcement.Often, the profit (when achieved) is sometimes many multiples of the initial stop.
What’s in store for RIMM now?It’s not comforting that price broke the upward sloping trendline that has been in place since early 2009, nor that it broke expected confluence support from the rising 20 and 50 EMA.
Use this example to get a good idea about the Rounded Reversal pattern and how it might be traded effectively.
Corey Rosenbloom
Afraid to Trade.com
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Mid-Week NewsFlashr Editor’s Picks
February 12th, 2009 by Corey Rosenbloom
It’s time again for the quick mid-week update from the Editor of the NewsFlashr Business Blogs section:
Barry Ritholtz provides two quick image posts that show us the “Word Cloud Map” of Secretary Geithner’s speech and then links to an image of the Economic Stimulus Plan Mapped Out.
Mish discusses the recent government activity and provides his comments in two recent posts: Insanity Prevails (regarding the Bail-out) and Bernanke - So Far So Good (on Credit Moves).
Dr. Steenbarger shares with us his analysis and tips on how to identify and trade Range Breakouts. Breakouts from Trading Ranges
Investment Postcards shares with us a video that has Nouriel Roubini and Nassim Taleb discussing how to predict financial crises - very interesting. Dr. Doom and the Black Swan
Rob Hanna shares with us some insights from his research that describes why it’s important to consider initial positioning when considering research/analysis: The Importance of Positioning in Analysis.
Chris Perruna shares some insights and warnings about trading double-leveraged funds (and shares his recent experience): Oil Double Long ETN (DXO)
Trader Gav, who has been working on automated trading systems, shares his thoughts on what we really need to know: “Learning to adjust your mindset, to accept the change, to really understand your battle field, with these, start to enhance or alter your strategies.” What You Really Need to Learn….
The Dividend Growth Investor shares with us seven companies that have raised their dividends recently, which might be worth a second glance. Seven Notable Dividend Increases in the News
Corey Rosenbloom
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Weekly and Daily Take on Gold Prices
February 11th, 2009 by Corey Rosenbloom
A few readers have asked me to take a look at Gold prices and I will do so, starting with a possible Elliott Count on the Weekly chart and then dropping down to see resistance and an interesting structure on the Daily Chart.
Gold Prices ($GOLD) Weekly:
http://farm4.static.flickr.com/3346/3271811869_a9692f169c_o.png
Ok, let’s take this slowly.I’m not saying this is the exact Elliott Wave Count, but to me it is a plausible one and I encourage other readers to comment your thoughts.
If this count is correct, it assumes that the whole structure from 2008 onwards is a massive, complex corrective phase, perhaps winding into a double Zig-Zag of sorts - or Double Flat.The “X” Wave is a separator between ABC Corrective phases.
Gold peaked just above $1,000 an ounce in March, 2008 before heading down into a nasty, confusing pattern.We may have had a three wave ABC into September’s lows (each wave subdivided into 3 waves) and then a connector wave (X) that then resolved into a second ABC pattern.
If this is the case, then we’re missing the final C wave down to complete the pattern, and it seems - until proven otherwise by a break above $950 - that the market wants to finish the pattern, but this is clearly not the only interpretation out there.
As I write this, Gold is up around $930 per ounce, so the entire bearish projection is invalidated with a close above $950 (which also gives you a great risk-reward).
If you’re thinking bearishly, keep in mind that we’ve officially broken and closed above a downward sloping trendline that connects the three prior price highs from early 2008.
Let’s drop down to the Daily Chart.
Gold Prices ($GOLD) Daily:
http://farm4.static.flickr.com/3509/3272631960_c3411d866f_o.png
Taking the larger structure into view, we see a possible ascending triangle (which perhaps has bullish implications) however, we also see some elements that give the bulls pause.
We may be completing a “Three Push” pattern (which is a bearish reversal pattern) into key resistance, as confirmed by the negative momentum divergence that’s set-in.
Also, one can draw an Elliott 5-wave impluse up, but I caution against that because each 1, 3, and 5 wave seem to be about the same length (in price) and also proposed wave 4 would enter the price territory of Wave 1 so we most likely have to rule the move from November to February as another complex Corrective Wave (meaning going against the prevailing larger correction or downtrend).
However you interpret it, Gold is at an extremely critical level right here.Just a little strength to the upside and we will have momentum to make a run back to $1,000 per ounce if we break out of these levels here… but on the same ticket, we could fail miserably at the current price levels and head back down to test the $700 level which would likely end the corrective phase and launch us back to new highs after that swing completed.
Dig deeper and do your own analysis here - the resolution will be interesting.
For a different take, watch Adam Hewison’s recent video “Fibonacci Analysis in the Gold Market“.
Corey Rosenbloom
Afraid to Trade.com
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Extreme Divergence and Rounded Reversal in USO US Oil
February 11th, 2009 by Corey Rosenbloom
I wanted to highlight the possibility for a trend reversal or at least low-risk opportunity in the US Oil Fund (USO), or at a minimum, show a large-scale structure potentially playing itself out.
USO Daily:
http://farm4.static.flickr.com/3489/3272163450_f3627eeb1f_o.png
Before reading, keep in mind that there’s no guarantee this pattern will produce the expected result, but it’s worth a casual glance at a minimum.
First, notice the price forming a Rounded Arc (I call it “Rounded Reversal”) from the September swing down to current prices.Keep in mind that we made a new low (actually an all-time low) on Tuesday, so by no means is there no risk in this position.
Second, notice how the 3/10 momentum oscillator has formed seven positive divergences as price continued to make new lows - that’s extreme.
I see one of two possibilities:
1.We are indeed forming a true “Rounded Reversal” and the oscillator is hinting at growing positive momentum and we’ll see a reversal to the upside very soon
2.The momentum oscillator is giving a false signal, similar to that on extreme trend days and so the indicator/signal must be ignored (like I always say, “Turn Off Indicators on Trend Days” or on major moves”)
It will be very interesting to see which scenario plays out and how to adjust expectations if needed.This is a huge structural development and it can have a major impact on the chart and of course how oil affects other markets IF we do get a reversal.
Finally, whether or not Oil reverses, it is a good idea to take into account this structure (so you can trade it when it sets up on other stocks/markets) because it is a very low-risk opportunity.
Why is it low risk?
If you enter long right here, you would be able to place a stop very close to price (perhaps two or so percent beneath your entry) but would be able to play for a very large target if you’re able to capture in close to the bottom IF a reversal takes place.Depending on your stop-loss (and if price reverses), you might have a large multiple reward to your initial risk (perhaps 10 to 1 or greater).This is more of a swing or position trade than a scalp trade.
Do your own analysis and make your own decision, but over time, you’ll do well to find trading opportunities that offer low risk but high reward… even if you’re ‘right’ on 50% of your trades.
Corey Rosenbloom
Afraid to Trade.com
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5 and 15 Minutes of Downside Doom in the DIA
February 10th, 2009 by Corey Rosenbloom
Let’s look inside the price action of the 5 and 15 minute chart of the DIA to see the clues preceding the reversal down and also an example of an extremely powerful trend day.
Let’s start with the 15-min structure that I almost highlighted to you last night:
http://farm4.static.flickr.com/3526/3270041157_9b58123b93_o.png
I almost pointed out the “Rounded Reversal” and multi-swing Negative Momentum Divergence on the open blog but decided against it because I believed I’d look foolish doing so as I thought Geithner would reassure Wall Street with his plans and the market would race higher.Well, that didn’t happen, and the market ‘fell off a cliff’ before he was finished speaking today and never really looked back.I’ll keep my political thoughts to myself.
From an educational standpoint, take a good look at the large-scale “Rounded Reversal” and how price followed the script off the reversal and breakdown through the 20 and 50 EMAs - complete with a “Cradle” or Confluence EMA resistance trade at 11:00 EST (how convenient!).
Dropping down to the 5-minute structure gives us the entries and risk points to trade the powerful Trend Day Down:
http://farm4.static.flickr.com/3310/3270862326_ba8d728a38_o.png
Well, it sure didn’t feel like we’d have a trend day down when the markets opened and filled their opening gap (giving a profitable trade for those nimble among us).
One has to let technicals take a back seat to the major news or announcements - such as a Fed Decision or major policy speech like Geithner gave - but then again, sometimes it’s amazing how accurate they (technicals) can be even in the midst of such rampant volatility.
As Geithner began speaking, we had a bear flag/EMA confluence resistance trade that signaled a short-entry which wound up hitting and exceeding the target literally in 10 minutes.Price formed a two-bar flag (it really wasn’t enough to signal entry) before plunging back down to new lows and forming a second new momentum low.
At this point you should have suspected that we had a Trend Day on our hands and switched off your indicators (you did that, didn’t you?).The only indicator that I’ve found to be useful on trend days is the 20 and 50 EMAs (or your preferred moving average combination).Sell any pullback to the key EMAs.
Seriously - Turn Off Indicators on Trend Days.You’ll save yourself thousands of dollars.Do not read any positive divergences into the latter part of the day.Do not find any buy signals in the stochastic or RSI.Get short and stay short (or get long and stay long on an up-trend day).You’ll thank me later.
Continue studying Tuesday’s Trend Day action for additional clues so you can be ahead of the game when the next trend day occurs.
Corey Rosenbloom
Afraid to Trade.com
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Strange Gap Fills and Traps in UBS
February 10th, 2009 by Corey Rosenbloom
I wanted to show a quick post on the recent price activity in UBS, specifically showing two overnight gaps that were unlikely to fill that actually did fill which was then followed by a nasty bull trap.Let these serve as interesting lessons.
UBS 15-min chart:
http://farm4.static.flickr.com/3356/3269931202_10f3b58b16_o.png
Don’t so much worry about the technical structure as I’m trying to highlight two gap fills and then a ‘false break’ or bull trap.
UBS reported worse than expected earnings on February 5th which resulted in a large overnight gap and negative sentiment… all of which was destroyed as buyers stepped up and drove price back to fill the gap in a destructive day to the bears and those who thought it was as simple as “Company reports bad earnings… go short.”It’s these unexpected events that teach us that money/risk management is key - and not to rely too much on simplistic expectations.
However, one should not have said “Hmm.Stock rallies on bad news. Bullish.Buy.” because the next morning took price right back down to where the gap opened on Thursday.And again to the surprise of the sellers, the gap was filled by the end of the day.Shocking!
I wanted to pull you inside Friday, February 6th’s price action to highlight the classic “AB = CD” Measured Move pattern that completed perfectly mid-day.It’s similar to a Bull Flag - which is the easiest way to describe it.Measure price swing A B (A is the low and B is the high - this is not Elliott Wave) and then once price encounters support around the 50 or 61.8% Fibonacci retracement of the AB Swing, then project upwards an equal swing (the low is C and the high - or target - is D).Afterwards, one might consider shorting at point D because that was the completion of a measured move price target.
Finally, I wanted to highlight the end of Monday’s action, where price surged to a new swing high, breaking above key resistance (and consolidation) as buyers entered with high hopes… that were quickly crushed in 30 minutes of unexpected pain.
Price broke support from the consolidation, drawing in sellers at the end of trading… however Tuesday’s action gave us another large-scale gap, opening at $11.90 (yes, that is ABOVE the falling 20 SMA) which shocked the shorts, drew in buyers before … guess what … plunging on the day.As I write this at noon, EST, the stock has fallen from its intraday peak of $12.30 down to $11.40.
My advice?
Trade stocks with simpler price structures.Avoid stocks that are too full of traps.
Corey Rosenbloom
Afraid to Trade.com
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Using SmartScan to Find Winning Trades
February 10th, 2009 by Corey Rosenbloom
One of the major benefits of the MarketClub is the ability to Scan quickly a wide universe of stocks to determine trend and then find stocks setting up current buy (or sell-short) signals based on their proprietary mix of indicators that comprise the “Trade Triangle” Technology.
Adam Hewison released an introductory video today that goes into more detail about how to use their “SmartScan” feature to filter through the universe of symbols to find key stocks to watch or trade when a signal is given.
Here are a couple of screencaps from the video and from their members’ software:
http://farm4.static.flickr.com/3300/3269596258_44627b6cec_o.png
Clicking on the images links to the video as well.
They offer 24 different types of scans relating to new highs/lows, trend (direction and duration), MA crossovers, and - as you can see from the lower description box - each scan is described in detail of what it is seeking to find in the market.
From your scan, you can then find charts such as the following to help you then make your trading and risk-management decisions:
http://farm4.static.flickr.com/3346/3268774291_669b6a54d7_o.png
The particular scan Adam is showing here finds stocks in a downtrend that are ‘rolling over’ perhaps providing a new short-sell entry as they break support levels and moving average.
Finally, here is a portion of text (reprinted with permission) from Adam introducing the video:
“One of the really great benefits of MarketClub is the ability to find markets that are headed higher and those headed lower.
We do this through the use of our Smart Scan technology that spots markets that are trending either on the upside or downside. This technology also helps identify markets that are moving sideways and may be candidates to watch for breakout price action.
Now imagine having a tool that can do this for stocks, futures, precious metals, ETFs and foreign exchange. You can see the scope and the power that this tool has to spot winning trades in any market.
In this short video, I will show you how to utilize this powerful tool and just how easy it is to filter and find trades that meet criteria that you set.The video is available at no charge and there is no registration requirements.”
As always, thank you to Adam and staff for their educational video series and commitment to education.
Corey Rosenbloom
Afraid to Trade.com
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Elliott Wave in Intricate Detail on the DIA One Minute Chart
February 9th, 2009 by Corey Rosenbloom
Did you know Elliott Wave can be applied to the intricacies of the One-Minute Charts?I wanted to show an example that occurred just a few hours ago that details a possible Elliott Wave overlay that captured the full structure of the minuscule movements on the DIA 1-min chart on February 9th.
DIA 1-min Chart - You’ll need to Zoom-in (click) for Detail:
http://farm2.static.flickr.com/1181/3266665267_16b24912a5_o.png
If you’re asking, “What in the world are you showing us, Corey?” then let me explain as we go along.
You don’t have to apply Elliott to this detail, and doing so in real time on the one-minute chart is excruciatingly difficult in real-time so this is mainly an exercise in proper counting of Waves from an educational (example) standpoint, as this example and count properly utilizes all the principles of Elliott Wave as applied to a price chart example.Impulse Waves subdivide into 5 waves (1,2,3,4,5) while Corrective Waves (against the Trend) subdivide into 3 Waves (A, B, C). If anything, just consider it an interesting or fun example.
Work your way wave-by-wave from the left of the chart to the right, taking into account the special “Fractal” Nature of Elliott Wave - that’s mainly what I’m highlighting to you.Also, how Elliott Wave can compliment and enhance your current indicators or pattern recognition skills (as in bull flags, etc).
The large impulse down from Friday’s close into Monday’s open wound up being an “A” corrective wave down that subdivided into 5 waves, which told us to expect a “Zig Zag” Corrective pattern (one of which resembles a Bear Flag of sorts).If it was a 3-wave ordeal, we would have been expecting a “Flat” most likely.
We rallied up into the confluence resistance zone from the 20 and 50 EMAs which set-up a Bear Flag (forget Elliott altogether and recognize the Bear Flag).However, using Elliott, we could have termed this rally “Wave B” and then entered short to anticipate a 5-wave corrective “C” wave down which represented a “Measured Move” (or equal distance) of the prior down-wave (”Impulse” or Flag-pole).
Seeing that the “ABC” Zig-Zag completed, we should have been looking for some place to get long, or at least exit our short positions.
We had a 5-wave Fractal Rally up into resistance via the 50 EMA as we formed another “ABC” (three-wave) Corrective phase that ended just beneath the support of the 20 EMA.Now is when Elliott Wave Analysis begins to pay off - and in fact, may be the only reason you should find Elliott Wave interesting…
The Third Wave
We expect Elliott 3rd Waves to be the place where the best opportunities are, and where we can make the most money the quickest.In real time, you should have at least identified the ABC Zig-Zag (or Bear Flag) as the end of a corrective move and then maybe identified the last two waves as 1 and 2 (or that’s fine if you didn’t) but the “Line in the Sand” or “Point of Recognition” comes when we break the price highs of the prior swing high (in this case, Wave 2).
As if to add more confirmation, we saw the 20 and 50 EMAs “cross bullishly” which officially confirmed an uptrend in price.Experienced Ellioticians were quick to identify this as “Wave 3.”
So wave 3 subdivided (’fractalized’) into its own 5-wave affair before reaching a peak and swinging down in a quick corrective phase to mark Wave 4.Astute Elliotticians should have also been waiting to buy in (or hold) when Wave 4 completed to play for a retest of prior highs (at worst) or new intraday highs (at best) that marked Wave 5.
Wave 5 ended - as most do - with a Negative Momentum Divergence (you could have seen that with most indicators) and we began a second Corrective Phase that also formed a Zig-Zag (or Bear Flag, if you so desire).I won’t describe that phase in detail but you can observe it for yourself.
Elliott is not “god” as I always say, but it can be a welcome addition or compliment to your existing understanding of price behavior.Yes, it can be applied - if you have the reflexes of a rabbit - on the 1-minute chart but I recommend you use this as an example of how to apply Elliott to any time frame and combine it with other indicators and structural developments.
Corey Rosenbloom
Afraid to Trade.com
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15 Companies that Might Not Survive 2009
February 9th, 2009 by Corey Rosenbloom
I wanted to call your attention to an article in US News and World Reports by Rick Newman that lists 15 Companies that Might Not Survive 2009.
To me, it’s a scary list because many of the companies are not obscure, “never heard of them” names, but commonplace businesses, some of which have national reach.
For example, I’ve visited a Six Flags (SIX) theme park almost every year growing up.It’s stock now trades at $0.33 and made the list.
Rite-Aid (RAD) Pharmacies seem to be in most cities, but the economy has taken their share price down to $0.30 as well.
Newman suggests that Blockbuster (BBI), a large video store retailer, might not survive thanks to Netflix and Video-on-Demand services offered through most cable providers.
I posted not too long ago on Sirus Satellite Radio (SIRI) over how surprised I was that the price of their stock fell to $0.10.Many investors didn’t see that coming.
Finally, we’ve known that Krispy Kreme (KKD) was in trouble for a few years starting with its stock slide in 2004 (peaked around $50) due to the Atkin’s Diet and other anti-carbohydrate (and sugar) trends but its stock now trades at $1.50 and could face bankruptcy.
For a complete list of the companies, reference Newman’s full article.Let these stocks be a reminder that you probably shouldn’t try to pick bottoms or buy a stock only because it’s cheap.After all, when (and if) a company does declare bankruptcy, chances are quite good its stock will fall to $0.00 before all the legal wrangling begins, and if it’s delisted, you lose everything no matter how many thousands of shares you bought up at $0.30 or less (”Hey, it’s only $300!”).
Corey Rosenbloom
Afraid to Trade.com
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A View of the SP500 Structure to Start the Week
February 9th, 2009 by Corey Rosenbloom
We may see a major resolution of the tight range in the S&P 500 this week.Let’s define that range and see what the current S&P 500 Structure is telling us.
S&P 500 Daily Chart:
http://farm4.static.flickr.com/3299/3266786576_a97541aa55_o.png
I could have drawn numerous trendlines and channels to show the price consolidation but decided to let the price speak for itself and note the ever-decreasing (consolidating/contracting) range on the daily chart.The dominant short-term pattern from January 20 to February 9 is that of a tight contracting triangle with the 50 day EMA serving as the upper boundary and the red upward sloping line serving as the lower boundary.
One can pull back to a larger pattern to see a broader consolidating pattern or triangle compressing price down to its current level as well.A more liberal interpretation allows us to see a potential inverse Head and Shoulders bottom pattern forming - I’ll try to discuss that more clearly if it develops (the current action would be the final right shoulder).
There’s clear resistance about the 900 level and clear support at the 800 level - both have been tested many times.The last time price broke above 900 (early January) was only a false break and classified as a “Bull Trap.”The resistance came in at the 38.2% Fibonacci retracement off the September highs to the November lows.The corresponding Fibonacci grid is drawn which still shows this lvel - 944 - as resistance.
Support is clearly at the 800 level from multiple tests and from ’round number support’ but you see also that the sellers attempted to force us down through this level and failed also in November, putting in an intermediate term bottom.Conveniently, the range to watch is 800 - 900.
The momentum oscillator is telling us nothing other than we’re range-bound and consolidating, and gives no clues about the future at the moment - most oscillators will likely be ’saying’ the same thing.
It’s probably best to wait for a break of either of these levels before taking action, and I’m thinking we’ll get resolution one way or the other this week.
Corey Rosenbloom
Afraid to Trade.com
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A Little Trick in Friday’s Trend Day Up
February 8th, 2009 by Corey Rosenbloom
Friday gave us a solid, upward performance in the US Equity Indexes.Let’s zoom in to the 5-minute chart and learn a valuable lesson regarding Trend Days and Stop-Loss Strategy or Trade Management.
DIA 5-min February 6th 2009:
http://farm4.static.flickr.com/3450/3263009111_00c1ebf341_o.png
Friday’s action wasn’t an “Ideal” Trend Day, but a Trend Day it was.Most trend days open with a large-scale overnight (or morning) gap, though Friday’s action was gap-like (not technically a gap).Momentum and price soared to new highs right off the open, clueing us in to a possible one-sided market, as price made no meaningful attempt to retrace any of that move.
The first pullback to the rising 20 EMA came in just after noon (price was too strong to manage a retracement to the average before then, preventing a clean entry).There actually were two such pullbacks, the second of which occurred at 1:00pm.
Those who love range contraction bars (NR7s, Dojis, etc) must have enjoyed the 1:00 consolidation, as it gave a clean entry (long if we break above… short if we break beneath) and price found support at the rising 20 EMA and rocketed to a new intraday high.It formed on a negative divergence, but remember it’s best to ‘turn off indicators’ on Trend Days (they give false signals as price continues higher).
Still, the bias was higher, and we came up into the lesson I wanted to highlight in the chart.
Generally, the plan on a Trend Day is to enter in the direction of the trend and play it until the close.The 50 EMA becomes the “Line in the Sand” wherein you drag a trailing stop.Stop-Loss Strategy comes down - in my opinion - to conservative or aggressive methodology.
If you’re a Conservative trader (like I tend to be), you’ll place your stop tight (close) to the 50 EMA.In this case, you were probably prematurely stopped out (whipsawed) as price smacked through the 50, “nailed some stops” and then reversed back to test the intraday high into the close.
If you’re an Aggressive trader, you’re more likely to allow price to ‘wiggle’ more, meaning you placed a stop a reasonable distance beneath the rising 50 EMA.In this case, you accounted properly for the volatility and probably kept your core long position into the close.Had price reversed down, you would have taken a larger loss than the conservative trader, but this is a clear example of why it often pays to give price a little more ‘wiggle room’ in these volatile times.
It’s up to you to decide which methodology you’ll adopt, as they both have trade-offs you’ll have to discover.Tighter stops result in more stop-losses (and whipsaws) but each of them result in less money lost.Wider stops result in less stop-losses being hit (whipsaws) but when they’re hit, they’ll cost you.
No one can give you an easy answer as to how to reconcile the two.Use today’s trend day as an example of how your stop-loss strategy can be helpful or hurtful to you in these volatile times.
Corey Rosenbloom
Afraid to Trade.com
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Video: Fibonacci in the Gold Market
February 6th, 2009 by Corey Rosenbloom
Adam Hewison of the Market Club released a video on basic 101 Fibonacci Retracement Application which many newer traders will find helpful.Adam explains what the Fibonacci retracement grid does and how to apply it to price swings and walks you through the process showing you several examples in a video format.
Adam demonstrates the “Fibonacci Rule” in Gold (15 min chart examples):
http://farm4.static.flickr.com/3020/3252278270_d1f1be4690_o.png
The image also takes you to the video link.
Adam describes how to find price highs and lows (which is obvious to some traders but not to others) and then explains where to be looking for opportunities to buy into a stock (or market) that is in a confirmed uptrend.Hint - he finds the 50% retracement quite useful and demonstrates its application several times in the 8 minute instructional video.
He also showcases more of the Market Club’s charting capability beyond the “triangles.”I’ve had readers ask me “Is that all there is to the Market Club charting?Just triangles?”.You can actually use various indicators (notice the Studies box at the top left) and apply Fibonacci and other forms of analysis.I’ve noticed that Adam tends to keep his free educational posts simple so that more people can understand them and not walk away confused.
In this video, Adam describes the “Fibonacci Rule” and explains how to apply it in gold and states, “This is something that you should really look for when a market has a correction, as it will allow you to enter a position with very little risk.”
The video is part of “MarketClub’s educational trading video series to help you achieve greater success in your own personal trading.”
As always, thank you to Adam and staff for making these videos available and helping guide newer traders in the markets.If you’re interested in learning more, visit them for additional information and a one-month trial offer.
Corey Rosenbloom
Disclaimer:I am an affiliate member of Market Club, occasional contributor to their blog, and support their educational outreach to newer traders).
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Trading Rising and Falling Wedges
February 6th, 2009 by Corey Rosenbloom
Rising and Falling Wedges are one of the most interesting patterns in technical analysis.What distinguishes them from triangle consolidation patterns is that price forms an upward or downward sloping coil that leads to the price move.
Here are two examples of the Rising Wedge Pattern, with the first being an Idealized Representation while the second is a real-world example.
Idealized Pattern:
http://afraidtotrade.com/images/stories/education-content-images/rising-wedge.png
“Real World” Pattern (with stock name and price removed):
http://afraidtotrade.com/images/stories/education-content-images/rising-wedge-candle.png
What characterizes the Wedge pattern is the converging slope of both trendlines.The trendlines converge to meet at the Apex, though price is expected to eject out of the pattern prior to reaching the full apex (point at which the trendlines converge).
Classic Technical Analysis states the following:
[*]Rising Wedges are Bearish Reversal Patterns[*]Falling Wedges are Bullish Reversal PatternsWhile this is not always the case, it is the classic interpretation of the pattern, which gives a possible pathway (expectation) and yields excellent risk-reward when traded.
How to Trade the Wedge Pattern
For this example, let us assume we have a rising wedge that forms after a lengthy price advance.Let us assume the pattern is a bearish reversal pattern and we are expecting a market top.
A rising wedge needs at least four ‘touches’ or tests of a trendline to confirm the pattern.Remember, a trendline needs at least two points to confirm it as valid.Generally, upon the fourth touch (or test), we would want to be waiting to enter on a breakdown of the lower trendline and place a stop above the upper trendline.
For a more aggressive method of trading rising wedges, you can enter short inside the consolidation inside the 5th swing in price to try for a better execution price.For falling wedges, you would buy on the 5th swing inside the converging trendlines and place a stop beneath the lower trendline.
Most wedges will break-out of the consolidation range anywhere from 66% to 80% of the way to the apex, though some wedges can wait until price reaches the apex for the actual breakout to occur.
For trivia’s sake, the wedge is comparable to an Ending Diagonal (5-wave impulse pattern) in Elliott Wave.
Volume Confirmation
The wedge is a consolidation pattern, and as such, we would expect to see the volume trend decline (reduce) as either the Rising or Falling Wedge pattern develops, and then expand as price breaks outward from the pattern.Your confidence is decreased if we see volume surging during the formation of a suspected wedge.
We would expect volume to increase, or perhaps surge, as price breaks out of the trendline and gathers momentum to the downside (or upside).
I scanned various charts and timeframes to find clean examples of this pattern and it was a difficult task, and from my experience, these patterns aren’t all that common.However, they can be quite powerful if you recognize them developing in real time and act accordingly.
Corey Rosenbloom
Afraid to Trade.com
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Gap Fade Stats for All of 2008
February 5th, 2009 by Corey Rosenbloom
2008 was a record-setting year in many ways.Volatility reached extraordinarily high levels and the broader US Equity Indexes lost 40% in a single year as the Credit Crisis spread to the broader economy.Let’s focus in on Gaps for the moment and form composite stats to see how the Gap-Fade strategy fared in 2008, looking at raw gap-fill percentage data.
For this simple study, we’ll be looking at raw overnight price changes and using the DIA (Dow Jones ETF) as our proxy as we have done all year.For deeper analysis, it would be better to compare percentage gaps but from a trading perspective, it can be easier to look at raw price changes in terms of setting up trades, stops, and targets.
We will define a gap as an open that is $0.25 or greater up or down from the prior close (that’s roughly 25 Dow Points).We’ll look at a few more parameters but $0.25 will get us started.We will define a successful “Gap Fill” as occuring when price - at ANY point in the trading day - equals yesterday’s closing price.This does not take into account stop-losses, trailing stops, or any other strategy.We need to start at the raw data to see if the strategy has potential edge than can be developed further into a profitable strategy through using fixed stops, trailing stops, time stops, or any other strategy.I’ll let you develop that on your own.
Here is the Excel data for all trading days in 2008 having a gap greater than $0.25:
http://farm4.static.flickr.com/3471/3251233851_d3ef36810d_o.png
Of the 252 trading days in 2008, 195 of them saw some sort of gap, meaning 77.38% (over 3/4) trading days had an overnight change of at least $0.25.
Of these 195 days, 116 resulted in an intraday gap fill, giving us an ultimate gap fill percentage of 59.49%, or roughly 3 out of every 5 gaps filled intraday.
The edge was slightly greater in up-side gaps that were filled, meaning price initially gapped up but then declined to trade equal or beneath yesterday’s close.This is what we would expect in a down-market of 2008. By the same token, fewer down gaps (54%) had price rising to fill the gap intraday.
There were roughly an equal number of up (97) and down (98) gaps, so there was no significant difference there.
However, we see something interesting which is oddly characteristic of Bear Markets.The average upside gap was $1.75 while the average downside gap was $0.95, meaning making money in 2008 was clearly not as easy as “get short, get rich.”Bears (sellers) had to contend with extreme volatility both up and down.There were times in 2008 when we’d make a record percent or point loss day… only to be followed right up with a record point or percentage UP day.Though there were some strong down-moves, there were a good number of “shockers” which ripped the stops out from short-sellers.Remember that Short-Selling on financial stocks was banned for a period in 2008, creating some massive upside gaps.
Let’s define our gap more stringently.Let’s record the morning action as a gap ONLY if it’s greater than $0.50 from the prior close.Let’s see if that gave us an ‘edge’ greater than 50% (random chance):
http://farm4.static.flickr.com/3107/3252075548_39f1a379f3_o.png
We still see the ‘edge,’ but it’s reduced.If you do any sort of study on gaps, you’ll find logically that the larger the gap is, the less likely it is to be filled.
In this case, there were 138 (or 252) days which had a gap greater than $0.50, and of those, 73 gaps filled which returned a gap-fill percentage of 52.90%.
Strangely, there was a ‘flip’ in the percentage of up and down gaps.There were 81 down gaps to 57 up gaps (remember they were equal at $0.25).Now, more down-gaps than up-gaps filled which is interesting.
If we raise the criterion to $1.00…
The edge drops to less than random.There were 72 gaps (up or down) greater than $1.00, and of these, 33 gaps filled intraday, giving us a gap-fill percentage of 45.83%, losing the edge of the strategy.
Remember, odds of a successful gap fill drop off as the size of the gap increases.Think of it logically - which is more likely to fill… a gap of $0.10 or a gap of $2.00 (in the DIA)?Just by random volatility, a $0.10 gap is more likely to be filled than a $2.00 one.Often, large gaps (that go unfilled) are the precursors to “Trend Days” so keep that in mind.
It’s unlikely that 2009 will be as radically volatile as 2008 but there’s certainly no guarantees that it won’t.Keep this in mind when developing your trade ideas and specifically when employing the gap-fade morning trade.
Corey Rosenbloom
Afraid to Trade.com
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Gap Fade Stats for January 09
February 5th, 2009 by Corey Rosenbloom
The start of February means it’s time to examine the raw statistics on the monthly “Gap Fade” numbers in the DIA (Dow Jones ETF).Remember, we consider a ‘gap’ to be at least $0.25 in the DIA and define a ‘gap fill’ as an opening greater than $0.25 up or down when the price equals yesterday’s close at ANY point in the day.Stop-losses are not factored in - you’ll need to develop your own strategy for that.
Let’s see the gap fading chart for January 2009:
http://farm4.static.flickr.com/3413/3251988980_5704359a4e_o.png
Of the 21 trading days in January, 17 days produced a gap at least $0.25 in the DIA.Of these 17, 8 gaps were filled intraday, which gives us a sub-50% statistic at 47.06%.For 2008, every month but August produced a gap-fill percentage greater than 50% (or random chance).
If you look closer, the failure gaps came to the downside.This means that if the market gapped down, it was less likely (22%) to fill downside gaps (by rising higher on the day) than it was to fill upside gaps (by trading lower on the day).This makes sense as January saw the market shave 10% off most of the major US Equity Indexes.It was quite a weak month.
There were 8 upside gaps and 6 of these filled (with price going lower on the day), giving us a 75% fill rate.
There were 9 downside gaps and only 2 of these filled (rising on the day) producing a 22% fill rate.
January was more in line with expectations (in terms of gap volatility) as the average up-gap was $0.61 while the average down-gap was $0.80.
By the way, if we increase our criteria of “gap” to include all gaps greater than $1.00, we would see that there were 8 gaps greater than a DIA $1.00, and of these, only 3 filled, which gave us a paltry 37.50% fill-rate.This is in line with the assumption that it’s generally not best to fade DIA gaps greater than $1.00.
For a look-back at all of 2008, follow the links on my previous “Gap Stats for December 2008” post.
Stay tuned for the statistics for all of 2008!
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Sector Rotation and Performance in January
February 4th, 2009 by Corey Rosenbloom
January did not get 2009 off to a great start.Let’s break down the S&P 500’s 10% loss by sector and see what clues the Sector Rotation performance in January might be offering us.
Sector Rotation (AMEX Sectors) absolute performance in January:
http://farm4.static.flickr.com/3040/3250443105_f3d481f6c5_o.png
We’re seeing a negative picture across the board - not one major Sector increased in value in January.Financials lost almost 30% while the ‘best’ performer was the Utilities which managed only to lose 2%.We saw the biggest hits in the two key sectors that will be critical for any sort of recovery - Financials and Consumer Discretionary/Retail.I cannot underscore how bad a sign this is for the broader market.We actually saw Industrials underperform Consumer Discretionary which adds to the negativity.
The “Defensive” sectors held up the best in terms of Health Care, Utilities and - to an extent - Consumer Staples (which lost almost 10%).This is absolutely the opposite picture you’d want to see to be bullish.
Let’s switch from absolute returns to performance relative to the S&P 500.
Sector Rotation (AMEX Sectors) Relative performance in January:
http://farm4.static.flickr.com/3039/3250443127_65cd8cb666_o.png
Again, the Sectors that outperformed the S&P 500 by the largest margin were the “Defensive” sectors of Health Care and Utilities.Surprisingly, Technology and Energy outperformed the S&P 500 but by only 4%.
The Financial Sector underperformed by 15% - a devastating development.Check out some stocks such as Regions Financial (RF) which notched a negative close almost every single day in January (falling from $9 to $3 per share in a single month).
Keep watching Sector Performance, as it should give us clues to where we are and where we’re likely to be headed.Look for any signs of strength in Financials and Consumer Discretionary.Until then, talk of the word “Bottom” is premature.
For now, I can see no hope for the bulls with these results.
Corey Rosenbloom
Afraid to Trade.com
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NewsFlashr Weekly Links
February 4th, 2009 by Corey Rosenbloom
Here’s the latest update from me as the Editor of the NewsFlashr Business Blog “Editor’s Choice” page.
Barry Ritholtz provides us with a graph detailing the main Sectors in the S&P 500 and notes their performance in January. Worst January Ever. Also, he summarizes an article from Reinhart and Rogoff that states to “Expect a Prolonged Slump”.
Dr. Steenbarger provides us a list of traits shared by Emotionally Intelligent individuals and relates that to trading the markets. Strengths of the Emotionally Intelligent Trader. A related post - Taking Heat on Your Trades.
Charles Kirk interviews Michael Panzer, who wrote Financial Armageddon which has been gaining attention thanks to its predictions of a large part of the current financial crisis. 10 Questions with Michael Panzer
Market Folly links to, and provides commentary on an interview with George Soros, who describes his experiences in 2008. Interesting. Soros Portfolio from 2008. Also, Market Folly posts links to Hedge Fund Investment Letters.
Rob Hanna reveals some research he conducted recently which address 2% overnight gaps in the market. 2% Gaps Revisited. Also, 2% Gap Ups Revisited.
Wall Street Nation provides a link to a 54 minute video of Nassim Taleb explaining in detail his arguments in the popular book The Black Swan. Taleb Explains Black Swan (Video link)
A Dash of Insight provides us an update on key ETFs and provides a nice graph displaying the performance. ETF Update.
Zignals shares various graphs and charts that seek to answer the question “Where Are We in the Economic Cycle?”
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15 minute Rounded Reversal in the DIA
February 3rd, 2009 by Corey Rosenbloom
I wanted to point out a potentially significant structural change in price that developed today before the close.We have a confirmed Rounded Reversal on the 15-minute chart of the DIA which is setting up confluence support.
DIA 15-min chart:
http://farm4.static.flickr.com/3413/3251487964_8f77bedd12_o.png
Rounded Reversals can be significant because they highlight a clean shift in the balance between supply and demand (sellers and buyers).As such, we have a confirmed up-trend in the 15-minute chart after coming off a positive momentum divergence and breaking above support via the 20 and 50 EMAs, which are now crossing bullishly at the time this chart was captured (1 hour prior to Tuesday’s close).
It’s a counter-trend retracement swing, but it’s important to note that the reversal is coming off the 800 index level low in the S&P 500 which is proving to be formidable support (the chart above is that of the DIA - Dow Jones ETF).Any bullish short-term bets are off if we break the current support level, and that of $78.50 in the DIA above, but for now, it appears that the short-term structure has shifted to the upside.
To recap:
Price formed a new low late February 2nd on a large positive momentum divergence
Price has broken above both the 20 and 50 period EMAs
The 20 period EMA is currently crossing above the 50 EMA, setting up the ‘confluence cradle’ trade at $80
Price has completed both a higher high and higher low, officially reversing the 15-min trend.
The 3/10 Momentum Oscillator made a new high along with a new price high, suggesting higher prices are yet to come.
Thus, we have confirmed an official “Rounded Reversal” Trend Change.However, there’s EMA resistance overhead on each of the Daily Charts of the key Indexes, so don’t get too excited yet.
Corey Rosenbloom
Afraid to Trade.com
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Rounded Reversal in Crude Oil
February 3rd, 2009 by Corey Rosenbloom
Crude Oil prices, as seen by the $WTIC, have found significant support near $40 per barrel and may be forming a rounded reversal pattern on the daily chart.Let’s see this development.
Crude Oil ($WTIC) Daily:
http://farm4.static.flickr.com/3489/3250985266_9dcdfbcdb8_o.png
Remember that $40 per barrel was significant resistance in 2000 and 2003, which was broken in 2004 that set the stage for the powerful rally that took crude near $150 per barrel - giving most Americans gasoline prices greater than $4.00 per gallon.
Crude Oil has fallen significantly from that level and has retested the $40 support level, breaking it gently in late December.Otherwise, price has found support at this level (blue line).
What’s happening now is two things.First, A multi-swing positive momentum divergence has been developing since November which could be showing either building strength in buyers or weakening strength in sellers.Divergences often precede trend reversals but clearly are not 100% accurate.
Second, price itself appears to be forming a “Rounded Reversal” type pattern as price gently heads to new lows and then curves upwards in an arc to complete a gentle, relatively pain-free (no spikes) trend reversal.Price could form a type of mirror-image of the prior decline… but to the upside.
We’ll know this will become the dominant pattern if we break above $50 per barrel any time soon, which would put price above the flat 20 and 50 day EMAs, clearing the EMA resistance.There would be Fibonacci resistance overhead, but let’s focus on the EMAs for now.
Of course, if price broke the December lows beneath $35, we would know this pattern and structure failed.It’s good to know exact price points that will prove your analysis right or wrong, which allows you to set targets, entries, and stop-losses.
Whether or not we do find a reversal here, the risk-reward is clearly skewed to the buyers, making it the cleaner position.If you enter here ($40), your stop would need to be beneath $35 but your target could be upwards of $50, $60 or greater depending on your conviction and how far price does travel if it reverses (of course, use different numbers depending on the ETF you trade, be it USO or a leveraged fund).
Use your own analysis and see if you find additional insights in the price data itself (perhaps with other indicators, etc).
Corey Rosenbloom
Afraid to Trade.com
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Conflicting Intraday Performance
February 2nd, 2009 by Corey Rosenbloom
Today marked a very rare and interesting outcome in the major US Equity Market ETFs:QQQQ rose 1%, SPY was unchanged, and the DIA fell 1%.Let’s look at this and try to see what happened.
Intraday Percentage Performance SPY, DIA, and QQQQ:
http://farm4.static.flickr.com/3367/3248787805_9f06cb023a_o.png
The chart is a little off to account for the gap.The day started with an overnight gap down in all indexes which was filled quickest in the QQQQ (NASDAQ ETF) and then by the SPY (S&P 500 ETF).The DIA (Dow Jones ETF) never actually filled the gap - it fell about 15 cents shy.
In the Dow, the worst price performer was MMM which fell $3.00 or 5.70%.The worst percentage loss came from Bank of America which lost 8.97% today ($0.59).Remember that the Dow is a price-weighted index, so dollar values carry more weight than percentage factors.See my previous post-link “Distortion in the Dow Jones.”
Technology stocks outperformed today which helped boost the NASDAQ, with Microsoft (MSFT) gaining $0.72 or 4.21%.The best NASDAQ 100 dollar performer was the Apollo Group (APOL) which increased $4.65 or 5.71%.Intel posted a 5.43% gain as well.
The S&P 500 tends to balance the Tech-heavy NASDAQ and the Blue-Chip heavy Dow Jones, which is exactly what we saw today.
I’ve actually never seen a day where the NAS was up 1%, S&P balanced with a zero gain, and Dow losing 1%.That’s quite a wide spread between key indexes that are expected to perform roughly in line.It shows that things are a little more difficult than they used to be and that we should be using more caution and selectivity in our trading.
Corey Rosenbloom
Afraid to Trade.com
I will be attending the Orlando Money Show later this week. Email to meet-up if you’ll be attending as well.I will continue posting while on travel.
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Possible Elliott Wave on the SP 500 Daily Chart
February 2nd, 2009 by Corey Rosenbloom
It’s time to update the Elliott Wave count and see what might be happening in the S&P 500 and how we might manage risk accordingly.
Possible Elliott Wave Interpretation on the S&P 500 Index:
http://farm4.static.flickr.com/3454/3248184106_c04d595898_o.png
This count assumes that the larger Third Wave has indeed completed.Refer back to my December post that asked “Which Elliott Fourth Wave are we in Currently?” as well as “Two Competing Elliott Wave Counts” for more perspective than this daily chart gives.
If indeed the monster third wave completed in late November, then we just experienced a complex corrective Fourth Wave that ended in the “Bear Trap” in early January 2009.If so, then we are perhaps in the Third Fractal Wave of the final larger Fifth Wave that will end the downward corrective impulse that began in late 2007 (which many believe is a “C” Wave of a much larger corrective pattern that began in 2000).
I know there are other interpretations, but it’s helpful to have a primary (main) count and known levels where your count will be confirmed or disconfirmed.For example, we will know if this count is most likely correct if price does make a new low beneath the November 750 lows - it will then have to become the dominant count.However, we will know the count is wrong if price breaches 900 and especially if price can make a new swing high above 950 - if that were the case, we would have to put this back into “Complex Correction” territory.
The debate with Elliott Wave should not be focused on perfect foreknowledge - there is no such thing.The benefit Elliott Wave interpretation gives you - or me at least - is knowing a probable path and then knowing exact points where that probable path will either be confirmed or discredited.In that case, you can set logical targets and stop-losses and use your own indicators and methods of technical analysis in addition to your projected pathway.
Think of Elliott as one more tool just like an RSI or Stochastic or moving average.Nothing is perfect alone but if we combine different, non-related forms of analysis, we increase the odds of being correct and in the end, that’s really all we can expect to do.
Corey Rosenbloom
Afraid to Trade.com
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Three Trade Examples in the EUR USD
February 2nd, 2009 by Corey Rosenbloom
Adam Hewison of the Market Club released a video that walks you through three specific trades taken by the ‘trade triangle technology’ which also explains how to use higher timeframes to filter signals from shorter timeframes to create a potentially more profitable trading campaign.
Entitled simply “The Euro and the US Dollar,” Adam does more than just show you the three simple trade set-ups taken using the Monthly and Weekly charts, he shares additional information that can be helpful to newer traders in terms of trade selection or trade filtering using higher and lower timeframes.You might not trade FOREX but the lessons he shows in the video are applicable to all markets.
Hewison sets up the Monthly structure and identifies the Trend and then, taking that bias, drops down to the Weekly chart for signals and entries.Clicking on the chart also brings up the video.
http://farm4.static.flickr.com/3404/3248135874_49a55554fe_o.png
If you’re a newer trader, it can be helpful to have a structured plan to help you combine two (or more) timeframes into a consistent trading strategy, and that can be a little difficult at first.
Check out his brief video to see the three trade examples and how Adam instructs you to use higher and lower timeframes, and if you feel like you could benefit from Market Club’s system that combines two timeframes with proprietary trading signals - called ‘triangles’ - that are derived from different indicators.
Corey Rosenbloom
Afraid to Trade.com
Disclaimer:I am an affiliate member of The Market Club and support their focus on continual education for newer traders.
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Clean ABC on TLT Bond Fund
February 1st, 2009 by Corey Rosenbloom
I thought that had a catchy name - ABC on TLT.What it means is that we’ve had a clean Elliott Retracement phase on the 20-year bond fund TLT after the sharp rise going into 2009.Let’s see these developments and what it might mean.
TLT Daily Chart:
http://farm4.static.flickr.com/3264/3243937249_f88cc66977_o.png
The TLT Fund broke out of consolidation pattern in November before surging to significant new highs in late December for a variety of reasons.Interestingly enough, the Stock Market held its own during this time.The 2008 low was made in November, but the market has ‘recovered’ in a corrective phase as the TLT surged to new highs.One would have thought this upward surge would have taken place as the stock market collapsed - not as it made an upward swing.
Nevertheless, the daily chart shows a clear 5-wave upward pattern that peaked above $122 per share in late December.As some readers of this blog pointed out, after such a drastic rise, there’s bound to be a nasty correction which is exactly what we got into 2009.Price has made a three-wave ABC Correction (zig-zag style) into new 2009 lows of $104.The correction may or may not be finished at the current time, but it serves as a lesson NOT to panic INTO a position when you feel price has run away from you.
Let’s pull the perspective back to the weekly chart to see just how remarkable the December price surge was.
TLT Weekly:
http://farm4.static.flickr.com/3313/3244765128_052ee0b604_o.png
Price established a steady and comfortable uptrend for all of this chart until the end of 2008 when price covered more ground in one month than it did in five years (a surge from $95 to $122 = $27.The lows of 2004 were around $65 to the breakout point around $95 which was roughly $30).You shouldn’t take that lightly.
The correction is proving to be just as steep as the rise.One may have felt safe jumping into bonds but it’s not always that easy, as evidenced by this chart.
Keep watching the TLT and other bond related funds for additional insights and be aware that the current economic environment is taking many stocks, bonds, and commodities into extremely volatile periods.
Corey Rosenbloom
Afraid to Trade.com
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Interesting Developments in Friday Trend Day Down
January 31st, 2009 by Corey Rosenbloom
Friday gave us yet another “Trend Day Down” in the market - making two in a row - but there’s something quite interesting you need to review about Friday’s Trend Day action.
DIA 5-min:
http://farm4.static.flickr.com/3440/3241786039_36aa7e62a5_o.png
Do you know what it is without looking?
At 1:00pm, all short stops were triggered, knocking trend-day traders out of their positions (unless they used wide stops) before reversing back down through support immediately into new intraday lows, officially confirming (and springing) a Bull Trap.Let’s take it step-by-step.
The day actually opened on an upside gap, which gave a low probability of a trend day (down) developing.However, the gap was quickly (instantly) filled and price then broke sharply to new lows with a large red bar.Price skirted lower and we registered a new momentum low, signaling that we should short the first pullback to the 20 EMA when it came.
It actually didn’t (officially) come at 11:00, as price failed to muster enough strength to test the EMA though a bear blag did develop and price broke down out of the flag to new intraday lows at 11:30.We should have been suspecting a trend day was developing at this point because of the positioning of the key EMAs.
Price did form a positive momentum divergence, taking us all the way up to the falling 50 EMA and knocking out any stop-losses placed by the sellers - easy come easy go.If trading were easy, everyone would be doing it!You were right to take a stop-loss there, but not right to buy (wait for the EMAs to cross ‘bullishly’ before buying).
Price then plunged over the next hour to new lows, leaving bears scratching their heads as to why they were just stopped out and price plunged to a new low.It’s an example of either choosing to use wider stops, thus opening yourself up to larger losses, or tighter stops which prevents large losses but also decreases your win ratio.One could have an entire discussion on this topic alone - it’s up to us to make the choice.
After making new lows at 1:30, price retraced into an ABC pattern that resembled a Bull Flag that took price back to the falling 50 EMA, nipping above by a few pennies.You should have noticed the doji or indecision candle that formed at resistance, along with the long upper shadows and taken that as a clue price might be about to make a new run to the downside and indeed it did.Price made new lows on the next downswing into 3:30 before reversing in a counter-move back up.
If felt like the bulls were giving it their all throughout the day but they kept falling short.It also looks like we’re heading down in a fresh downswing on the daily charts (and weekly as well).
Continue to study this day for additional insights so you can recognize the patterns and act on them in real time.
Corey Rosenbloom
Afraid to Trade.com
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Sirius SIRI Why You Should Never Buy Because it is Cheap
January 30th, 2009 by Corey Rosenbloom
I remember hearing all about how wonderful the Sirius/XM Satellite Radio merger was and how you should be buying stock and especially that you should buy because price was around $2.00 or $3.00 and if price moved just a little bit to $4.00 or $6.00 that you would double your money, not to mention if it got up to $10.00 or $20.00 over time.However, that never happened - in fact, the opposite happened, which underscores a major point in trading.DO NOT buy a stock only because it is cheap.It might be ok to buy a cheap stock, but price should not be your #1 motivating (or heaven forbid ONLY) factor.
Let’s see this play out in SIRI.
http://farm4.static.flickr.com/3394/3239612102_754b2abc09_o.png
The merger of Sirius Satellite and XM Satellite Radio took place on July 29, 2008… right where I have the arrow that points to the “Dang it!” area where I’m sure many investors figured this would be their last chance to buy because the stock was sure to skyrocket on the news of this merger and what it might mean.I’m not here to discuss the news or fundamentals - many sites do that far better than I can - but I’m here to analyze the effect on price after that event.
I remember being tempted myself in 2006 and 2007 to buy Sirius for the long-haul because the stock traded around $4.00… then $3.00 and I figured just like everyone else that Sirius was bound to be a long-lasting company and that the share price at that level was an immense bargain.Millions of other people thought the exact same thing, as evidenced by the daily volume of that time, which averaged near 200 million shares per week.
I remember also the hype around the XM Satellite Radio merger and how that was discussed so frequently at the time.Notice that on the week of the merger, almost 800 million shares traded hands that week - a phenomenal, staggering amount.However, the best play at the time was the one that was far from obvious - you should have shorted aggressively at that point rather than bought aggressively.
Technically, price had broken a long-standing down-sloping trendline which arguably formed a descending triangle (notice the resistance line from the falling 20 week EMA).After the breakdown in June 2008, price formed a bear flag retracement (or ‘throwback rally’) to test the confluence resistance of the trendline and falling 20 week EMA as overhead resistance which held, forming a type of shooting star and then collapsing into new price lows few if any thought possible.
It’s tempting to say “If I buy thousands of shares at $2.00 per share and price goes to $4.00 per share, then I’ve doubled my investment.”Moreover, it’s tempting to fall into the trap of “When a stock is cheaper, I can buy more shares.” Which sounds ’sexier’ for a $100,000 investment:
200 shares of a Google-type stock at $500or
50,000 shares of a SIRI-type stock at $2.00 ?
I’ll let you be the judge but I implore you to think beyond your greed and trade with your senses, not your emotions.Stick to middle-of-the-road companies that trade between $20 and $80 per share for investments, give up the possibility of doubling your money in a month, and work to manage your risk.
I had a conversation with a broker last night who says he has more than a few clients who want to buythousands of shares of companies - particularly financial companies now - trading less than $3.00 per share.His response to them?
“Fly out to Vegas, pick a color on the roulette wheel, bet it all, then watch them spin the wheel.Hey, at least you’ll have more fun that way and you’ll actually have better odds - 47.5% - of literally doubling your money overnight than if you bought a penny-stock!”
My thoughts exactly.
Corey Rosenbloom
Afraid to Trade.com
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Why You Should Turn Off Indicators on Trend Days
January 30th, 2009 by Corey Rosenbloom
One of the main points I’ve highlighted on intraday Trend Days is that you should remove all indicators (especially oscillators) from your chart and only use Moving Averages to guide your trading.This will serve as the explanation for doing so.
Let’s use January 29, 2009 as an example using the DIA 5-min chart:
http://farm4.static.flickr.com/3377/3239195818_5d8c79c787_o.png
You can click for a larger chart.
Before getting too deep in this chart, please read my explanation on how the ideal trades set-up in my previous post on this trend day’s interpretation.I could have shortened that explanation by saying the following (tongue in cheek):
“There were three easy trade set-ups today - sell short any time price pulled back and began to find resistance at the 20 or 50 Exponential Moving Average”
You could have exited each trade as price tested a prior low or made a new low, or more aggressively, you could have held each trade until the close, as that’s what your expectation is on a trend day - price will open at one extreme and close at the other.Pullbacks to the EMAs give low-risk entries as you would place your stop on the other side of the average.Simple, easy, relatively effortless.
But what if you don’t use moving averages or what if you base your trading on some sort of indicator (or combo of indicators)?Chances are you might do well on normal days as you capture price swings, but generally most people who use indicators suffer their largest losses on trend days.Why?
I’ve selected four popular indicators with default settings (RSI, MACD, Slow Stochastic, CCI).I’ve noted the classic (the way all the mainstream books teach you) methods of buy and sell signals.I know, you can interpret indicators differently and that is good, but for this example, let’s use the way new traders are taught to interpret them.
The RSI is perhaps the worst indicator in this example.It only gives one buy signal (price going under 30 then hooking back up) and absolutely NO sell signals (above 70 is a sell signal).This is the flaw of RSI - in powerful moves, it can never give a counter-signal, and has you buying into a strong down-trend day.
The MACD gives three complete trades (or six if you go long/short/long/short).Keep in mind that most newer traders will only take the buy signals which certainly complicates things on a trend day down, having them buy in on retracements only.If you use your own chart or look closely at this one, you’ll see that the MACD never has you buying or selling at a top or bottom swing, but it needs a little push to create a signal, so what might look good in the indicator does not translate into much profits when traded in real time. From noon until 2:00pm, you were whipsawed back and forth with losses.
Where RSI failed to give a decent number of signals, the popular Slow Stochastic gave too many, chopping you around but some trades led to decent gains.I was generous and interpreted the Stochastic to signal a trade on a crossover of %K and %D.In reality, you’re taught to take signals on a crossover ABOVE 80 or BELOW 20, meaning you would have been signaled to buy Five times and sell Two.In that case, Stochastic performs at par or worse than the RSI for the day.Again, it has you BUYING the market five times on a down day and selling it twice.
Finally, I’m showing the CCI (Commodity Channel Index) which I rarely use but is a popular indicator.It appears to have a motion very similar to that of the Stochastic.It generates four buy signals and two sell signals - equally unacceptable on a strong trend day down.
In sum, most oscillators will give oversold signals almost all day long, signaling repeated entries into a market that is falling to new lows throughout the day.If you’re going to use oscillators, you need to filter your trades or use unconventional methods to generate trades that go beyond the classic interpretation.
Or, you could completely remove them from your chart when you suspect we have a trend day developing (which can usually be done around noon) and rely ONLY on moving averages or some other non-oscillating indicator.
All in all it’s your choice - but I prefer easy over complex and what works over what’s supposed to work.
Corey Rosenbloom
Afraid to Trade.com
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Trading the Strong Trend Day Down on Thursday
January 29th, 2009 by Corey Rosenbloom
Thursday’s price action gave us yet another excellent example of a trend day, which offers us the opportunity to trade any retracement aggressively.Let’s look at the structure and key high probability trade set-ups that formed.
DIA 5-min:
http://farm4.static.flickr.com/3353/3238206996_d7c7ceedcd_o.png
The day started just as Wednesday did with a large (greater than $1.00) overnight gap.For the 100th time, it is generally not a good idea to try to fade a DIA gap greater than $1.00 as today’s (and yesterday’s) structure shows.
In such a situation, you should be waiting to sell the first pullback into key resistance for your first major trade of the day.That occurred around 11:00am as price pulled back to confluence resistance via the falling 20 and 50 EMAs.
Price then went to new lows into noon and formed a Bear Flag into confluence resistance at the 20 EMA and 200 SMA - I labeled this the Highest Probability (or Best Setup) of the Day.Note the risk-reward inherent in this trade.If you expected a flag here (as it unfolded), you had a very tight stop (just above the confluence zone) to target a Measured Move of the prior swing from $82.80 to $82.20 (roughly $0.60) which unfolded perfectly as price moved to new lows on the day at 1:00 - this was also your exit as the measured move target was complete.
Price then staggered on the day’s lows and made one more flag-like retracement to the 50 EMA which set up another opportunity to enter short to target a test of the intraday lows.The next swing took price down to new lows as the market closed very close to the absolute lows on the day - a bearish development that erased all the gains of yesterday’s bullish action.
If we break lower tomorrow, it will likely set-up yet another Bull Trap, meaning we would be almost certain to test our November lows.Study the price action for more clues and use today’s example as a great reference for how an ideal trend day should unfold.
Corey Rosenbloom
Afraid to Trade.com
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A Monthly and Weekly View of Silver
January 29th, 2009 by Corey Rosenbloom
Analyzing gold may seem difficult for traders, but let’s look at a related market - silver - to see if we can gather any insights from the Monthly or Weekly charts in this precious metal - hint:the picture looks a little clearer.
Silver ($SILVER) Monthly:
http://farm4.static.flickr.com/3468/3236444865_08b40843a9_o.png
I’ve annotated this chart with a possible preferred Elliott Wave Count so let’s take it step-by-step.
Wave 1 took us to 2004 highs of $8 per ounce before a lengthy, two-year correction held prices in a tight range on the rising 20 month EMA until price broke higher into 2006 when silver doubled to $15 per ounce and then flatlined in an “ABC” flat correction - also supporting at the rising 20 month EMA before embarking on a final up-swing to new highs above $21 per ounce which peaked in Wave 5 in early 2008.
Silver has experienced a sharp correction (much more than gold) in 2008, though we have rallied off prior support at $8 per ounce into the current overhead resistance.
From an educational standpoint, notice the slight negative divergence (flatline) between the 2006 and 2008 price peaks.
Notice further the key resistance coming in at $12 per ounce from the flat 50 month EMA and the horizontal line (not drawn) from prior support at the $12 level.Silver appears to be setting up a low-risk short at the $12 area.
Silver ($SILVER) Weekly:
http://farm4.static.flickr.com/3484/3237287762_6e993600e1_o.png
We see the $12 area again as holding temporary resistance as price formed a doji at the 200 week SMA which is also just beneath the 50 week EMA which should also help contain any price advance.Even if silver were to break through these levels, the higher probability (lower risk) trade is to the downside, as one could establish a tight stop above $13 and play for a minimum target near $9 (for a test of the prior lows).
Adding to the bearish case is the formation of a potential bear flag into these key resistance areas.A break beneath $11 per ounce would confirm the bear flag and trigger the classic entry.
As a caveat… if the Monthly Elliott Wave count is correct, then what we see here as the “flag” could actually be Wave 1 of a new upward impulse and the most likely swing down that could be next would be akin to Wave 2 which - if correct - would not make new lows.Study this on your own to see if you feel this might be the case.
Also, be sure to confirm your analysis on the SLV (Silver ETF) which - as expected - is showing a very similar structure to the Silver Index provided by StockCharts.com.
Corey Rosenbloom
Afraid to Trade.com
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SMB Video: A Day on the Street
January 29th, 2009 by Corey Rosenbloom
SMB Remote Trading recently released a video detailing one day in the life of Conor Murphy in Manhattan as he heads to the office, develops a morning plan, executes the plan, reviews his trades at lunch, and then reviews his performance after the market close.
The Video is entitled “A Day on the Street” (YouTube version) or through their website link (”A Day on the Street”) with additional commentary.
For those at home wondering what life might be like for a day trader at a solid proprietary trading firm (SMB Capital - founded by Michael Bellafiore), this video might be of great interest to you.One thing that stands out about the video is the interaction among traders all day long, from a morning meeting to discuss possible trade ideas to a mid-day video team review of trading performance, to the after-the-bell performance review.
Conor’s goal is a simple one, but it helps propel him to reach higher levels of success:“My second - and most important goal - is to not repeat the mistakes I made yesterday.”His first goal is to make $1,000 each day which, arguably, is more difficult than the second goal.
The SMB Training Blog is an excellent resource for observing how a professional trading firm operates which shows a glimpse of itself to the public.They’ve always had excellent, thought-provoking articles particularly on day-trading, so check them out if you get a chance.
Corey Rosenbloom
Afraid to Trade.com
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The Double Dip Trend Day Up on Wednesday
January 28th, 2009 by Corey Rosenbloom
We expected a price movement out of the recent coil (consolidation) and we got it today in spades.The break was to the upside which surprised many bears, but let’s look inside the DIA’s 5-minute chart to gather where we might have entered some high probability trades and learn from the day’s structure.
DIA 5-min Trend Day:
http://farm4.static.flickr.com/3319/3234824543_e8289f456b_o.png
The day started with a large-scale (greater than $1.00) upside gap that was began and was discussed last night in the post-market hours.Statistics show that it’s not best to try and fade a gap greater than $1.00 in the DIA (100 Dow Points).Price made a partial move into the gap but fell short of testing the rising 20 EMA.
Remember that in gaps, we generally have to turn off our classic indicators until they ’shake out’ the gap price from their periods - they really become useless until you do so.Price made a new momentum high, but gaps themselves serve as momentum impulses.
Price carried back up to find resistance and then consolidated as it hugged the rising 20 EMA as traders waited patiently for the announcement of any Fed policy.Today’s intraday action represents an idealized structure of what to expect on Fed Days.
Price has an initial morning gap, consolidates through the afternoon, then makes three sharp swings on greatly increased volume after the decision is given.
Price formed a major Bollinger Band Squeeze into 1:00pm (which meant place bracket entry orders outside this range) and then burst into a quick 5-wave push to new highs on a negative momentum divergence.Alternately, one could call this the “Three Push” pattern which is also a reversal-style pattern.
We had a downswing that perhaps ’should’ have found resistance at the confluence of the 20 and 50 EMA, but alas it did not and the ‘double dip’ beneath the 50 likely stole away some well-placed stop-losses.
It’s often a battle over where to place your stops - if they’re too tight, you’ll almost always be stopped out unnecessarily but if they’re too far away, though you’ll be stopped out less, you’ll also suffer larger losses when they occur.
Today’s action was a testament to the “Further Stops” crowd, as price breached these averages then made a run to try to test new highs which was cut short by the Closing Bell.
Let’s see if Bulls can consolidate these gains and hold the breakout they managed to achieve today.
Corey Rosenbloom
Afraid to Trade.com
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A Look at a Key Price in Daily Gold
January 28th, 2009 by Corey Rosenbloom
Gold prices have been confusing traders lately, as most have expected gold to be surging in this environment while in reality, it is forming a downward-sloping consolidation.Let’s take a look at a daily chart of Gold Prices to see a critical area that could give us clues about the next swing in gold prices.
Gold Daily Chart:
http://farm4.static.flickr.com/3517/3234483186_e7919daa42_o.png
Let’s start from the top.Price is in a short-term uptrend that started in November as price comes into prior resistance.However, on the weekly chart, Gold is in a down-trend channel corrective phase, so we have a conflict of timeframe trends.
The most obvious price point is the prior resistance around $920 per ounce that set in with a triple-top in early October 2008.Price tested the $920 level recently and appears to be forming a down-swing against this level, re-confirming this area as resistance.The most likely support zone for the current down-swing would be the confluence of daily EMAs around $850 per ounce.
Next, we see a Five-Wave potential fractal Elliott Pattern that took price from $700 to $920 - notice the wave labels in the diagram.An alternate interpretation of this move is the “Three Push” pattern which is a reversal pattern that forms as price makes three symmetrical swings in the same direction while forming a momentum divergence.
We have such a momentum divergence here, as price has made new swing highs while the momentum oscillator has failed to make three new highs, signaling possible weakness.
While it appears that the next likely swing would take price down to the $850 to $860 area (and then we’ll need to see what happens then to determine the next swing), price certainly could consolidate at resistance and break the $920 level.If so, we could see a rally that takes us to test the $1,000 per ounce high to test prior resistance from July 2008.
Keep watching Gold Prices for additional clues, as we stand currently on an interesting price juncture.
Corey Rosenbloom
Afraid to Trade.com
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30 Minutes in Trader Hell
January 27th, 2009 by Corey Rosenbloom
Pardon the sensational title, but I wanted to take you inside the 30-minute chart on the DIA and the S&P 500, which I will describe as “Trader Hell.”I’ll also show you the key levels to watch as we near the end of our consolidation and expect a breakout move very soon.
DIA 30-minute chart:
http://farm4.static.flickr.com/3481/3232497948_1a42bd12b7.jpg
I’ve drawn a bit more than I normally do on this chart so let’s take it step-by-step.
First, look at the zone I call “Trader Hell.”I call it this because of the vicious swings and large-scale gaps which were all contained within an unknown at the time range that halted any price move outside of it.We as traders tend to like trend moves or at least impulse moves from one zone to another, but tend to perform poorly when price stays locked in a range that only becomes clear in hindsight.
Second, look at the Momentum Oscillator, which is giving us no clues whatsoever.I take clues in the form of divergences and new momentum highs (or lows) and the oscillator becomes totally useless while price stays locked in a trading range - where we are now.
Next, look at the label “Volume Decline.”This would look better on a daily chart, but you can see that volume has ‘dried up’ as we’ve enjoyed this recent upswing in price from $79.00 to $82.50 which serves as a non-confirmation of higher prices.We’d generally want to see expanding volume on a price swing to the upside, though the divergence in price and volume is serving as an early warning.
Finally, look at the extremely tight range we’ve formed this week.We have a horizontal trendline at $82.50 and then a rising trendline that terminates currently at $81.30, locking price within a $1.00 range between significant support and resistance.
Also, the key moving averages - which lose their significance in a trading range - have turned bullish and are serving as possible support for price.This is clearer on the 60-minute chart.
In short, we’re forming a tight coil and expect price to break strongly one way or the other out of this range very soon.
Let’s look at the actual S&P 500 on the 30-minute frame to see a bit of hidden bullish strength.
S&P 500 30-minute chart:
http://farm4.static.flickr.com/3367/3232498028_34a6327751_o.png
The above analysis for the DIA is similar to that of the S&P 500, but I wanted to highlight that we’ve broken last week’s highs and are challenging resistance from mid-January’s 850 to 855 range.
We’re also experiencing tight consolidation and a sort of triangulation in price in the index which should be resolved soon.One could call it an ascending triangle (which is bullish) or one could say we’re at the upper range of a larger rectangle (which is neutral).
Whatever it is, the S&P 500 is showing slight relative strength to the Dow Jones at the moment.
Be prepared for a breakaway move and consider standing aside until we get it.The Federal Reserve is meeting and will be speaking tomorrow so be prepared for the possibility of a big move either way.Price has formed a tight balance and it might not take much to upset it.
Corey Rosenbloom
Afraid to Trade.com
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The Lipstick Indicator EL
January 27th, 2009 by Corey Rosenbloom
Some have called Estee Lauder (EL) the “Lipstick Indicator” for a variety of reasons.Let’s look at EL on a weekly basis and then view a recently released video explaining more about this ‘indicator’ from Adam Hewison of Market Club.
Estee Lauder EL Weekly:
http://farm4.static.flickr.com/3301/3231990564_ae4ec694de.jpg
From a technical standpoint, the first thing I wanted to highlight was the Relative Strength Line throughout 2008.As the US Equity Market entered a confirmed bear market and fell through 2008, Estee Lauder held its own and outperformed the S&P 500 until October.This behavior is exactly what you would expect to see from a “Consumer Staple” type company - no matter what the economy does, women will always wear lipstick and other beauty products, though it doesn’t have to be the expensive kind.Some would argue they would wear them more to feel better in difficult economic times.
Consumer Staple stocks (Estee Lauder straddles the line between Consumer Staple and Consumer Discretionary in my opinion) often experience little volatility but hold firm in up markets and down markets.This tendency was shaken dramatically in October as the price fell 50% into the worst of the economic downturn and decline in the broader stock market.
Price formed a bear flag into 2009 and has since fallen to test the November lows on the weekly chart.
I placed two red arrows at confirming locations to highlight the official reversal of the trend, as price first violated the rising trendline (blue) on the Relative Strength line at the same time price broke beneath the 20 and 50 week EMAs.Shortly after, these averages crossed bearishly, officially signaling the end of the uptrend in the stock.
Adam Hewison released a brief 3 minute video that goes into more detail about how investors use Estee Lauder as an indicator about the economy (interesting piece) and how you might take advantage of learning about this tendency.His video is entitled “The Lipstick Indicator” and here is a brief introduction to the video:
“Ladies are putting down the lipstick and picking up the necessities.US consumer have been used to spending hundreds on self-gratifying purchases.The things we once wanted are being put on the back burner to afford the things we really need.
I learned how dire times really are when Elizabeth Arden (RDEN) and Estee Lauder (EL) came out with their sales and earnings forecast last Friday.
Take a look at this video of Estee Lauder and see where we got short this stock using our “Trade Triangle” technology. What’s nice about this technology is that it can use previous market action to help you get in and ride the trend (to profit from news and earnings).”
Thank you as always to Adam and staff for sharing these videos with us.
Corey Rosenbloom
Afraid to Trade.com
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Distortion in the Dow Jones Index
January 26th, 2009 by Corey Rosenbloom
The Big Picture shares an article from James Bianco entitled “The Dow is Distorted” which addresses some recent anomalies in the components in the Dow Jones Index.
Specifically, Bianco argues that the Dow Jones is violating its own ‘unwritten rules’ that any stock that trades less than $10 per share will be excluded from the Dow Index, and at the time of this writing, four stocks traded less than $10:
Citigroup (C): $3.33
General Motors (GM):$3.38
Bank of America (BAC):$6.00
Alcoa (AA):$8.35
These were the stocks and their closing prices as of Monday, January 26, 2009.
Furthermore, Bianco explains how the Dow - as a price-weighted index - changes value.A $1.00 change in a component’s stock translates to an 8 point move in the Dow Jones Index (7.96 to be exact). Thus, it wouldn’t matter much if any of these four stocks “went to zero” tomorrow, as it would only create a slight discomfort to the Dow Index.
However, as a price weighted index, stocks whose values are greater can contribute more to the movement of the Dow Jones, such as any of the higher-priced stocks such as IBM ($91.60), Exxon-Mobil XOM ($78.60), or Chevron CVX ($71.29).
Read the article for additional information and ideas.
Despite the fact that the Dow Jones Index is comprised of only 30 stocks, it roughly matches the movements of the S&P 500 Index more than not.It may be easier to follow (track) the movements of 30 key stocks, but the S&P 500 is expected to be a better barometer of “the market,” particularly as the Dow Jones remains ‘distorted’ by the fall-out of the credit crisis.
Corey Rosenbloom
Afraid to Trade.com
A hat-tip to blog reader Vijay for sending me this article to read.
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Caterpillar CAT Confirms Bull Trap and Tests November Lows
January 26th, 2009 by Corey Rosenbloom
Caterpillar (CAT) announced today that it was laying off 20,000 employees, which sent the stock down to test the November lows and officially confirmed a Bull Trap that was sprung in early January.
Let’s see Caterpillar (CAT) on the Daily Chart:
http://farm4.static.flickr.com/3098/3228677441_386bda4320.jpg
I’ll leave the fundamental news to other websites and will only focus on the technical picture currently.
We had an official trend reversal to the upside as we went into 2009 with price forming both a higher high and higher low, then the moving averages crossed (slightly) bullishly, forming a confluence support cradle… which failed, trapping nimble bulls who bought into these bullish developments.
The Bull Trap is officially confirmed today since price has tested its November and October 2008 lows, a prospect that ’should not’ have happened if the bullish reversal was valid.Caterpillar now stands on a precipice - a careful balance.If we break the October lows of $31.61 per share (today’s low as of this writing was $31.70), then odds become overwhelming that we continue lower in the stock, but the balance comes from the fact that price could find support at this level, confirming a triple-bottom on a triple-swing positive momentum divergence.
In short, from a technical perspective on the daily chart, Caterpillar is finely balanced beween doom and hope at the moment, and it might be best to wait until a clear victor (buyers or sellers) emerges before entering a new position here.Although, this would be a decent spot to enter if you are a Caterpillar bull, because you could place your stop just beneath this level and would stand to make a good profit should price find support here.
Do additional analysis (including higher timeframes) to see the larger picture for Caterpillar, but for the moment, let it be an example of a “Bull Trap” that signaled a valid entry for bulls before price reversed, surprised them, and tested its prior low.
Corey Rosenbloom
Afraid to Trade.com
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Strong Education Stocks APOL and ESI Clobbered
January 26th, 2009 by Corey Rosenbloom
I had mentioned earlier that we were seeing relative strength in education stocks such as the Apollo Group (APOL) and ITT Education Services (ESI), both of which made fresh 52-week highs last week.However, Monday morning saw these stocks get clobbered in early trading.Let’s look at them and see this development.
Apollo Group (APOL): Daily
http://farm4.static.flickr.com/3110/3229221742_5d66588527.jpg
Apollo was “riding the 20″ meaning it was basically using the rising 20 day EMA as a trend channel support line until today (Monday) when the 20 was broken as we are getting a deeper retracement off a negative momentum divergence.
Price made new highs at $90 per share (not seen since 2004) and then immediately backed off that level as investors consolidated gains in what appears to be a profit-taking swing.Volume failed to confirm the new price highs as we saw a volume divergence develop as price broke to new highs (higher prices on lower volume).That should have tempered the bulls’ optimism.
Still, APOL has shown remarkable relative strength to the S&P 500 and many other stocks as well, but investors are letting out a bit of the steam currently.
Let’s look at ITT Education (ESI) on the weekly chart, which has a very similar structure to the APOL weekly chart, only Apollo made new highs while ESI formed a double-top.
ITT Educational Services (ESI) Weekly:
http://farm4.static.flickr.com/3090/3228375165_acf1584f75.jpg
I’ve also added a bit of Elliott to this chart.We had an “ABC” corrective wave take us down to the March 2008 lows before embarking on what appears to be a fresh five-wave impulse to the upside in both of these stocks.If this count is correct, then we’ve finished Wave 1 up into July and then formed an ABC corrective wave down into the October lows and are now in the midsts (or peaking) in a 3rd Wave to the upside with a 4th Wave down yet to come (we are likely in that 4th Wave now) and a final 5th Up still on the horizon.
Setting the Elliott Count aside, we see that price experienced resistance at the $130 level, which was the exact high as the October 2007 peak alongside the broader equity market.ESI bottomed in early 2008 as the market began accelerating its slide, though make no mistake that a plunge from $130 to $40 was a devastating corrective swing.It may be amazing to investors that the stock recovered its losses this quickly (in just over a year’s time).
Price fell 70% from peak to bottom here, and then rose around 225% from the March low to the $130 peak.This underscores a major point in investment and trading.When your account falls 70%, you don’t need a 70% rise to get you back to break-even… you actually need a 225% rise which - under all circumstances - is extremely difficult.This underscores why you need to guard diligently against major losses in your portfolio and use disciplined stop-loss strategies.It’s preferable to take small hits than it is to take one catastrophic loss if you can help it.
Still, continue to watch these and other education-based stocks to see if they continue to show relative strength or if this may be an early sign of major weakness.One would expect education-based stocks to do well in a time where so many workers are being laid off, as they perhaps return to finish degree programs or go into new fields in a competitive job market.
Corey Rosenbloom
Afraid to Trade.com
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Weekend Links for January 25 2009
January 25th, 2009 by Corey Rosenbloom
Here’s a portion of the links I compiled for the NewsFlashr Business Blog Editor’s Picks this week (which are selected from the Business Blog section of NewsFlashr) with a few extra links here.
Barry Ritholtz lists the “Six Errors” as written by Princeton Professor Alan Blinder (along with original source) and shares some of his thoughts. Six Ideological Errors that Led the Financial Crisis
Dr. Steenbarger lists key points and aspects short-term traders should keep in mind - watch the bigger picture of how markets relate to one another and how large participants and factors (affecting supply and demand) actually move markets. Macro-Perspectives for Short-Term Traders
I also wanted to highlight two other recent posts by Dr. Steenbarger:
The Importance of the Opening Price which details some of the information you can learn in the earliest moments of trading.
Also, Five Pitfalls to Avoid in Jobs with Proprietary Trading Firms - for those successful at-home traders who want to step up to trading larger size.
Mish (Global Economic Trend Analysis) asks and tries to answer the question, “Is Big Inflation Coming?“Worth the read.
Rob Hanna takes us through some of his experience and research on key strategies that don’t perform as well when using stops. This is part one of the series so check back for follow-up. Stops - When Not to Use Them
The Wall Street Nation takes a look at 13 stocks that were once bright stars - quality companies whose stock once traded at a much higher price in the past, but all of which now trade at less than $1. Once Quality Stocks Now Under $1
The Zignals Blog published a brief video entitled “What is Technical Analysis and How to Use it?” which can serve as a good introduction to those unfamiliar with the topic or where to start.
Robert Salomon lists the major business bankruptcy filings in 2008 from the list of the 231 companies who filed. That’s less than in 2001 (289) but still more than anyone would like. Notable Bankruptcies of 2008
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A Weekly Look at the XLF Financials with Elliott Wave
January 24th, 2009 by Corey Rosenbloom
With a very volatile week behind us, let’s step back and take a look at the XLF Financial Sector from its 2007 peak to present.
XLF Financial SPDR:
http://farm4.static.flickr.com/3105/3222197235_2bb78339ae.jpg
The XLF actually topped in May 2007, five months ahead of the October 2007 stock market top which underscores the assumption that Financials lead the broader market.If they continue to lead, then we’re not in a positive scenario for equities.
Price broke the November lows last week to carve in a fresh low at $8.00 per share (a level 77% off its highs), which by no means is bullish.The one slight optimistic picture is that we painted a hammer or dragonfly doji candle at these lows, though that by no means is a good enough reason to buy.
We see price as beneath all three key moving averages on the weekly chart, and they are in the most bearish orientation possible, though we are extended roughly $6 beneath the falling 20 week EMA which one would think would signify ‘oversold’ conditions but look at the 3/10 Oscillator - it is indicating that we’re not quite oversold and that we would have a bit more to travel down before we registered a new low.Anything else would result in a positive divergence, which might actually be what happens.
Notice that the oscillator made a new momentum low in November, signaling lower prices were yet to come - they came this week.
A few readers have asked me to do an Elliott Wave count on the XLF and here is one interpretation - albeit a bearish one - on the XLF.You’ll need to click on the chart for a larger image.
XLF Possible Elliott Wave Count:
http://farm4.static.flickr.com/3459/3222232039_d543a643a7.jpg
What I’m showing is the more bearish of the two possibilities, similar to that on the S&P 500.I’m showing us as having completed a fourth wave up within a larger (circled) Wave 3 down and that we are currently in fractal 5th of larger scale Third Wave down which is likely about to complete.The only two labels missing from this count at the end (right) would be the (5) and then circled 3 when this downswing is complete.
The good news with this count is that when this downswing completes, we would have put in the end of the hideous 3rd Wave down and would be entering a Fourth Wave (circled) up, which could take us anywhere from $13.00 to $16.00 before resolving back down to new potential lows mid-2009.
I call this the most bearish count because it implies that a final low will take place much lower, as the final 5th wave would terminate at a lower price that the alternate count.
The good news for BOTH scenarios is that we should expect Wave 5 to have equality with Wave 1, which was about $5.00 ($36.00 - $31.00).Because Wave 3 was a (massively) extended wave, expect Wave 5 to equal that of Wave 1 (or perhaps - most bullishly - truncate at the bottom of the major Wave 3 (circled).
The alternate - which I deem “bullish” - count is the following:
Where I have (3) at the November lows, it would actually be Circled 3 (major 3) meaning that the 3rd wave terminated at the November lows and that we now have completed a Circled (major) 4 corrective wave and that - if that’s the case - then we’re already in Circled (major) 5, meaning the ‘bottom’ would be closer (perhaps just a few more swings away) and would terminate at a higher price than the count I’ve shown.
The good news for BOTH scenarios is that we should expect Wave 5 to have equality with Wave 1, which was about $5.00 ($36.00 - $31.00).Because Wave 3 was a (massively) extended wave, expect Wave 5 to equal that of Wave 1 (or perhaps - most bullishly - truncate at the bottom of the major Wave 3 (circled).
If it seems confusing, don’t worry - Elliott Wave is not the holy grail, but it’s like any other indicator which is open to interpretation.Use it to manage risk and open your mind to possibilities and give you structure, but don’t follow it blindly.
Keep watching the XLF and key financial stocks closely, as we would expect to see strength here (which we’re not) before believing the market could recover or - dare I say - bottom.
Join the Market Club for additional analysis, commentary, trading signals, and education.
Corey Rosenbloom
Afraid to Trade.com
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Extreme Triangulation
January 23rd, 2009 by Corey Rosenbloom
As I mentioned earlier this morning, the US Equity Indexes are experiencing a strange phenomenon - let’s call it ‘Extreme Triangulation.’It’s not actually a triangle, but price is being almost entirely contained within the range of the previous day, drawing price to a finely balanced zone.Let’s view this action from multiple sources.
S&P 500 15-min chart:
http://farm4.static.flickr.com/3097/3221974820_972b30a3f6_o.png
What I wanted to highlight with the S&P 500 is the fact that we’re narrowing each day’s range as we come into balance.I’ve taken the day’s high and low and extended them fully into the next session to show how the highs and lows are compressing and price is staying completely within the prior day’s range.This is an abnormal phenomenon to occur for more than one day.
To be far, Tuesday’s action was quite volatile, but Thursday and Friday - with the exception of one nip outside the range - were both in the previous day’s range.This is telling us that the market is digesting news from all directions and is currently in ‘balance’ between buyers and sellers… and that it is likely to break soon from this balance into a trend move (or directional burst).
Let’s see this same pattern on the NASDAQ, which is showing far more volatility and gaps.
NASDAQ 10 min chart:
http://farm4.static.flickr.com/3518/3221975870_75515829f4_o.png
NASDAQ based traders have had a rough time this week, as price made perfect plunge on Tuesday, did an opening test drive on Wednesday, was quite erratic on Thursday, and made a sustained up-move after a large gap-down on Friday.Just look at the intraday action on the chart - it makes one very confused chart.
Finally, let’s sum up the action with the Russell 2000 and see its symmetrical triangle consolidation pattern forming.
Russell 2000 10-min:
http://farm4.static.flickr.com/3370/3221975866_b5678be828_o.png
Again, with one slight nip out, price has contained itself within two converging trendlines that will be forming an apex very soon about the 445 level… which is almost exactly where price is situated currently.
Price cannot stay contained within a triangle forever, and it is expected to break one way or the other (odds favor to the downside but that by no means is guaranteed).
The best play may be to place a sell-short stop around 440 and a buy (long) stop at 450 and join the market once it breaks, with the other side serving as an initial stop.That would be easier than trying to trade within the triangle or predict in which direction price will break.
Keep watching these patterns closely and do a little extra analysis on the weekend.We could have a sustained breakout move on our hands sometime next week.
Corey Rosenbloom
Afraid to Trade.com
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Server Upgrade
January 23rd, 2009 by Corey Rosenbloom
Just an administrative note, we’re upgrading servers at Afraid to Trade.com as I’ve outgrown my current plan and am transferring the site to the new server upgrade which is complete.I’m sorry if you experienced an error page today.
This will allow me to spread my wings more and provide better service to readers.
If you see any errors or missing pages or any other issues during the transition, please comment or email me to let me know.
And as always, thank you so much to all of you for your support and comments, and let’s continue to grow and learn!
Corey
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Intraday Range Compression This Week
January 23rd, 2009 by Corey Rosenbloom
Let’s take a quick look at the intraday structure developing currently on Friday’s morning trading for clues to a possible range expansion move yet to come.
S&P 500 15-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index19.png
I’ve been saying something is ‘off’ or ‘unhinged’ this week and now perhaps I have a better picture to explain that.As of 10:30am EST on Friday’s trading, the price action since Tuesday’s close has been completely within the range of Tuesday’s high and low, which is a very odd development that underscores market uncertainty, lack of direction, and range compression.
Look at January 20th 45 point range from 850 to 805 and notice that each day’s high and low since then to present has been ‘trapped’ within that range.It’s quite odd for price to go this long trapped inside one candle (or bar) on the daily chart and it’s a signal of directional uncertainty… or more accurately, it represents balance (or ‘value’) between buyers and sellers.
Also, we’re forming some sort of triangle or consolidation pattern.I’ve drawn two trendlines to show the compression - one of which is more ‘classical’ which connects spike highs and lows and the other trendline runs through meaningful closes, cutting off the spikes (wicks).Either way, we are consolidating into a narrow range.
Keep watching these zones between 810 and 835 for any price breakout which could lead to an expansion move up or down… more likely down but it’s best to wait for a break than to try to chance it sometimes (at least from a risk-reward standpoint).
Be prepared for a fastmoving market to break soon - it might not be Friday - but after a price consolidation move as we’re having now, price tends to break into an expansion move.Take advantage of that if it comes.
Corey Rosenbloom
Afraid to Trade.com
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Well at Least Half of the Day Made Sense
January 22nd, 2009 by Corey Rosenbloom
I thought I’d give one of my intraday posts a catchy title.Let’s get some insights from the intraday action and develop our experience in price behavior as we look at the intraday DIA action for January 22, 2009.
DIA 5-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index18.png
The market began the day with a large-scale (over $1.00) downside gap which made a quick attempt to fill but was met swiftly with resistance at the falling 20 EMA.Price went to new lows on the day and then formed a near-perfect “Falling Three Methods” Candle Pattern (could also be called a type of bear flag or measured move) into Confluence Resistance at a zone I call the “Cradle Trade.”This was your highest probably short so far.
Price fell from that level down to new intraday lows before swinging back twice to form two mini-bear flags - one of which (11:30am) formed into the falling 20 EMA which was a high probability, low-risk short-entry.As advertised, price fell to new lows on the day.It was around this time that you should have been thinking we were experiencing a Trend Day and casually looked past the positive momentum divergence.
Price then swung back into the confluence of the 20 and 50 EMA, setting up a short-sell continuation trade… only to be stopped out as price surged into the 2:00pm hour.
Looking in hindsight closer at the structure, we see price rose to find itself trapped in a consolidation pattern locked between the falling 50 and rising 20 EMAs - a perilous ‘no-man’s-land’ zone.It’s actually higher probability to place a bracket order both ways once you recognize a price consolidation as that and join the winning side… letting the market prove itself.
In reflection, we then set-up a “Cradle Trade” to the upside as price supported (with a gravestone doji) at the confluence of the 20 and 50 EMA just before the strong bar that catapulted us to new intraday highs, much to the confusion of the sellers on the day.
We made a new intraday price and momentum high, which suggested that higher prices were yet to come.One should have been looking to ‘buy the first pullback’ into support, which occurred like clockwork where I put the final green arrow… only that trade was stopped out as well as we crested into a deeper than expected retracement.From an Elliott Wave fractal perspective, we could have counted waves 1, 2, and 3 from the 12:00pm lows with 2:00pm being the crest of wave 3.Under this count - which I had at the time - we would expect the Wave 4 correction (which came) to support above Wave 1’s peak, which it did (though it entered the price territory slightly, causing confusion to the Count).
That retracement was a little deeper and threw some traders off their game.
We actually did get a final 5th wave up into the close, which most likely would have hit new highs or at least tested the intraday high if we had 30 more minutes to trade.But alas, we take what we get.
So in sum, the morning worked quite well with classic, price structure techniques and the trade set-ups I use, but the afternoon was quite a bit more volatile and less respective to these methods as I like.That’s why we use stops and money management - it’s about edge over time, and taking positions we suspect to have ‘edge’ from a risk-reward standpoint.
As always, take a moment to look back over the day’s activity to glean additional insights.
Corey Rosenbloom
Afraid to Trade.com
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Relative Strength of Discretionary to Staples XLY to XLP
January 22nd, 2009 by Corey Rosenbloom
Often it can be helpful to analyze relative strength charts of key stocks or sectors to get hidden insights into possible future price moves or current structure.Analysts often use the ratio of the Consumer Discretionary Sector (XLY) to the Consumer Staples (XLP).Let’s see what this might mean and where this ratio is currently.
First, a little background.
If you can subdivide all stocks into two broad categories, they might be ’stocks that do well in rising markets’ and ’stocks that hold up better in bear markets.’That’s what we’re trying to assess by looking at the Discretionary Sector, which includes retail, entertainment, gaming and stocks of companies that tend to do well when we all feel optimistic about the economy and thus are willing to spend money freely.
On the contrary, ‘Defensive’ stocks or “Staples” refer to products/services from companies that we cannot do without no matter how bad the economy is.Think of the things you do on a daily or weekly basis:brush your teeth, wash your clothes, eat food, drink beverages, etc.Companies that produce these goods might not be as interesting as a tech stock, but generally their stocks will show less volatility and will ‘hold up better’ than retail or other stocks of companies we can cut back on their products if needed.
It’s under that theory that we can assess sentiment by comparing the ratio of the Discretionary Sector to the Staples Sector.If the ratio is rising, Discretionary stocks are outperforming Staples and we would expect a risk-taking, optimistic environment.However, when the ratio line is falling, that is often a sign of pessimism or economic tightening which is what we’re seeing now.
Let’s look at the Weekly Relative Strength ratio and then compare it to the S&P 500 (gray line):
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index17.png
The red and black line represents the Relative Strength Ratio.The ratio peaked in early 2007 well ahead of the actual S&P 500 peak in October.In fact, as the S&P 500 made a new October 2007 high, the XLY:XLP was making a new low which was a hidden non-confirmation.The ratio line fell hard into 2008, stabalized through the first half of 08, then collapsed along with the market in October into new lows in November 2008.
There is no evidence of recovery or hidden strength in the ratio line at the moment.Often simple trendline analysis is sufficient to detect clues in relative strength charts.
Now let’s look just at the relative strength chart with classic technical analysis:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index24.png
I’m showing the ratio line going back to the beginning of 2007.The ratio broke its key moving averages and they turned bearish around September 2007 before it failed to break above the 20 and the ratio fell quickly into 2008.We were never above to breach the falling 20 day EMA on any meaningful basis and that’s where we stand now - the ratio has found resistance after a swing-up into the falling 20 EMA.
Looking at this ratio closely can be one way to get an early jump on the market, as can be watching the XLF Financial Sector SPDR.Keep your eyes fixed on these two critical puzzles which need to be bullish or at least show initial strength before we can expect any meaningful recovering in the US Equity Indexes.
Corey Rosenbloom
Afraid to Trade.com
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Rare Intraday Mirror Image
January 21st, 2009 by Corey Rosenbloom
Could anyone have predicted we would have a mirror image rise of yesterday’s decline?What a weird way to follow-up a large scale down day in the market - with a move of equal size in the opposite direction!Let’s zoom in to see this as it transpired and note key points in the price struture that offered good opportunities.
DIA 5-min:
http://blog.afraidtotrade.com/wp-content/uploads/012209-0402-dia21.png
The black dotted line at the top represents yesterday’s close which was again tested today, marking a shocking and perhaps unexpected reversal and leaving many people wondering “what’s up with the Stock Market?”
Again, yesterday’s price action was a Trend Day down (a forceful one) and the bias was to the downside going into today.However, price managed to zip into an overnight gap greater than $1.00 on the DIA (reduced odds of filling) which actually did manage to fill and reverse right at the lows of yesterday, filling the gap.
Price retraced in a ‘flag’ style pattern up to the confluence of the 20 and 50 EMA forming a potential bear flag pattern… that failed miserably.Price chopped for the noon hour and formed a rectangle pattern and “Bollinger Band Squeeze” play (not labeled) and price reversed its trend and closed higher on the day.
It’s at this rectangle zone where the churning and ‘line in the sand’ occurs.The expectation is that price will break downward out of the consolidation, resuming its trend, and testing/exceeding the lows.A stop would be placed gently above the 50 EMA.However, price broke to the upside, surprising the shorts and forcing them to cover which helped drive price higher into the close.
Again, the “Bollinger Band Squeeze” trade is classically unbiased in its direction, and asks you to place a buy stop above the squeeze (or rectangle in this case) and a sell-short stop beneath it, with the opposite side acting as a stop-loss once a trade is triggered.Generally, it’s good to hold the trade as long as possible, or in this case, until the close.
That’s really the only way you could have participated effectively (with an ‘idealized trade’) in the end-of-day rise, as there were no clean retracements to get you in (long) safely.
Sometimes the market will do seemingly strange things to make sure you’re awake.Wednesday was such a day.Continue studying the day’s action for additional insights.
Corey Rosenbloom
Afraid to Trade.com
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Meet Corey at the Orlando Money Show
January 21st, 2009 by Corey Rosenbloom
Orlando is host to the Money Show from February 4th to 7th 2009 and I will be there socializing and interacting and I would love to meet readers and fellow bloggers who will be attending there as well.
You can find all the details about The World Money Show from their website as to the speaker schedule and announcements.Steve Forbes will be the keynote speaker along with other notable names in finance like Dennis Gartman, Robert McTeer, Harry Dent, Jason Zweig, and many others.Andrew Horowitz of the Discipled Investor will also be speaking there.
I am more closely associated with the Traders Expo crowd, but I thought this would be a good chance to branch out and enjoy some warmer weather for a week.The focus of the Money Show - beyond making money of course - is mainly on longer-term investment trends that use more economic or fundamental analysis strategies over technical analysis, but it’s always helpful to learn as much as you can from a variety of sources.
Each seminar - with the exception of a few - is free and some of the best experiences come from the hallways where you’re able to meet with traders and investors from a variety of backgrounds who use strategies you might be interested in learning or discussing.
For those of you who are also attending, feel free to email me to let me know you’ll be there so perhaps we can catch up at the social hour, exhibit hall, or elsewhere.I’ll be in town from Wednesday afternoon to Saturday evening and will still maintain blogging during this time.
Corey Rosenbloom
Afraid to Trade.com
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Swing Trading eBay for Fun and Profit
January 21st, 2009 by Corey Rosenbloom
eBay.com is perhaps the #1 auction website out there and one would think people would turn to eBay during hard economic times to find good bargains on virtually anything, but their stock is telling us a different story.Let’s take a look at the daily and weekly chart of eBay and then see a video released by Adam Hewison that describes how one might profit from swing trading eBay using the Market Club system.
eBay Weekly Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index16.png
We see the stock peaked with the market in October 2007 and has been in a steady downtrend ever since with only a few meaningful retracement swings back into resistance (a good place to get short again).
The first opportunity was when price formed a flag into confluence resistance just before 2008 began (red arrow).That provided a low-risk opportunity to establish a swing position short and perhaps play for a ‘measured move’ swing of the flag which got its target.Price then formed a counterswing into April 08 which breached by ultimately failed to hold the 20 or 50 week EMAs.Price has made narrow corrective swings on its way to new lows beneath $12 per share.The daily chart gives a closer picture of the current structure.
eBay Daily Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index23.png
We see a multi-swing positive momentum divergence that has been in place since October 2008, though price has not completed a reversal and is currently failing at the 20 and 50 day EMA with the key moving averages in the most bearish orientation possible.A test of the $11 lows seems to be the highest probability play.
Switching gears to objective trades in eBay, Adam released an education video comically titled “Trading eBay… Sure Beats Selling Your Stuff!” in which he takes us through an overview of the Market Club “Trade Triangle” strategy of setting up the larger picture (trend) and then trading signals on the shorter time frames, a discipline which can be quite helpful to newer traders. If anything, the method is a structured, trend-following approach which can be of value to beginners.
Corey Rosenbloom
Afraid to Trade.com
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Tuesday’s Terrible Trend Day
January 21st, 2009 by Corey Rosenbloom
One might describe Tuesday’s action as a “Creeping” or “Oozing” Trend Day which never really gave a clean retracement swing to enter as price bled its way to the close.Let’s look at the DIA and take a special glance at the NASDAQ’s near perfect trend channel which pushed the Index down for almost a 6% loss in a single day.
DIA 5-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index15.png
In terms of ‘idealized trades,’ there really were about three of them, all of which came from a retracement up into the 20 EMA for a short-sell.Keep in mind, we need a decent retracement up, like the 10:00 to 10:30 five-bar rally or the four bar rally at 11:30 and then 12:30 or even the three-bar rally at 3:30.Anything else did not give a clean retracement up, meaning it ‘felt’ difficult to enter.
On a Trend Day, the ‘name of the game’ is enter in the direction of the trend and hold until the close.Generally, you usually have enough evidence to believe it’s a trend day by noon or perhaps 1:00 EST, though aggressive traders can enter earlier off a large, unfilled down-side gap at the first retracement to the 20 EMA, though that’s a more aggressive ‘trend day’ strategy.Early identification is key.
We started the day with a moderate overnight gap which wasn’t even attempted to be filled.After the impulse down into a new momentum low, price formed and completed a bear flag and Impulse Sell trade - the Impulse Sell met its target while the Bear Flag officially fell shy.Price then tested confluence resistance (the 50 and 200 moving averages).That was ‘all she wrote’ as the market fell from this area and never really looked back… and never gave a clean entry (with the exception of mini-dojis at the falling 20 EMA).
I did want to highlight an important fact - you cannot use oscillators on Trend Days - look at the flatline of the 3/10 Oscillator (a stochastic or RSI would stay oversold all day, permanently locked in a false signal).
Today was a true trend day - we opened on the exact high and closed on the exact low.
I wanted to show the NASDAQ chart, mainly to highlight the trend channel that formed for the second half of the day - that is very rare for an index.
NASDAQ 5-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index22.png
The analysis is similar to the DIA, only we fell harder (down 5.78% on the NASDAQ vs 4% on the Dow).
I again wanted to call your attention to the near perfect parallel trend channel that began around noon and ended at the close.The 20 period EMA contained all price ’swings’ to the upside.
Sometimes you can’t “Play Cute” with your trading (as in fighting a trend or waiting for a perfect retracement to enter in the direction of the trend) and you just have to throw out a market order and join the current or get left behind… or swept away if you’re trying to fight the trend and not using stops.
Look deeper for yourself into the price action for additional clues and don’t beat yourself up if you didn’t achieve the results you desired on such a creeping day.
Corey Rosenbloom
Afraid to Trade.com
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A Look at the Carnage in Financials Tuesday XLF WFC C
January 20th, 2009 by Corey Rosenbloom
Financial stocks were hardest hit in Tuesday’s market decline and I wanted to highlight the XLF Financials ETF (which broke its November lows today, falling 16%), Wells Fargo (WFC) which fell 24% today, and CitiGroup C which declined 20% today.
First, the broader XLF Financial ETF:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index14.png
I’ll take a quick view of each stock’s technical position and leave the discussion of the news and fundamentals to other excellent sites.
First, what’s most concerning is that the XLF broke to new lows, shattering its November 2008 closing low, as I analyzed it was likely to do.I mentioned there was no further support beneath the red horizontal trendline and we see that price moved like a magnet was pulling it lower down to test and break the significant lows.
Looking back, we had a flag into resistance in October and a rising trendline violation in early December and then a ‘rectangle range’ that formed until mid-January 09 which was broken to the downside.Price was unable to test its falling 50 day EMA which was a sign of weakness on the part of the buyers.Once support was shhattered at $11, bears came out of the woodwork.
This does not bode well for the broader US Equity Indexes, as today’s price action showed.Traditionally, Financial stocks lead the broader market, and if we’ve already broken the November lows here, odds are we’re going to break it on the Equity Indexes before long so watch this.
Let’s move on to a couple of selected examples that bore the brunt of today’s selling in the Financial Sector.
Wells Fargo & Co (WFC):
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index21.png
Wells Fargo fell almost 23.82% today, clearly shattering the November lows on massive volume - over 200 million shares were traded today, though that isn’t a record.
I wanted to highlight WFC because of the clean triangle formation that occurred through December which drove price all the way to the apex (point of convergence) of the symmetrical triangle pattern.I wanted to highlight the price principle “Price Alternates Between Range Expansion and Contraction.” After the careful consolidation - or balance - that formed in December, price ‘expanded’ forcefully out of balance to the downside into today’s new lows.Keep watching this company.
Citigroup Inc (C):
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index3.png
I wanted to highlight Citigroup because its share price broke beneath $3.00 per share today - a reality that was not even a remote possibility over two years ago.Volume fell just shy of 400 million shares today, which is overshadowed by a few more trading days over the last few months.
Price also formed a flag into resistance in November before breaking sharply and completing a “Measured Move” of the prior impulse down (actually exceeding it).Price formed yet another bear flag into resistance in December (notice the angle of the correction) before stalling at the 20 day EMA, testing it again, then plunging 60% from its resistance high of $7.00 per share.
We’ve made new price lows not seen since 1992!
Continue to watch the Financials for any sign of strength… though we may have to wait a while longer for life to return to these critical stocks.
UPDATE:Check out this chart from the Art of Trading which shows in graphical format the difference in selected banks’ market cap from early 2007 to preent.
Corey Rosenbloom
Afraid to Trade.com
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Possible Reversal in USO US Oil Fund and Crude
January 20th, 2009 by Corey Rosenbloom
Earlier, I showed the structure of the CRB Commodity Index and noted we might be experiencing a positive reversal, but let’s look now specifically at the US Oil Fund (USO) and $WTIC Crude Oil (Index).
USO United States Oil Fund:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index13.png
We see an almost identical structure in the CRB Commodity Index.Price is in a long-confirmed downtrend and price has found resistance at the 20 day EMA each time we’ve had a retracement there (which set-up good short-selling trades).The daily EMAs are also in the most bearish positions possible.
Against all that negativity, we do see some hidden strength, as price was recently able to break above the 20 day EMA which is often a precursor to a price reversal, and we have a multi-swing positive momentum divergence developing under price - also bullish and seen at many reversals.
If we can hold at the current levels, we would have a higher low set in place and price would most likely swing up to the $40 level at the falling 50 day EMA for a critical test.Whether or not we make it there, the risk is low compared to the ‘reward’ should we test that zone.You would place a stop just beneath the December price lows at $27.70 to play for a possible $10 target should you so desire.
We seem to be seeing a large deal of people/funds ‘taking this trade’ perhaps believing also in a bullish bias as evidenced by the volume that is surging to new highs (around 45 million shares per day).This either could represent capitulation selling or large-scale accumulation - we’ll soon see.
$WTIC Crude Oil Index:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index2.png
This chart takes Crude Oil ($WTIC) from the July highs to the December lows.Looking back, I know very vew people who could conceive of this possibility (price below $40 per barrel) becoming a reality.However, this is an example of how markets in a trend can move farther than people expect and why it can be costly to bet against a trend (and why stop-losses were essential if you did decide to trade counter-trend).
Though price has been declining, the decline cannot last forever and eventually we will have a consolidation move and some sort of reversal - we may be experiencing that reversal right now, though of course time will tell.
You can almost ‘feel’ the price forming some sort of base or ’rounded reversal,’ and it would be quite bullish to see the Index close above the $50 level to mark an official higher low and then swing up to make a higher high and take out the 50 day EMA.
Continue to watch the crude oil market closely and consider whether you might want take part in this potential move using futures or perhaps other ETFs - depending on your own analysis and risk-preference.
Corey Rosenbloom
Afraid to Trade.com
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Classic Fibonacci Clusters in the SP500 Index
January 19th, 2009 by Corey Rosenbloom
Let’s take a moment to use traditional Fibonacci retracement methods to find potential price clusters off the November lows as an exercies in multi-level Fibonacci Confluence.
S&P 500 Weekly Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index11.png
Sometimes you can get more insight from“Clusters” of Fibonacci Retracements than you can single retracement grids.
I’m using the ‘classic’ method of Fibonacci which has you draw from absolute price highs to absolute price lows.This is not the way I would do Fibonacci cluster analysis - I use a variation of this method (mainly using key swing highs instead of spike highs) but it is important to know the ‘common’ or ‘classic’ zones as they stand currently (moreso to see what others are seeing).
I the termination low is the Novmeber 741 low and I have drawn four Fibonacci retracement grids to this zone from key swing highs.
The resulting grid gives us the areas of key resistance overhead from these price lows - do not look at any Fibonacci data on this chart before the November price lows - we are asking “Where will price find resistance” or “What key confluence zones are overhead to serve as key resistance?”
Notice that since the November low, price has not even made it up to the smallest level 38.2% retracement - that which would come off the August 2008 swing high.If price does head lower from here, it would say a lot about the character of the market - that of underlying weakness that buyers could not push us up even to test this area and that bears have a firmer grasp on the market than it seems.
Of course, should price break 950, we would see significant Fibonacci confluence between 1,000 and 1,050.
It may be that this is the only retracement we get (from 741 to just shy of 950) and if so, we could be set to break the November lows with force.
Do your own Fibonacci cluster work to see if you can glean additional insights from the data.
Corey Rosenbloom
Afraid to Trade.com
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Is a Reversal Brewing in the CRB Commodity Index?
January 19th, 2009 by Corey Rosenbloom
There is a multi-swing positive momentum divergence and perhaps a new set of higher highs and higher lows developing in the CRB (Commodity) Index - but might this lead to a reversal in price?Let’s look:
$CRB Commodity Index Daily:
http://blog.afraidtotrade.com/wp-content/uploads/011909-1540-index1.png
We have a confirmed and persistent downtrend in price as evidenced by lower lows and lower highs as well as the “most bearish orientation” possible for the key daily EMAs.
However… there has been subtle, recent potential strength in the index off the December ‘08 lows.If you look closely, price failed to exceed the falling 20 day EMA (which happened at least four times in the recent past) but price formed a higher swing low at the end of December and then pushed to a new swing high at the resistance from the falling 50 day EMA.
Generally, this is a pattern that forms when a market is shifting its trend and consolidating, or building a base.Price will break initial resistance and reverse at the next resistance, which is the 50 EMA, fall again, and then attempt to break it on the next swing up.We got the swing down and if we hold the $220 index level, we will have confirmed a second higher low and set-up a break of $240 to be the official “Sweet Spot” or Trend Reversal Zone.
If that is the case, then we would have to shift the bias - at least on the daily timeframe - back to the upside, meaning gold, oil, and agricultural commodities (see each market’s individual chart) might be putting in at least a short-term or temporary bottom for a decent-sized retracement of the prior violent down-move since July.You’ll need to set upside Fibonacci targets if that is the case.
If we do break $240, a minimum target would be the falling 20 week EMA which is currently situated at $270, and we might get there quick if a break occurs.
The next confluence resistance zone would come in at $311, which would be the 38.2% Fibonacci retracement of the July peak to December low and also near the falling 50 week EMA.
However, if we break beneath $210 any time soon, any upside target would be off the mark.
Continue watching the CRB and major commodities very closely - we may be in for a surprise.
Corey Rosenbloom
Afraid to Trade.com
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A Few Weekend Links
January 18th, 2009 by Corey Rosenbloom
With the end of the weekend near, I thought it would be a good time to go over some of the selected blog posts of the week, courtesy NewsFlashr’s Business Blog section.
Mish lays out a case that argues how ’social mood’ will help shape the future in terms of retirement, inflation, government intervention, etc. Social Mood Will Define the Future.
Ever wanted a simple list of liquid leveraged ETFs for reference? Maxoian provides the 2x and 3x leveraged ETFs with monthly volumes averaging greater than 500,000 shares. List of Liquid Leveraged ETFs.
I wanted to provide a humorous link which also might get you thinking as to whether some of these things might come true! Nine Surprises for 2009
Trader Gav shares some of his experience and gives us questions we should be asking when developing a trading system. Thoughts from Trading Strategy Development.
The Dividend Growth Investor reminds us in an informative article that high yields - especially in this environment - may be attractive, but you need to do additional research before jumping all in. “Don’t Chase High-Yielding Stocks Blindly”
The Technical Take asks “What’s it going to take to find a bottom and the start of a new bull market?” The answer is “Time,” but Guy Lerner digs a little deeper than a one-word answer. “What’s it Going to Take?”
Dr. Steenbarger at TraderFeed released The Best of Trading Psychology (posts) Volume One and Volume Two.
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Intraday and Daily Financial XLF Structure
January 17th, 2009 by Corey Rosenbloom
Let’s take a moment to look at the intraday action on Friday in the XLF (Financial Sector ETF) and then see how that played out on the daily chart structure - hint… we had a non-confirmation with the US Equity Indexes which you might want to view.
XLF 5-min Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011709-2022-xlf1.png
We began the day with a nice-sized up-side gap that was quickly filled without a second thought.For evidence that the Financials tend to lead the market, the XLF filled the morning gap 3 hours ahead of the DIA and other US Equity Market indexes.
We found temporary support at the gap-fill price and formed an “ABC” Corrective pattern which formed a “Bear Flag” which quickly met and exceeded its ‘measured move’ downside target near $9.70.
From here, price continued its intraday slide into new lows at noon with nary a decent retracement… however the fresh lows formed on a positive momentum divergence that preceded the mid-day reversal into the “Three Push” pattern.
What made Friday’s “Three Push” pattern unique - to me at least - was that the momentum oscillator registered a new high on each new price high - often we see a negative divergence in these cases.I also drew a trend channel and possible fractal Elliott Wave count for you).
The price pulled back finally to confluence EMA support before closing the session down 3.0% which is a big one-day move.Let’s see how this played out on the daily structure.
XLF Daily Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011709-2022-xlf2.png
As I mentioned previously, it looks like the odds are quite high that we test or perhaps break the November price lows, a development which, if realized, would have bearish overtones for the US Equity Indexes (in that odds would then be overwhelming for them to test/break their lows as well).
The swing from $13 down to $9 occurred with only one up-day for the course of most of January so far.
We broke a rising trendline and failed to break above it on the next test which also met resistance at the falling 50 day EMA.
Again, there doesn’t appear to be any support whatsoever left until we test the sub-$9 per share level to see if buyers will step in to support price here - we’re so close to a test already.
Also, the US Equity Indexes were positive on Friday, while the XLF fell 3.0% which is a searing non-confirmation of the index gains (made on an ‘options expiration’ Friday).
Continue watching the XLF carefully, particularly the swing low at $8.67 and the broader implications should that level fail to hold price soon.
Corey Rosenbloom
Afraid to Trade.com
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Peek Over Corey’s Shoulder to his Trading Screens
January 16th, 2009 by Corey Rosenbloom
With more than a few requests to see what I see each day, and my interest in seeing how others set-up their trading machinery, I though it would be beneficial to readers for me to share a portion of what I stare at all day and allow you to take a peek over my shoulder.
My broker and chart software provider is TradeStation, though I often post on the blog using StockCharts.com.
For now, take a peek over my shoulder to my “Day Trading” set-up that I use to trade primarily the Dow Mini and DIA, though I’m showing a capture of the S&P 500 here (so as not to show my current positions):
http://blog.afraidtotrade.com/wp-content/uploads/011609-1649-sp5001.png
In short, I focus primiarly on the 5-min timeframe and look for targets/confluences on the 15 and 30 minute frames.I frequently will play off the structure on the daily chart to play swings in a target direction using the 5-min chart.
I use the following indicators, some of which I have customized:
“Floor Trader Pivots”(dotted lines)
Candle Charts
20 period EMA
50 period EMA
200 period SMA
Bollinger Bands
“3/10 Oscillator” (blue oscillator)
Custom ADX (showing as red and green line)
I’m also watching the TICK and TRIN along with the Breadth (net advancers and decliners).I have a separate screen for trading execution (which I often manage with bracket and OCO/OSO orders) and RadarScreen scanning (second monitor, though I’m not showing the Trade Execution module).
Finally, here is a quick photo of my main trading computer set-up:
http://blog.afraidtotrade.com/wp-content/uploads/011609-1731-sp5001.png
I’m using a Dell 8-gig RAM (a monster), 64-bit Windows computer with a 24-inch widescreen main monitor with a 21-inch montior I have in a vertical position for additional use with TradeStation and applicable news as needed.It comes in hand for browsing websites after market hours.
I also have two additional computers not used for trading and my primary laptop which I use for the blog and email.I use the most powerful computer only for Trading and Analysis and do anything else on other computers which is sort of paradoxical but essential - I’ve waited so long to get such a powerful machine and I love it, though I only can use it for a couple of programs.That’s discipline!
I currently don’t have a need for much else as my style of trading - though mainly daytrading - is more relaxed than aggressive intraday strategies - I usually take around 5 trades a day and hold them sometimes for an hour or longer depending on the set-up and price structure.
I’d be happy to see other system set-ups if readers are willing to share them in the comments section and I feel it might be beneficial to us all.
Corey Rosenbloom
Afraid to Trade.com
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Top Ten SP500 Stocks Close to 52 Week Highs
January 16th, 2009 by Corey Rosenbloom
Though we’ve been in a bear market for over a year now, there are a few pockets of relative strength.Let’s look at the Top Ten S&P 500 stocks that are either making or are closest to their 52-week highs.
http://blog.afraidtotrade.com/wp-content/uploads/011609-1545-sp5001.png
Apollo Group is the only stock in the S&P 500 currently making a 52-week high.Another education related stock - ITT Educational (ESI) - also hit a fresh 52-week high (though it’s not in the S&P 500 Index).This seems to make sense, as the economy deteriorates and workers become unemployed, they turn to re-education in the form of online classes or formal classroom education.Continue to watch those stocks.
I’ve posted a weekly chart of Apollo Group (APOL) below:
http://blog.afraidtotrade.com/wp-content/uploads/011609-1545-sp5002.png
Though we’re making fresh annual highs, we’re just shy of the $95.00 per share peak achieved in 2004.
The 52-week high “Channel” Graph displayed above lists the 52-week highs and lows and then describes where price is currently as a percentage of the range between the 52-week high and 52-week low.It gives a little more information than just comparing price as a percentage off its highs (as an example, if a stock’s 52-week high was $100 and the 52-week low was $50, and price was currently trading at $75 per share, the percentage would be returned as 50%).
We’re seeing strength in Healthcare and Consumer Staples stocks which is to be expected in a down market, however those stocks above are not making new highs yet.A bear market tends to take virtually all stocks down, though some ‘hold up better’ than others.
You can use a list like this to find strong stocks as a long (buying) hedge to any short positions you may have in your portfolio using a type of “strong stock in strong sector to offset weak stock in weak sector” strategy.
If anything, it gives you some interesting information and additional stocks to scan for possible trading or investing opportunities.
Corey Rosenbloom
Afraid to Trade.com
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Absolutely Fascinating Intraday Affairs
January 15th, 2009 by Corey Rosenbloom
Today provided a plethora of material to discuss in terms of the “idealized intraday trading” set-ups, so without further delay, let’s look at these on the DIA 5-min intraday chart:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50019.png
The day started off normally (no gap), given that Apple’s announcement that Steve Jobs was taking a medical leave of absence brought expectations of a down-open.Ultimately we got that initial swing down, but surprisingly it didn’t come in the form of a gap (the futures were actually up prior to the open).
So the first push was to new lows which also formed a new momentum low which hinted that lower prices were yet to come.We got a quick two-bar retracement that set-up a bear flag that got its target and took us yet again to new lows on the day on another new momentum low that again hinted that the absolute price low was yet to come.
We got a decent retracement into the falling 20 EMA and formed two dojis in a row which were absolutely ideal ’short-sell’ entries with low risk.The stop was just above the 20 EMA and the minimum target was a test of the 10:30am lows - that’s what I call the “Impulse Sell” trade.It met and exceeded its target as we made new lows again on the day… this time with a significant positive momentum divergence.
If you look closely, you’ll see that the downswing from 10:00am to 10:30, the retracement from 10:30 to 11:30, and the down-move from 11:30 to 12:30 formed an ideal “A to B equals C to D” Measured-Move pattern.
Once we made new price lows on a positive momentum divergence, that should have been a clue that at a minimum, we’re headed back to test the 20 EMA and perhaps the 50 EMA and also that the 12:30 lows *might* just be the lows of the day (more times than not, intraday lows are formed on positive swing divergences just like this one).
Of course, there’s no way you could have guessed how strong the retracement move up (which converted into an impulse move up) could have been, but your #1 clue that we had shifted from a bearish posture to a bullish one was when price shattered the 20 and 50 EMAs with no resistance and then pulled back to the “Confluence Support” Zone that formed just before the EMAs crossed ‘bullishly.’Price surged to new intraday highs after this pattern set-up.
We made a new price and momentum high at 2:00pm, hinting that the actual price high was yet to come and it did so also on a new momentum high at 3:00.Price formed a deeper than expected counter-swing back down just beneath EMA support to close strongly on the day, calling the recent daily downswing into question by forming a bullish doji candle on a (likely) successful test of the daily Bollinger Band.
Continue to study the day’s action for further insights - there were many excellent and informative patterns that arranged themselves during the day that might warrent your further attention.
Corey Rosenbloom
Afraid to Trade.com
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Gap Fade Stats for December 08
January 15th, 2009 by Corey Rosenbloom
It’s time again to look at the simple Gap-Fade statistics for the month of December 2008!Let’s compare gaps on the DIA (Dow Jones ETF).
First, the graph, showing the trigger size for a ‘gap’ at $0.30 (roughly 30 Dow Points):
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50018.png
Of the 21 trading days in December, 19 showed some sort of overnight gap, and of those, 15 gaps filled, giving us perhaps a record ‘monthly fill percentage’ at 79%.
Every single “Down” Gap (n=7) filled in December, while 8 of 12 “Up” gaps filled.
The average Up-Gap was a large $0.81 while the average Down-Gap was a staggering $1.29.
Let’s adjust our threshold for a gap to $1.00, which is generally considered a ‘large scale’ gap.
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50025.png
In terms of days with an overnight gap greater than $1.00, December was a good month - from a percentage basis - for gap-faders (though this analysis does not take into consideration any stop-loss strategy).What I’m testing is whether price at any time during the day equaled yesterday’s close after a gap that met a certain threshold.
There were 7 trading days that had a gap of at least $1.00, and 5 of these gaps filled, giving us a ‘large-scale’ gap fill percentage of 71.4%, which is as large as I’ve seen that percentage for any month I’ve analyzed so far.
Again, every single down-gap was filled while zero up-gaps were filled which is interesting.
I’ll soon be posting a similar analysis for all of 2008 using different metrics - it should be quite interesting given all the volatility of 2008.
To see the results from all months in 2008, view the following posts:
January Gap Fade Statistics
February Gap Fade Statistics
March Gap Fade Statistics
April Gap Fade Statistics
May Gap Fade Statistics
June Gap Fade Statistics
July Gap Fade Statistics
August Gap Fade Statistics
September Gap Fade Statistics
October Gap Fade Statistics
November Gap Fade Statistics
Corey Rosenbloom
Afraid to Trade.com
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A Look at XLF Financials Sector
January 15th, 2009 by Corey Rosenbloom
We need to pay attention to what the Financial Sector is doing on its charts because it has a tendency to lead the broader market, and many eyes are focused on news from this sector.Let’s take a quick look at the Daily and Weekly charts of the XLF.
XLF Weekly:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50024.png
A quick overview tells us we don’t want our portfolios anywhere near the Financial sector, at least from a trend perspective.Price continues to make lower lows and lower highs while the moving averages are in the most bearish orientation possible.
Rather than making a positive divergence like the broader indexes did in November, the XLF weekly momentum actually made new lows, hinting that new price lows are yet to come.The momentum oscillator is ‘rolling over’ and cracking through the red ‘trend’ line at the moment.
From a cursory glance, it would appear that we’re in the down-swing now that will break the November lows, which bodes negatively for the broader market.Let’s drop down to the daily chart for more insights.
XLF Daily:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50017.png
Again, we see a similar picture in that the trend is clearly confirmed as down, the moving averages are in the most bearish orientation possible, and price appears to be in a downswing that will take us to new lows in 2009.
We did have a positive momentum divergence in November, but that was quickly worked out and now no longer has much influence on the price action as sellers are claiming the momentum again and could push us to a new momentum low as price falls to test support at the November lows.
Also, you can draw various trendline interpretations, but what I’ve down is shown a rising blue trendline has been broken to the downside and confirmed as resistance to the upside (just shy of the falling 50 day EMA).
Also, I have us breaking down out of a descending triangle which is classically a bearish pattern with a measuring objective that takes us down to the November lows.
There is absolutely no further support to stop us from hitting the sub-$9 per share level and odds are that momentum (sellers) will continue, forcing a new price low in 2009 which most likely would precede a new price low in the S&P 500 and other US Equity Indexes.
Continue to study the XLF charts and apply your own analysis and be aware of what it might mean for the broader market.
Corey Rosenbloom
Afraid to Trade.com
6 Comments | add comment
A Look at Apple AAPL’s Trend Intraday and Daily
January 14th, 2009 by Corey Rosenbloom
I thought I’d do something a little unique tonight and describe Apple’s trend day down today and then show the daily chart structure.With everyone now discussing Apple CEO Steve Job’s departure announcement today, I thought it might be nice to see the technical structure and explain how news events like this can instantly destroy the most perfect technical (analysis) balance.
First, the “Trend Day Down” Example on the 5-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50016.png
Similarly to how I analyze trend days in the DIA 5-min chart, I thought I’d shake things up a bit and look at the Trend Day Wednesday’s price action gave us.
We began with a large (greater than $1.00) downside gap which was the first clue we might have a trend-day underway and price never really looked back from this point.
We developed a mini-rounded reversal pattern on a momentum divergence that took us up to the falling 50 EMA at noon to set-up an “Impulse Sell” trade - or resistance trade (notice the doji at resistance) which offered better risk/reward to the short-sell side.Price went on to make new intraday lows at 2:00pm after pulling back one more time to give a quick sell-signal at 1:00pm.
Price formed a similar ’rounded reversal’ which only gave us a retracement that took us back to the falling 50 EMA, breaching it on an intra-bar basis (hopefully not snatching away your stop) and then price plunged to new lows before the close of the trading session…
Unfortunately for any Apple investors or bulls, Steve Jobs announced he will be stepping down as CEO until June 2009, a possibility many Apple investors feared (Jobs leaving), and reacted negatively each time there were rumors about his health - Tim Cook will take over the responsibility for now.That brings us to the finely balanced daily structure which most likely will shatter forcibly to the downside tomorrow.
Now, Apple’s (AAPL) Daily Structure and Price Support… which is about to be shattered.
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50023.png
The price is finely balanced on key support about the $85 per share level, which could have been viewed as a classic buy signals off support for the potential for a reversal in price.That may still happen, but we’ll have to deal with a potentially significant gap Thursday morning (as of this writing, Apple shares are trading after-hours at $79.30 per share, clearly breaking the support level).
We even had a multi-swing positive momentum divergence to help build the bullish case, though technically price was beneath all key daily moving averages and the averages themselves were in the most ‘bearish orientation possible,’ and price has not made a higher swing high in quite some time.
This also serves as an example why we can’t rely on any magic indicator, analysis, or formula.Could anyone have seen Mr. Jobs breaking this news before-hand?Can any indicator do so?Absolutely not.That’s why we trade with stops and with wise position sizing, such that one loss - or a series of losses - cannot take us out of the game.
Shorts will cheer the news, investors will lament it, but one thing is virtually for certain - price will move swiftly on the news and the almost certain path is to the downside.
Watch how this plays tomorrow and how it might affect (bring down) the broader stock indexes, particularly the NASDAQ.
Corey Rosenbloom
Afraid to Trade.com
2 Comments | add comment
New FOREX Video: Hewison’s Favorite Market
January 14th, 2009 by Corey Rosenbloom
Adam Hewison of the Market Club just released a new video entitled “Making Money in FOREX” where he describes some of his experiences in FOREX and also analyzes the EURUSD Cross (Euro and US Dollar).I always try to share these videos with you due to their educational nature and simple, introductory explanations.
Hewison and staff spend a good deal of time analyzing and discussing FOREX markets and their trends.I’m posting a portion of the introductory text of the video which explains a bit of Mr. Hewison’s history in the market.
As a disclaimer, remember that all trading involves risk and that there are absolutely no guarantees of success using any system and that I am an affiliate member of Market Club.Members receive access to additional videos as they are released.Although I analyze FOREX and currency index markets, I do not trade them myself.
With that being said, here an introduction to Adam Hewison’s new FOREX Video:
“The foreign exchange market is the biggest market in the world by far. It is traded all around the world, six days a week, twenty-four hours per day. It also happens to be one of my all time favorite markets! I personally find it is easy to predict, with trends tending to persist for long periods of time.
So today we’re going to look at the Euro (EUR) against the US Dollar (USD). I’m going to show you the last few MarketClub signals that were generated by our “Trade Triangle” technology. This will give you an indication of just how profitable trading forex can be. You just have to remember a few rules and have the right tools on hand.
I’ve had the good fortune of trading markets like these around the world. I started my career in the pits of the Chicago Mercantile Exchange (CME). Later, I traded for a private family fortune in Geneva, Switzerland. I found that trading forex gives you the leverage you need to pull large returns.
I am excited to share this new 7-minute video with you.It is very important when you are trading in any market to be very, very, disciplined. You must also have a game plan and understand the rules of the game. If you get into forex trading just on a whim, you’re going to be burned… that’s almost a definite. If you approach the forex markets with respect and a game plan, you can do extraordinarily well.
Take a few minutes, check out this video, and see how it could possibly work in your own trading. As many of you know, brokers love us because we are not brokers, we simply provide educational material to help traders improve their trading.”
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We’re All Set to Test or Break the November Lows
January 14th, 2009 by Corey Rosenbloom
From a technical analysis standpoint, we’re officially on course today to test or break beneath the November 2008 lows in the US Equity Indexes - it’s now the highest probability play.Let’s see that development on the Weekly and Daily charts:
Weekly S&P 500:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50015.png
First, is it a certainty?No, but I’ll make the case that it’s the most likely outcome of today’s early morning downside break.
On the weekly chart, we see a significant new momentum low in October which tends to precede price lows - we did get the price lows in November, but one cannot discount the strength of that momentum low to lead to continuation.
We got two retracements since October, and it would appear the current retracement up that fell just shy of resistance via the falling 20 week EMA at 975 and now it ‘looks like’ we’re entering the next down-swing expansion move.
If you look at the retracement from November, it looks like a rising trend channel or more specifically some sort of bear flag pattern (perhaps a wedge).There are bearish implications for such patterns.
The larger structure is clearly in a downtrend, price continues to make lower lows and lower highs, and the orientation of the moving averages is as bearish as it gets.
Daily S&P 500:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50022.png
Let’s focus our attention now on the daily chart.Again, as in last night’s post on the S&P 500, the analysis still stands.In sum, moving averages in the most bearish orientation, trend still confirmed as down, price forming a consolidation pattern.
What could make this move quicker and more painful for the bulls is the Bull Trap that lured them in once price broke above EMA resistance for the first time in months and formed a ‘confluence buy’ trade… before reversing.The move down is likely to be even swifter as their stops are taken out one by one on the way down.
Also, we’ve now officially broken downwards out of either a rectangle pattern or an ascending triangle (also which trapped the bulls - we did have a breakout of an ascending triangle which lured more bulls in - they will be stopped out on the way down).Patterns with false breaks tend to have stronger moves in the *opposite* direction.
This is something I haven’t heard anyone else mention, but that we’re in the midst of a “Bollinger Band Squeeze” where the volatility bands have compressed into a narrow range - often we get powerful moves that come out of such patterns which are based on the principle “Markets Alternate Between Range Contraction and Expansion.”I’ve been warning to expect a price expansion move - one just can’t be certain in which direction the move will expand.That direction seems clearer now.
Finally, there just isn’t any logical technical support, like a Fibonacci retracement (they’re all *above* price) or key Moving Average.There’s not even a meaningful swing high or low to halt price until it touches the November lows, which is the whole point behind the notion of a “test” in the market.
Without going into detail here, if you employ Elliott Wave Theory, then you’ll know we’re in some sort of Wave 4 corrective phase and have now most likely opened up into either the large-scale Wave 5 down or the smaller fractal Wave 5 of the larger Wave 3 - either interpretation would have us testing or more-than-likely breaking the prior lows as most Wave 5’s do (see my post “Two Competing Elliott Wave Counts” to see these possibilities).
In sum, nothing is guaranteed in the market, but it appears to me at least that the odds have now shifted solidly in favor of price making an expansion move that takes us down to ‘test’ the November lows of 750, and I would further assume that buyers would fail and that price would be taken out - but we’ll cross that bridge once we get there.
Corey Rosenbloom
Afraid to Trade.com
18 Comments | add comment
A Tuesday Look at the SP500 Index
January 13th, 2009 by Corey Rosenbloom
It’s not quite mid-week but the S&P 500 (and other US Equity Market Indexes) have broken significant moving average support and are hoving near a critical floor that - if broken - would set-up an immediate test of the November lows.Let’s look.
S&P 500 Daily Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50014.png
Before getting into ‘prediction,’ let’s see how we got here.
First and foremost, the price remains in a strong and often confirmed downtrend on the daily chart as confirmed by lower highs and lower lows and also the moving averages being in the “Most Bearish Orientation Possible.”Do not let this pass by your attention - it is very basic.
Price made a lower swing high at 1,000 in November and then made a new swing low beneath 750 (breaking the 2002 bear market low) also in November - price has rallied between those levels in a corrective consolidation pattern ever since.
Officially, we’ve formed a ‘rectangle’ or parallel consolidation pattern, but there’s something insidious which might just preclude further downside.At the start of 2009, price broke above key resistance from the 50 day EMA, a development which hasn’t occurred (with any follow-through) since May 2008. It could be that this ‘poke’ above the average will fail to give follow-through as well… and if so, then we’ll have a significant Bull Trap on our hands and any downside tip in price here would send them covering a good deal of their shorts (seeing as that price was not ’supposed’ to break the 50 and 20 confluence EMA support).
The S&P 500 now remains tightly coiled and balanced between 850 and 950.If sellers can push the index beneath 850 (8,300 on the Dow Jones), then it could force an immediate and swift test of the November lows as there would be nothing left to support price until it hit that level… possibly breaking it (but we’ll discuss that when we get the test).
For now, I’d recommend day-trading inside this range until the range breaks (no one can be certain in which direction it will break, though odds certainly favor a downside break) and then play for a range-expansion swing move once we get a break out of the current rectangle which - literally - could come any day now.
Until then, hold tight and try not to be too aggressive if you can help it.
Corey Rosenbloom
Afraid to Trade.com
11 Comments | add comment
A Look at the Recent Strength in the Japanese Yen
January 13th, 2009 by Corey Rosenbloom
The Japanese Yen Index ($XJY) has been rallying quite sharply in the last few sessions, which might be of interest to you from a cross-market relationship point of view.Let’s look at the daily and 15-min chart of the Yen Index.
Japanese Yen Index ($XJY) Daily:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50012.png
If you look at a longer timeframe, the Yen Index has been rallying since 1998, with intermediate (higher) bottoms in 2002 and 2007.Structurally, this rally shown here is a “Measured Move” projection from a large bull-fiag that is completing on the monthly chart (the target of roughly $112 has been achieved).We could see a possible reversal from this level.
Price broke back above major confluence resistance in September, held a test of the three moving averages, and broke strongly into a new rally.During this time, any pullback to the rising 20 EMA was a good, low-risk buying opportunity which continued until the average was broken in January 2009, though price found support at the rising 50.
The current pattern is frequently how reversals can set-up, as price first breaks support at a shorter EMA then finds support at a longer EMA before breaking it - watch to see if this pattern unfolds in the Yen.
In addition, we have a negative momentum divergence that is persisting, though in strongly trending environments, it’s often best to discount the value of oscillators in general.
Now, let’s focus in on the 15-min chart to see the stellar move that has just occurred since January 09 began.
Japanese Yen Index ($XJY) Intraday:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50021.png
This chart is more for me to discuss pattern recognition in a strong trend, rather than discuss the profundity of a rising Yen and what that might mean across other markets.
I did want to highlight price structure in a strongly rising trend from birth to possible end.We see a bottom on January 6th as price tested and held the daily 50 EMA and price burst into a sharp rally that took the index from $105.50 to $112 in a matter of days.
I highlighted the ’spot of highest probability’ or “sweet spot” that allowed you to play with greatest odds and reward potential the zone of reversal - which was after the EMAs crossed ‘bullishly’ and price came down to test support at the confluence point of the 20 and 50 EMA (the first ‘test’).This was the lowest risk, highest probability zone, as your stop would be slightly beneath this level and you would hold the trade as long as you could, or until we broke beneath the 20 or 50 EMA, depending on your trading style and risk tolerance.
Again, notice the multiple divergences that set-up as price continued to make new highs.Divergences can warn of trend reversals, but more divergences occur that do *not* precede reversals than those that do - particularly in strongly trending environments.Also, divergences are only ‘good’ for a pullback to the 20 EMA in most cases.
Continue to study the structure of the Yen Index for additional clues, and in addition, what implications it might have on the other markets.
Adam Hewison and staff at the Market Club frequently provide informative commentary and offer proprietary trade signals specifically in FOREX and other markets.Check them out for additional information.
Corey Rosenbloom
Afraid to Trade.com
4 Comments | add comment
Monday’s Average Trend Day Down
January 12th, 2009 by Corey Rosenbloom
The market gave us another “Trend Day Down” structure Monday - let’s take a look inside the DIA 5-min chart structure to see choice trading opportunities within the swift down-current that was so pervasive all day.
DIA 5-min Chart:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp50011.png
As volatility begins to pick back up in the marketplace and a clear direction emerges - not saying we’re there yet but when it does - then expect more of these trend days that open at one extreme and close on the other.Learn how to trade a trend day.
Generally, trend days start with a large, unfilled morning gap and price continues in that direction all the way to the close.Today, we didn’t get a large gap (though it was $0.40 in the DIA) and price scarcely attempted to fill that gap.
Our first “Ideal Trade” of the day was an “Impulse Sell” that formed on the rectracement against the new price and momentum low (as price pulled back to the falling 20 EMA and formed a doji).Price quickly swung down an dmade a new low into noon (on a momentum divergence) as price chopped around in a rectangle pattern (specifically a “Measured Move” price equality pattern… or A to B = C to D).
Though we might should have suspected a trend day, during this consolidation, price could have broken either way and may have turned into a “Rounded Reversal.”Ultimately price broke sharply to new lows after testing the falling 50 EMA (setting up another “ideal trade” and threatening any stop-losses properly situated above it).It was at this point (2:00pm) that a Trend Day structure was confirmed beyond a reasonable doubt.
As such, you were to short any rallies to the 20 period EMA. Notice that doing so ‘worked,’ though price formed a “Three Push” reversal pattern to close out the day’s trading, though it found resistance at the falling 50 EMA.
Remember, during a trend day, it’s best to ‘throw away all indicators’ and focus exclusively on the moving average structure, setting up trades on retracements.Oscillators tend to give false signals as price continues to get more extended in a given direction.
Corey Rosenbloom
Afraid to Trade.com
12 Comments | add comment
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Two Competing Elliott Wave Counts on the SP 500
January 12th, 2009 by Corey Rosenbloom
Revisiting our discussion on “Which Elliott Wave 3 are we in Currently?” the question has now shifted to “Which Elliott Wave 4 are we in Currently?” as evidenced by these two possible wave counts below.Let’s take a look at these competing interpretations and discuss which might be the more probable - or palatable - scenario.
First, the “Wave 3 is Finished” Chart with Projection:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp5001.png
I’ll try to let the charts speak for themselves.Most Elliott interpretations are in sync with the circled 1 and 2 waves, but it’s the other circled or ‘large scale’ waves that are open to interpretation.I’ll jump into discussing these waves only.
Under the first scenario - which I deem the more ‘bullish’ assessment because the termination point of Wave 5 is higher and the down impulse is only 5 more waves away from ending completely - we have already completed fractal wave 3 and are now in… or perhaps even ending… Corrective Wave 4 up.
If this is the case, then look to the bottom left of the chart where I’ve drawn a projection of the next expected 5-wave decline which should take us to S&P value 700 or beneath.We’ll know this is the official count if we break the 750 November low.
This scenario fractalizes the 3rd wave and has the “third of third” be extended as expected.You can see how I’ve labeled each fractal wave.
I did want to note a similarity between the currently labeled circled “Wave 4″ and the circled corrective Wave 2 - both of which look quite similar (and might suggest there’s still a little bit of time left in this wave for equality of time).However, the corrective wave looks like a ‘flag’ or perhaps a ‘wedge,’ both of which are bearish short-term.
Let’s now look at a more ‘bearish’ count that has us still in large-scale (circled) Wave 3 down.
Second, the “Wave 3 is Still Going On” Chart with Projections:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp5002.png
I feel bad even bringing up this possibility, and I refer to this count as a more ‘bearish’ count because it assumes that we have 13 more ‘waves’ to go until we reach the official ‘bottom’ and that the bottom will occur perhaps much lower than the previous count - perhaps as low as 550 (some counts even have us going to 450).
Under this count, large-scale (circled) wave 3 is still going on, and that we are either in fractal 4 of circled 3 or are just beginning the first wave of fractal 5 down which would imply that the end of the 3rd wave down - which started in May 2008 - would end at or beneath the November lows.
To add a bit of bullish spice to this count, if this is the case, then we’ll have a large-scale circled 4 wave up which could take us as high as 1,100 or beyond… before price collapsed into the final circled 5th wave which could take us down to new lows not seen in over a decade.I’ve idealized the projected count at the bottom left of the chart for you.
The red arrow marks a “you are here” point.
I wanted to share these competing counts and open up the page for discussion for your thoughts and analysis to share with each other.
Corey Rosenbloom
Afraid to Trade.com
28 Comments | add comment
NewsFlashr Editor Picks for the Weekend
January 11th, 2009 by Corey Rosenbloom
Here’s a list of posts selected from the NewsFlashr Business Blog section which I wanted to highlight as the weekend draws to a close.
Dr. Brett Steenbarger begins volume 1 of the “Best of Trader Feed” posts focusing on psychology… stay tuned for additional volumes: Trading and Market Psychology: The Best of 2008
Charles Kirk shares a very thoughtful list of numerous lessons learned through the course of 2008: A Must Read! Lessons Learned in 2008.
The VIX and More site takes a look at a Put-Writing Options strategy that you may want to incorporate, and also provides a link for more information. Find out what the strategy is! The Often Overlooked Put Writing Strategy
Sage advice from the Stock Chartist - here is a quote: “That blind spot is looking charts in only one time frame and usually ignoring the longer term picture…. Bottom line, whenever you read or hear market comment, do it with a clear understanding of your trading style.”Objectively Understand Your Trading Style
An educational post from Precious Metal Investment on a precious metal other than gold or silver that you might want to learn: What is Palladium and Where Does it Come From?
The Microcap Speculator site describes the “January Effect” which is a tendency for small caps to outperform large caps and provides four linked articles to learn more to develop a strategy: Microcap Seasonal Strategy.
The Dividend Growth Investor reveals the “Worst Nightmare” for dividend-specific investors and provides an explanation of why companies might cut dividends and what that means for investors: Dividend Cuts: The Worst Nightmare for Dividend Investors
Corey Rosenbloom
Afraid to Trade.com
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NewsFlashr Launches New Editor’s Picks Section
January 11th, 2009 by Corey Rosenbloom
I’m happy to announce that the NewsFlashr site - particularly the Business Blogs section - has launched a new feature entitled “Editor’s Picks.”I’m also honored to announce that creator Gal Arav has asked me to be the section’s first editor!
We have assembled a companion site entitled “NewsFlashr Business Blog Picks” that serves as a website to provide the feed to the NewsFlashr page.
NewsFlashr is becoming a standard as an up-to-the-minute news aggregator that sorts headlines by topic and interest which allows you to see the top stories across Business, Politics, Sports, Entertainment, Science, Health, Tech, and World news from a single page.You can instantly browse the top sites and also selected blogsites in these categories to have a quick handle on what’s being discussed or making news as it happens.
In the past, I had been focusing on the Business Blog section and selecting what I felt were the most interesting headlines/blog articles I thought readers would find most valuable and posting these links on my site most weekends for readers to review.
The new “Editor’s Picks” section is a formalization of this process which calls reader attention to some of the top posts on the Business Blog section as a means to provide an additional resource of articles and mainly to save you time from browsing each article of every business blog on the site.Currently, NewsFlashr.com lists 73 Business Blogs which each display the 8 most recent headlines as provided from their feeds - that’s almost 600 headlines for a person to view!
What the Editor’s Pick section aims to do is provide you the top 8 hand-selected headlines on a bi-weekly basis (usually Wednesday and Sunday) to allow you to scan all the headlines you wish, but focus on 16 articles per week that is selected to be either the most interesting, most informative, most creative, or perhaps humorous articles out of the whole 600 headlines.
I will be unbiased in my selections and will focus on headline/article content, rather than site name/reach.Feel free to submit an article for consideration (using the email link) either as a reader or a blog author - this is going to be a difficult task to select the best headlines (as in my first draft, I wanted to highlight 20 or more posts but could only select eight!).
I hope this can be a beneficial resource for you, as my aim is to save you time and provide you with a selection of the best quality posts for the week.
Corey Rosenbloom
Afraid to Trade.com
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Quick Count of the Australian All Ords Index
January 11th, 2009 by Corey Rosenbloom
How might the Australian All Ords Index gives us clues as to the possible resolution of the S&P 500 Index?It might do so by having a relatively clearer Elliott Wave pattern to view.Let’s take a quick look at the Index and a possible Wave Interpretation.
$AORD Australian All Ords Index (weekly):
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post14.png
We’ll start the count at the October 2007 highs which was the same time the S&P 500 Index peaked.
In both the S&P 500 and the All Ords Index, Wave 1 was rather orderly, which broke down to a five-wave fractal in both indexes.
Wave 2 was also quick, forming an “ABC” Zig-Zag style pattern into the May 2008 highs.
Wave 3 is where things get a little “tricky.”We see a steady fractal wave 1 down with a month-long fractal wave 2 correction.Now, once the market began to fall in September, we had intense swings to the downside and a classic wave “iii of 3″ which tends to leap off the chart (and create new momentum lows as this did in October).
Fractal wave iv of 3 was quick and fractal v took us to new lows on a positive momentum divergence, completing the hideous Fractal Wave 3.
If this count is correct, then we’re in perhaps the latter stages of a fractal wave 4 correction and should be heading to new lows - or at a minimum a test of the November lows - as the Wave 5 plays out to the downside which would officially complete the “circled” large-scale Wave 3 and send us into a meaningful Corrective Rally soon.
Perhaps the pattern will be similar on the S&P 500 - in that we still have one more down-leg to go before rallying sharply into a large Wave 4 which could take us to S&P value 1,000 or 1,100… but we’re not there just yet.
The S&P 500 Index’s wave count recently has been tremendously difficult to count because of a complex correction and possible Elliott Triangle taking place.Perhaps we can translate the relatively ’simplicity’ of the Australian All Ords Index into a possible clue of what might be in store for the S&P 500.
And as a disclaimer, remember that Elliott Wave interpretation is only one of many analytical tools we can use to try to assess the next probable direction of the market.
Corey Rosenbloom
Afraid to Trade.com
11 Comments | add comment
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Two Competing Elliott Wave Counts on the SP 500
January 12th, 2009 by Corey Rosenbloom
Revisiting our discussion on “Which Elliott Wave 3 are we in Currently?” the question has now shifted to videnced by these two possible wave counts below.Let’s take a look at these competing interpretations and discuss which might be the more probable - or palatable - scenario.
First, the “Wave 3 is Finished” Chart with Projection:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp5001.png
I’ll try to let the charts speak for themselves.Most Elliott interpretations are in sync with the circled 1 and 2 waves, but it’s the other circled or ‘large scale’ waves that are open to interpretation.I’ll jump into discussing these waves only.
Under the first scenario - which I deem the more ‘bullish’ assessment because the termination point of Wave 5 is higher and the down impulse is only 5 more waves away from ending completely - we have already completed fractal wave 3 and are now in… or perhaps even ending… Corrective Wave 4 up.
If this is the case, then look to the bottom left of the chart where I’ve drawn a projection of the next expected 5-wave decline which should take us to S&P value 700 or beneath.We’ll know this is the official count if we break the 750 November low.
This scenario fractalizes the 3rd wave and has the “third of third” be extended as expected.You can see how I’ve labeled each fractal wave.
I did want to note a similarity between the currently labeled circled “Wave 4″ and the circled corrective Wave 2 - both of which look quite similar (and might suggest there’s still a little bit of time left in this wave for equality of time).However, the corrective wave looks like a ‘flag’ or perhaps a ‘wedge,’ both of which are bearish short-term.
Let’s now look at a more ‘bearish’ count that has us still in large-scale (circled) Wave 3 down.
Second, the “Wave 3 is Still Going On” Chart with Projections:
http://blog.afraidtotrade.com/wp-content/uploads/011209-1703-sp5002.png
I feel bad even bringing up this possibility, and I refer to this count as a more ‘bearish’ count because it assumes that we have 13 more ‘waves’ to go until we reach the official ‘bottom’ and that the bottom will occur perhaps much lower than the previous count - perhaps as low as 550 (some counts even have us going to 450).
Under this count, large-scale (circled) wave 3 is still going on, and that we are either in fractal 4 of circled 3 or are just beginning the first wave of fractal 5 down which would imply that the end of the 3rd wave down - which started in May 2008 - would end at or beneath the November lows.
To add a bit of bullish spice to this count, if this is the case, then we’ll have a large-scale circled 4 wave up which could take us as high as 1,100 or beyond… before price collapsed into the final circled 5th wave which could take us down to new lows not seen in over a decade.I’ve idealized the projected count at the bottom left of the chart for you.
The red arrow marks a “you are here” point.
I wanted to share these competing counts and open up the page for discussion for your thoughts and analysis to share with each other.
Corey Rosenbloom
Afraid to Trade.com
28 Comments | add comment
Corey Rosenbloom
Afraid to Trade.com
No Comments | add comment
NewsFlashr Launches New Editor’s Picks Section
January 11th, 2009 by Corey Rosenbloom
I’m happy to announce that the serves as a website to provide the feed to the NewsFlashr page.
NewsFlashr is becoming a standard as an up-to-the-minute news aggregator that sorts headlines by topic and interest which allows you to see the top stories across Business, Politics, Sports, Entertainment, Science, Health, Tech, and World news from a single page.You can instantly browse the top sites and also selected blogsites in these categories to have a quick handle on what’s being discussed or making news as it happens.
In the past, I had been focusing on the Business Blog section and selecting what I felt were the most interesting headlines/blog articles I thought readers would find most valuable and posting these links on my site most weekends for readers to review.
The new “Editor’s Picks” section is a formalization of this process which calls reader attention to some of the top posts on the Business Blog section as a means to provide an additional resource of articles and mainly to save you time from browsing each article of every business blog on the site.Currently, NewsFlashr.com lists 73 Business Blogs which each display the 8 most recent headlines as provided from their feeds - that’s almost 600 headlines for a person to view!
What the Editor’s Pick section aims to do is provide you the top 8 hand-selected headlines on a bi-weekly basis (usually Wednesday and Sunday) to allow you to scan all the headlines you wish, but focus on 16 articles per week that is selected to be either the most interesting, most informative, most creative, or perhaps humorous articles out of the whole 600 headlines.
I will be unbiased in my selections and will focus on headline/article content, rather than site name/reach.Feel free to (as in my first draft, I wanted to highlight 20 or more posts but could only select eight!).
I hope this can be a beneficial resource for you, as my aim is to save you time and provide you with a selection of the best quality posts for the week.
Corey Rosenbloom
Afraid to Trade.com
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Quick Count of the Australian All Ords Index
January 11th, 2009 by Corey Rosenbloom
How might the Australian All Ords Index gives us clues as to the possible resolution of the S&P 500 Index?It might do so by having a relatively clearer Elliott Wave pattern to view.Let’s take a quick look at the Index and a possible Wave Interpretation.
$AORD Australian All Ords Index (weekly):
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post14.png
We’ll start the count at the October 2007 highs which was the same time the S&P 500 Index peaked.
In both the S&P 500 and the All Ords Index, Wave 1 was rather orderly, which broke down to a five-wave fractal in both indexes.
Wave 2 was also quick, forming an “ABC” Zig-Zag style pattern into the May 2008 highs.
Wave 3 is where things get a little “tricky.”We see a steady fractal wave 1 down with a month-long fractal wave 2 correction.Now, once the market began to fall in September, we had intense swings to the downside and a classic wave “iii of 3″ which tends to leap off the chart (and create new momentum lows as this did in October).
Fractal wave iv of 3 was quick and fractal v took us to new lows on a positive momentum divergence, completing the hideous Fractal Wave 3.
If this count is correct, then we’re in perhaps the latter stages of a fractal wave 4 correction and should be heading to new lows - or at a minimum a test of the November lows - as the Wave 5 plays out to the downside which would officially complete the “circled” large-scale Wave 3 and send us into a meaningful Corrective Rally soon.
Perhaps the pattern will be similar on the S&P 500 - in that we still have one more down-leg to go before rallying sharply into a large Wave 4 which could take us to S&P value 1,000 or 1,100… but we’re not there just yet.
The S&P 500 Index’s wave count recently has been tremendously difficult to count because of a complex correction and possible Elliott Triangle taking place.Perhaps we can translate the relatively ’simplicity’ of the Australian All Ords Index into a possible clue of what might be in store for the S&P 500.
And as a disclaimer, remember that Elliott Wave interpretation is only one of many analytical tools we can use to try to assess the next probable direction of the market.
Corey Rosenbloom
Afraid to Trade.com
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Elliott Wave Count on the GBPUSD FOREX Pair
January 10th, 2009 by Corey Rosenbloom
Per reader request, I wanted to share a possible Elliott Wave interpretation for the British Pound/US Dollar FOREX currency pair.Even if you don’t trade FOREX, you can use this as an example of a near ideal Elliott Wave pattern unfolding.Below is an internally valid wave count that ends with an interpretation:
GBPUSD FOREX:
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post13.png
Click for larger image.
Bear in mind that this is technically a Corrective Pattern after a multi-year impulse up, so the larger structure probably should be labeled A, B, C instead of 1, 2, 3, and I will describe how these counts would be different.
First, if this is an “ABC” Correction, then instead of a 1, we would have an “A”, and instead of a 2, we would have a “B” and we would currently be in the “C” Wave Down.Under this interpretation, one could argue that the Corrective Phase has ended with the C wave completing 5 waves and now we’re perhaps in a brand-new impulse yet to be determined.
Under the 5-wave impulse view - which I’ve labeled above - then we perhaps have another leg down to go to complete the 5th wave and enter a corrective phase back up.We may currently be in fractal 2 (perhaps starting fractal 3) of the terminal 5th wave, meaning two swings down are yet to come.
Keep in mind that Elliott Wave analysis is fractal in nature, meaning each larger wave subdivides into smaller waves, and while - for me at least - it’s easy to label smaller waves, sometimes it’s more difficult to provide the exact count on the larger structure (which seems backwards, but I start with the fractal and build upwards while I suppose others start with the large-scale and conform downwards - both should arrive at similar results but both methods have their faults and strengths).
What I’m trying to do with these posts on Elliott Wave examples is not so much try to predict the future, but rather show you examples of how to sub-divide waves into the proper fractal forms and demonstrate that the Wave Principle divides larger waves into internally valid smaller ‘fractal’ waves.I’m also trying to take Elliott into real-time examples in terms of wave labeling.
Currently, we appear to be in a corrective phase, and we might even be forming a triangle (perhaps expanding diagonal) of some sort, wherein we can label “abcde.”
Though there are certainly alternate counts, it would appear to me that we are in a corrective pattern currently and most likely have at least one if not more ‘legs’ (swings) down, which would be bearish for the British Pound and Bullish for the US Dollar.
Again, the point of this post is to show internally valid Elliott Wave fractals that comprise a larger picture - the more examples we see and practice, the better Elliotticians we will become.
Adam Hewison and staff at the Market Club frequently provide informative commentary and offer proprietary trade signals specifically in FOREX and other markets.Check them out for additional information.
Corey Rosenbloom
Afraid to Trade.com
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Interesting Elliott Wave Count in Feeder Cattle
January 9th, 2009 by Corey Rosenbloom
I know - who trades Feeder Cattle?While browsing various commodities, I came across what appeared to be a rather ideal example of the Elliott Wave principle playing out in @FC Feeder Cattle futures contracts and I wanted to show you the pattern - if you want, you can pretend it’s a stock or index that is setting up this pattern.
Feeder Cattle Daily Futures Contract:
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post12.png
You can click for a larger image.And I also want to note that the circled “1″ and “2″ may also be interpreted as Corrective Waves “A” and “B” respectively of a larger Zig-Zag pattern that either has completed or has one more leg left to complete, depending on your analysis.
More than try to forecast cattle prices, the point of this post is to show you my interpretation of a textbook Elliott Pattern that has internally valid fractal wave counts.
In other words, notice how the Wave 1 structure has subdivided into 5 waves of its own, and within each of those fractal waves, we see the corresponding 5 or 3 wave pattern described by the Elliott texts that has occurred since last year - it’s an interesting and informative way in my opinion to bring the Elliott Principle to life through current examples.
The Second Wave also subdivided into its expected “ABC” Waves, which also subdivided as expected (though I divided the final C wave of 2 into a triangle).
We’ve launched now into the 3rd wave which is subdividing, but the only concern is that the 4th wave traveled into the price territory of the 1st wave, so we could have a complex correction setting up currently - but again that is not the point of this article.
Stepping outside the Elliott world for a moment - notice the whole structure shown on the chart is a massive “Measured Move” or Bear Flag.
The Elliott Wave Principle states that waves subdivide into the lower degree and those fractal waves also have internally valid (complete) Elliott Wave patterns - I believe the recent action in Cattle Futures - as esoteric as they may be - are showing a clean Elliott Wave Pattern example and I thought that was rather interesting.
Corey Rosenbloom
Afraid to Trade.com
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A Quick Glance at the SDS - 2x Short SP500
January 9th, 2009 by Corey Rosenbloom
I wanted to show you quickly the structure of the SDS (Ultra-Short S&P 500 ETF) to point out an interesting structure and also see how the price compares to that of the S&P 500.
SDS Daily Chart:
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post11.png
For newer traders, the SDS is a fund that essentially is “Double Short” the S&P 500 and is frequently used in retirement accounts or by traders/funds who are prohibited (or uncomfortable) from shorting stocks.It can be an alternative to “Going into Cash” but being two-times leveraged, it can indeed be quite risky… or lucrative.
For example, during the S&P sell-off during October, price literally doubled from a September low of $50 to an October high of $110 (which was followed by sharp volatility afterwards).
More recently, price formed a “Cradle Trade” or “Confluence Resistance” Trade as price pulled back to test the convergence area of the 20 and 50 day EMA, forming a doji/evening star candle before falling to fresh 2009 lows.
Looking at this, we would have a rather bearish posture, given that price is in a daily confirmed downtrend and has EMA resistance (at $75) overhead which should be expected to contain price on any rally.
The S&P 500 is actually not quite as ‘bullish’ as the SDS is ‘bearish’ which is interesting (the S&P 500’s moving average structure is still bearish and price - at the time this chart was captured - was actually between the 20 and 50 day EMA, not above both of them).
It’s interesting to note non-confirmations between ETFs and the underlying Index they represent.Continue studying this ETF along with others (SH is the 1x short S&P 500 ETF) for additional insights.
UPDATE:A reader passed along this article from Seeking Alpha which describes the intracacies of Short and Leveraged ETFs that is certain worth studying for additional information.Author Balaji Viswanathan lists 8 specific “Pitfalls” you need to know before trading such ETFs.
In short, the article
Corey Rosenbloom
Afraid to Trade.com
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Trend Day turned Rounded Reversal
January 8th, 2009 by Corey Rosenbloom
What’s the difference between a Trend Day and a Rounded Reversal?Today’s price action give you an excellent example.Let’s see the intraday DIA and see how this structure played out and how you could have managed risk.
DIA 5-min chart:
http://blog.afraidtotrade.com/wp-content/uploads/010909-0240-post1.png
The day started with a large-scale overnight gap of roughly $0.90.That’s just at the threshold of “Do I fade the Gap or Not?”Today’s gap did not fill, though there was a push into the gap shortly after 10:00am.
At 11:00am as price tested resistance, it was an ‘iffy’ position, but when price broke back down through the rising 20 EMA, odds then favored that we had a “Trend Day Down” on our hands.Keep in mind that it’s relatively rare to get two back-to-back Trend Days and yesterday’s action was clearly a Trend Day Down.
That being said, one could have taken a short-sell as price tested the falling 50 EMA at 11:00 with a tight stop and tried to target new intraday lows.Price ultimately challenged though not exceeded the lows of $86.60 at noon before forming an “ABC” or mini-bull flag that quickly met its target at the falling 50 EMA (I would not have suggested trading this bull flag, but merely to note its occurrence in the structure).
The second red arrow represents another high-probability, low risk short-sellt rade entry that met its target objective - a retest of the intraday lows.Notice at this point that there was a triple-swing positive momentum divergence building under price, but even still it’s best to ignore all oscillators and focus only on the EMAs when we have a trend day unfolding, as all signs seemed to indicate as late as 2:00pm.
I highlighted and placed a “1″ to call your attention to the 2:00 structure.That was a decent short-sell entry again, with a stop placed above the falling 50 EMA… however it was quickly stopped out, as were any core positions which was an early sign ’something might be up.’
The opponent or ‘rival’ structure of a “Trend Day” is a “Rounded Reversal” Day - and no, to my knowledge, there’s no magic formula or indicator that can tell you when the day will be a Rounded Reversal or a true Trend Day.
Unfortunately (for short-sellers), the day wound up being a Rounded Reversal.Price broke EMA resistance just after 2:00pm then swung down to form a higher low… that was a signal to remain on the sidelines and let price prove itself in terms of which direction to go.
Price broke back above the EMAs and formed a higher high which officially reversed the chart’s trend to the upside.At that point, you should have been looking for a pullback entry to ‘get long,’ which occurred around 3:15pm where I have the second highlight and the #2.Notice this is the “Cradle Trade” or Confluence Support coming in from the 20 and 50 EMAs and a high probabiliy, low-risk (stop placed beneath the EMAs) long entry.
This is where the battle between “Loose Stops” and “Tight Stops” rages.Traders taking this same trade who employed Loose Stops were able to hold their position and achieve a retest of the prior swing high into the close while those who employed a tight-stop strategy most likely were stopped out prematurely.I’ll let you decide for yourself as to the trade-off in terms of overall system performance and your own money/risk mangement, but chalk this experience up to support the “Loose Stop” traders.
Today’s trading served as an example how we must let price action dictate our behavior, and not let our bias dictate our behavior (as in shorting any rally after 3:00).Price gives clues from an edge standpoint in regards to the most probable direction, but we still deal in a probabilistic environment without certainties.
Let today’s trading day be a lesson and dig a little deeper into the action for additional insights.
Corey Rosenbloom
Afraid to Trade.com
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