Fibonacci Retracements and the Pullback Rule
February 15th, 2008 by Corey Rosenbloom
Adam Hewison of INO.com recently published an educational and informational video entitled Fibonacci Retracement Rule on trading price pullbacks with low risk through simple use of the Fibonacci Retracement tool.
In the brief video, he shares his trading experiences on how he uses Fibonacci techniques and how he sets up trades in trends with reduced risk per position.ÂHe discusses gold futures and how pullbacks in the trend set up excellent, low-risk opportunitie, as well as how to forcecast potential endings of price retracements (or pullbacks).
Selected Quotes:
“This trading secret, which is over 800 years old, is one of the most monumental mathematical discoveries of all time.”
 ”No one knows for sure why these number sequences work. Some traders believe them to be mystical, others, like myself prefer to call them one of life’s little mysteries.”
Thank you to Adam for providing this quick educational video for us.
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Miniature Triangle in the Indexes
February 15th, 2008 by Corey Rosenbloom
The S&P 500 and Dow Jones Indexes are forming a small triangle consolidation pattern, meaning prices are consolidating to a possible apex which may break soon.
Let’s check it out (daily):
http://blog.afraidtotrade.com/wp-content/uploads/021508-1701-miniaturetr11.png
Onto the NASDAQ:
http://blog.afraidtotrade.com/wp-content/uploads/021508-1701-miniaturetr2.png
The red trend-lines represent the relatively symmetrical triangle on the daily chart (and momentum beneath). Most triangles break 75% of the way to the apex (which is where we stand at the moment). They often represent indecision and lack of conviction of both sides in the battle for price control between the buyers and sellers.
Triangles can be continuation patterns, or reversal patterns, and it’s extremely difficult to predict which direction the price will break, but let’s remember that the overwhelming news for the market is negative, and the price is in a confirmed downtrend with significant overhead resistance, both from prior support levels and the moving averages.
Option volatility players may want to start scanning for options that take advantage of a burst in volatility, such as straddles or the like.
Either way, it appears price is headed for an ejection point up or down, and you should potentially adjust your risk accordingly.
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Trend Day Down after Trend Day Up
February 14th, 2008 by Corey Rosenbloom
Surprisingly, the market punished traders with a trend day down following yesterday’s trend day up. Usually, we expect some sort of consolidation after a major trend day, rather than a trend day in the opposite direction, which confuses swing traders to no end. Intraday traders often fare better, because many swing trading systems trigger buy signals at the close of a major up day, and then the next day (today’s) negative price action places their trades squarely underwater.
Let’s glance at the DIA 5-minute chart:
http://blog.afraidtotrade.com/wp-content/uploads/021508-0146-trenddaydow1.png
I have annotated this chart to show possible trading opportunities, and to highlight the use of moving averages as trade location zones and support/resistance areas.
In a downtrend (as established by lower lows and lower highs, and confirmed by the most bearish orientation possible for the moving averages), we expect moving averages to serve as resistance levels, from which one can enter a low-risk trade.
The arrows represent struggles in the battle for control between buyers and sellers.
Notice the prolonged momentum divergence which occurred all day as price trended lower. New price lows were not confirmed with new momentum lows â
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[ 本帖最后由 hefeiddd 于 2009-3-23 07:19 编辑 ]
Market Reverses, Invalidating Bear Flag
February 12th, 2008 by Corey Rosenbloom
As I mentioned in last night’s post, I saw some bullishness underlying the market from the fact that the sellers were unable to take prices lower than 12,500 three times in the last week. Also, the classic bear flag which formed wasn’t resolving with any satisfaction, meaning that the pressure was building behind the scenes for a bullish upswing, however temporary it may be.
Let’s look at a daily chart of the Dow Jones Index, where I have called out the most recent price action and placed a spotlight on the price rejection zone and the failed bear flag:
http://blog.afraidtotrade.com/wp-content/uploads/021208-1612-marketrever1.png
I noticed that the price rejection, in the form of lower shadows on the candlesticks, was a clue that sellers were losing the battle of supply and demand.
Today’s news reports that Warren Buffett offered assistance, which eased the credit concerns. “In an interview on CNBC, Buffett said his Berkshire Hathaway Inc. holding company has offered a second level of insurance on up to $800 billion in municipal bonds.”
The NASDAQ is showing a similar pattern, but looks a bit more bearish than the Dow Jones Index:
http://blog.afraidtotrade.com/wp-content/uploads/021208-1612-marketrever2.png
The NASDAQ chart is showing a potentially interesting pattern. Notice the miniature Bear Flag within the larger Bear Flag. That’s very interesting to me and I’m anxious to see how it resolves.
Notice the near perfect 45 degree angle as price makes a counter-trend move into key resistance from the falling 20 period moving average. I’d like to see price clear that hurdle and bust this mini-flag before getting bullish. In fact, this is a downright bearish position that the NASDAQ is in currently. It is perhaps another opportunity to ‘get short’ with a tight stop should price continue to rise.
Apply your own analysis and see where you think the potential profit zones are compared to the risk.
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Nightly Index Overview
February 11th, 2008 by Corey Rosenbloom
Let’s take a quick visual overview of some key market indexes and where they stand as of now.
First, the US Dow Jones Index (daily):
http://blog.afraidtotrade.com/wp-content/uploads/021208-0120-nightlyinde1.png
Classic technical analysis would be forecasting prices beneath 11,800 due to the perceived bear flag which has formed and has resolved halfway, but it seems like this hypothesis is currently in a little trouble.
Sellers have been unable to push price beneath 12,000, and the 12,100 level has served as a price rejection (support) line for the fourth time since late January. Can the sellers take it beneath this level? Or are the bulls finding new strength?
I pointed out the ‘hook up’ in momentum with a purple arrow. Remember that momentum often precedes price.
The S&P 500 is showing a near identical chart.
The Financial Sector was hit hardest today, with the XLF declining more than 2%. This is not bullish by any means (chart not shown).
The Hong Kong Hang Seng suffered another stunning decline today, after falling 5% yesterday.
http://blog.afraidtotrade.com/wp-content/uploads/021208-0120-nightlyinde2.png
Price seems almost destined to retest the 22,000 level, which represented a new price low on February 22nd.
Finally, the Commodity Index ($CRB) made another new high today (this is the weekly chart):
http://blog.afraidtotrade.com/wp-content/uploads/021208-0120-nightlyinde3.png
I mentioned in the last post how gold has made a new high. Other commodities are doing the same, as a result of reduced interest rates and a weak US Dollar. It looks like this trend will continue.
Rise above the temptation to look at only one market and view other related markets and analyze why they are related, and if you can find key trading ideas among them.
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A Look at Gold Prices
February 11th, 2008 by Corey Rosenbloom
With the US Dollar Index having made new lows, the price of gold has been making new highs. This makes sense from an intermarket relationship, but let’s take a recent look at the chart for more insights.
First, gold’s weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/021108-1616-alookatgold1.png
Notice the triangle (not drawn) throughout 2006 which broke strongly to the upside in mid-2007 (corresponding with the Federal Reserve’s decision to begin lowering US interest rates).
From an intermarket analysis perspective, commodities and the US Dollar often experience an inverse relationship, which we have seen recently. As the US Dollar Index has trended lower, gold (and many other commodities) have trended higher.
The daily chart of gold is even more impressive:
http://blog.afraidtotrade.com/wp-content/uploads/021108-1616-alookatgold2.png
There are a few key lessons to learn from this chart.
First, if you look very closely at the triangle consolidation pattern, notice that the momentum oscillator broke out of the triangle two days before the actual price break. I rely on the market principle “Momentum Precedes Price” and this is another example of this phenomena assisting us in viewing price behavior.
Second, look at the major support the 20 period moving average has provided the price. Only during the triangle consolidation pattern do we see the price close beneath the average, but the rising 50 period moving average provided key support in those occasions.
Third, a slight momentum divergence has formed recently, but it’s nothing to concern us majorly.
I mentioned that the US Dollar is trending inverse gold prices. Let’s look briefly at a weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/021108-1616-alookatgold3.png
Be sure to check out MarketClub for new analysis and tools, including videos on gold and other futures contracts and stocks.
Be sure to check out other insights from intermarket analysis for a broader picture of trends and how they inter-relate and provide opportunities for the savvy trader.
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Old Dominion Freight Chugs Along
February 10th, 2008 by Corey Rosenbloom
Old Dominion Freight Line (ODFL) recently experienced a major momentum impulse price move up, which resolved a growing positive divergence and has set up a Sweet Spot trade. Let’s see what this amazing stock has done in 2008:
http://blog.afraidtotrade.com/wp-content/uploads/021008-1956-olddominion1.png
Notice that as price was experiencing resistance around $25.50, the momentum oscillator was showing positive conditions through a dual divergence (in highs and lows in relation to price).
The significant new momentum high indicates that odds favor higher prices yet to come (though a pullback retracement seems imminent).
The stock should have strong support about the $25 to $27 level due to prior resistance (becoming support) and moving average structure.
Let’s see the weekly chart as well:
http://blog.afraidtotrade.com/wp-content/uploads/021008-1956-olddominion2.png
The recent strong momentum divergence is far clearer on the weekly chart. Notice that as price bottomed, the momentum oscillator made higher lows. The resolution was fierce.
Why might this have happened?
Warren Buffett has been famously buying railroad stocks.
According to an article by David Smith at The Motley Fool (among other resources), “In his widely read letter to Berkshire shareholders this year, Buffett said, “We continue … to need elephants in order for us to use Berkshire’s flood of incoming cash.” We now know that the other two pachyderms whose shares Buffett was buying were Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC).”
Other stocks (like Old Dominion Freight Line) have been rising in sympathy or tandem. Recall that some of the best trades come along side major news events, rather than trading the news events themselves.
Traders, remember that Warren Buffett is a long-term fundamental investor, and while the current railroad stocks are showing strength, don’t expect you can make a fortune quickly on the short-term fluctuations and ripples caused by Buffett’s “stone” being dropped in the investment waters.
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View of the S&P 500
February 9th, 2008 by Corey Rosenbloom
In the weekly review of the S&P 500, there are some interesting chart points to note. Let’s look at the up to the minute charts:
http://blog.afraidtotrade.com/wp-content/uploads/020908-1651-viewofthesp1.png
The daily chart is working off a new momentum low, which indicates a probability that the new price low has yet to come.
The S&P and Dow Jones are both seemingly in the middle of a bear flag pattern, which is projected to take the S&P down to 1,280 by mid-February if it unfolds.
Price is still in a daily confirmed downtrend, and price just reflected off the horizontal resistance line just beneath the 50 period moving average.
Odds still favor lower prices yet to come until this trend changes.
Onto the weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/020908-1651-viewofthesp2.png
The market never made a full retracement of the recent price swing, which took price from 1,500 down to a low near 1,275. It’s actually made approximately a 50% retracement (Fibonacci) but 1,400 served as key resistance on the S&P index.
The new weekly momentum low in the oscillator does not bode well for the price. New weekly momentum lows can mean actual lows are yet to come, and will take price much lower than any daily momentum low.
Price could retest the rising 200 period MA for a bounce, but that bounce has already occurred and it looks like a second test has high odds.
As a bonus, let’s peek at the monthly chart:
http://blog.afraidtotrade.com/wp-content/uploads/020908-1651-viewofthesp3.png
The case for the bulls looks in-tact here, due to the support from the rising 50 period moving average, but should that fail to hold, any remaining long-term bullishness would become immediately suspect.
We need to see monthly closing prices for any long-term signals, but the fact that January closed beneath the rising 20 period MA for the first time since mid-2003 is a rather ominous sign.
The MarketClub has new and updated forecasts and signals for the major US Indexes, gold, bonds, and other markets. In addition, you can track your own portfolio, visit their “Trade School” education section, and enjoy customized stock scans. Check them out if you’ve never heard of MarketClub before.
In addition, I always recommend INO Television, which provides you with a wealth of education from the industry’s leading trading educators. I have learned immensely from the service already and there’s still hundreds of videos to watch! Here’s a full, free video on Entries and Exit Strategies, which provides a sample of what full membership ($99 per year) offers.
This market is extremely difficult to trade right now, so be careful and watch your risk levels.
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New Life for the US Dollar Index?
February 8th, 2008 by Corey Rosenbloom
Could the US Dollar Index be forming a bottom? That is the $64,000 question, no doubt, but the index which has been marked down to new lows is now showing early signs of potential strength.
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Make no mistake, the US Dollar Index is in a confirmed daily (and weekly) downtrend, but price has managed to create a higher low and could be on its way to creating a higher high.
The higher low came at $75, after price settled and reversed above its prior low at $74.50.
Although the moving averages are in the most bearish orientation possible (20 beneath the 50, beneath the 200), price is indeed currently above these levels, and has broken above briefly three times since December.
A momentum divergence has also formed which is being resolved currently.
The odds may be shifting currently to the more bullish (US Dollar Strengthening) case, but the index still has a bit more convincing to do before we can call a new potential daily uptrend. The odds still favor lower index prices until the uptrend shift is complete.
Let’s look at the weekly chart for more insight:
http://blog.afraidtotrade.com/wp-content/uploads/020808-1542-newlifefort2.png
Does your bullish perspective shift more bearish when you view the strength of the downtrend on the weekly chart?
We see price testing the falling 20 week moving average, which has served as key resistance throughout the entire downtrend.
I have drawn the arrows where this average served as key resistance. Only once did price pierce the average (October, 2006) but the 50 week average served as key resistance at that point.
The swings are narrowing, indicating that a period of consolidation may be ahead, and price could break above the key average, but the 50 sits just overhead like an ominous cloud on the otherwise bright horizon.
With the Federal Reserve still on a pathway to lower interest rates, the US Dollar Index may still continue its weakness until the Fed shifts its “easy money” policy.
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[ 本帖最后由 hefeiddd 于 2009-3-23 07:26 编辑 ]
Market Violently Sells Off Today
February 5th, 2008 by Corey Rosenbloom
On the US “Super Tuesday” when almost half of the states held a primary election, the US Stock Market slid 3%, casting its vote against the major candidates.
No seriously, the weak consumer services sector, which comprises a large percentage of the consumer spending category, took a major hit today, causing the markets to resume their downtrend and move one step closer to completing an ominous bear flag pattern.
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Notice the non-confirmation from volume on the most recent price swing (counter-swing) up. As the price auctioned higher, volume declined. It’s interesting that the price move of 3% today occurred on such low relative volume (less than one billion shares transacted in the Dow Jones).
Also, note that the most recent price swing carved out a new momentum low on the oscillator, forecasting the possibility for new price lows yet to come.
The classic “bear flag” pattern could also be forecasting lower prices. I have taken the liberty to interpret (and draw) the potential bear flag which is currently unfolding.
If the bear flag and the new momentum low forecast correctly, then a new price low could be reached beneath Dow 11,800 before the close of the month.
As an aside, notice how nicely the falling 20 period moving average contained the price action on the NASDAQ:
http://blog.afraidtotrade.com/wp-content/uploads/020608-0349-marketviole21.png
It is setting up a type of bear flag as well, but not as nicely as the Dow and S&P 500 flags have set-up.
With the daily chart still in a confirmed downtrend, it seems odds favor lower prices are yet to come.
Trade safely and with reserved caution.
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Fading the Gap Failing in February
February 5th, 2008 by Corey Rosenbloom
It’s a new month, and the market may be off to a new character change once again. There have been three trading days in February, and so far all three days have experienced an index gap, of which only one has filled so far.
Let’s look:
http://blog.afraidtotrade.com/wp-content/uploads/020508-1609-fadingthega1.png
There are a few things to note in this chart.
First, each blue oval represents an overnight gap in the DIA (Dow Jones ETF). Notice how the first oval was filled, but very painfully. There’s actually an argument as to how this gap was filled.
It was actually filled instantly on the first 15 minutes, then price rocketed up in the direction of the gap (as expected) but then took a hard sell again to close the gap officially (and set up a nice “Impulse Buy” retracement trend trade which achieved its target).
We’ll could that day as a “gap fill,” but if you missed that initial snap entry, odds are very high that you took a stop if you tried to fade the gap afterwards. Even though the visual trade ‘worked,’ it had to endure about $1.00 (100 Dow Points) in a stop and that was absolutely unacceptable, so actually this gap fade â
Google Dips Beneath $500
February 4th, 2008 by Corey Rosenbloom
Google (GOOG) dipped beneath $500 per share today for the first time since August, 2007. Google has been on an almost solid decline since early 2008, and price has depreciated 32% from its all-time high of just over $740 per share:
http://blog.afraidtotrade.com/wp-content/uploads/020508-0406-googledipsb1.png
Notice the “triangulation” action which took place from early November until the price breakout as 2008 began.
Notice how the prior momentum low preceded (indicated) that new price lows were yet to come. There currently is a potential momentum divergence setting up.
Price has already exceeded the measuring objective inherent in the price pattern, and has also broken beneath the daily 200 period moving average, which traders often use as potential support zones.
The weekly chart looks even worse, but paints a more interesting picture:
http://blog.afraidtotrade.com/wp-content/uploads/020508-0406-googledipsb2.png
Imagine the pain felt by the buyers who bought at the top and have suffered through this large volatility sell-off as of late.
Google is a major name stock followed by many traders, and many newer traders are in disbelief that things could have gotten this bad this fast with this high-flying stock.
Always be careful and try to expect the unexpected. Anything can happen in the market!
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Insights from Volume and Open Interest
February 4th, 2008 by Corey Rosenbloom
Traders frequently combine volume studies with price studies and indicators to gather a larger picture of where prices may be headed in the future. But in the futures market, traders can utilize signals from Open Interest in combination with price and volume for and enhanced picture.
Open interest for any futures contract, be it index, agricultural, metal, grains, refers to the total number of contracts that are remaining open, and gives a little more insight than volume numbers itself.
The reading for open interest increases only when a new buyer and a new seller trade which creates an entirely new contract.
We are taught that “volume goes with the trend” and even that “volume precedes price” on occasion. In an uptrend, we expect to see higher volume (and open interest) on up days than on down days.
We also expect to see higher volume (and open interest) on selling days during down trends.
But what signals are generated when these “classic” interpretations result in alternate scenarios?
Here is a table to help us understand these signals more clearly (in order of expectation):
http://blog.afraidtotrade.com/wp-content/uploads/020408-1759-insightsfro1.png
Any other signals, such as price up, volume down, open interest up would have little forecasting or analytical value.
Recall that volume is also related to stops being triggered, which in the futures market, can be greater than that of equities. Due to the leverage, traders must be more willing and able to take their predetermined stops, and cannot give positions more time as they can with equities. Thus, volume readings and price moves may be artificially inflated as a result of one side of the market being “Squeezed” out of their positions.
See if you can assess what’s happening behind the scenes for a picture clearer. Who appears to be buying? Who appears to be selling? Might this move be generated by stops being triggered? Is this NEW money flooding into the market or OLD money exiting?
Also, unlike stocks, futures contracts are theoretically limitless per contract month. This is not the case in equities, which have a limited float.
Even if you are an index ETF or equities only trader, you can combine the signals from volume and open interest on some of the key US Index Futures for a little clearer picture of what may be going on in your favorite index.
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Where we Are in the Indexes
February 4th, 2008 by Corey Rosenbloom
Let’s take a rapid look at the major US Indexes as we start the new week:
First, the NASDAQ Daily:
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[*]Bullish Divergence preceded the recent 200 point rally (divergence is now complete)[*]Price rests at the falling 20 period MA â
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The Financial Sector beat all others with a 16% appreciation! Consumer Discretionary Spending was not far behind, with an 11% gain. These signals often occur just after, or around a market bottom according to the theory, as big money begins to bet on a recovery and takes positions in these sectors which have been beaten down significantly by investors. Are they now recovering?
http://blog.afraidtotrade.com/wp-content/uploads/020308-0344-isabullishs3.png
If so, this could be a very bullish sign for the overall market. While the absolute bottom may or may not have formed, the sector rotation model is providing potentially bullish information to those open to listen.
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[ 本帖最后由 hefeiddd 于 2009-3-23 07:33 编辑 ]
Market Fades the Gap for the 100th Time
January 31st, 2008 by Corey Rosenbloom
Not to be cynical, but I’m beginning to be able to fade the gaps each morning in my sleep. If I dream about a gap, it fills. This most basic and simple strategy is paying out more than any complex strategy right now.
It happened again today, almost with a yawn:
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Feel free to search the blog for more examples, and a detailed explanation on how I trade the strategy, but the basics are always the same:
If there is an overnight gap in the US Indexes, as evidenced through their Exchange Traded Funds (ETFS), then the first play is to establish a trade that would close the gap (buy gaps down and short gaps up):
Dow Jones: DIA
NASDAQ: QQQQ
S&P 500: SPY
I usually give 5 to 10 minutes for the market to shake out with volatility and then enter a position and, depending on the size of the gap, I will make a decision based on the stop.
If the gap is greater than 100 Dow points ($1.00 on the DIA ETF) then I will be tighter with my stop, but with anything else, I will place my stop ½ the distance of the gap.
For example, if a DIA gap is $0.50 (50 Dow Points) then I’m likely to place a stop $0.25 away from my entry and play for a 1:2 risk to reward trade. I’ll often move the stop up to the intraday low if it develops, or I will be stopped out. I may re-enter depending on subsequent action.
Today’s action was a classic fade, though it was greater than 100 Dow points ($1.00 on the DIA).
Nevertheless, the market filled the gap with amazing wonder, as has become the case more times than not (giving you a statistical edge for trading).
There’s no way to know how long this pay-out cycle will last, but until it stops, or for some reason (everyone catches on) the edge is degraded, I will trade gap fades very aggressively, as those trades are making me the most money with my intraday trading than any other complex strategy I use at the moment.
I hope the gap fades are good to you too!
(Note, some people like to see an index gap and then try to trade a more volatile security to play for more dollars in their gap fades, especially with stocks that are part of the index that is showing a gap, and has shown to follow the index price action closely. This way they get more ‘bang’ (or money) for their gap-fill trade)
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Fascinating Intraday Action
January 31st, 2008 by Corey Rosenbloom
I thought I’d show yesterday’s intraday price action as an educational reminder than anything can happen in the market, but signals usually precede calamaties.
From the perspective of the DIA, Dow Jones ETF on the 5-minute chart:
http://blog.afraidtotrade.com/wp-content/uploads/013108-1621-fascinating1.png
First, note the Momentum Divergence (1). Price makes a significant new high, while the momentum oscillator fails to confirm the new high.
Second, note the Shooting Star Candlestick (2) (which could almost be interpreted as an Evening Star as well). This is a classic one-bar reversal candle that isn’t predictive alone, but when combined with a momentum divergence, it adds to the bearish case.
Finally, note the significant Volume Divergence (3), as volume rockets to new daily highs on the first swing, but also fails to confirm (like momentum) on the second swing.
Typically, you get a three-pulse continuation move from a Fed announcement, followed by a strong close, but yesterday price gave us only two pulses and then told us it would be best to exit. The price rolled over and then plummeted into the close, in an intraday swing of $3.00, or 300 Dow points in less than an hour.
Regardless of the reason (bond downgrade, Yen carry trade unwind), price can do anything, but the charts often signal hints and clues to those who are open to perceive them. There was no way to know how far the market would sell-off, but there were hints that things weren’t behaving normally prior to the shock decline.
While certainly not entertaining for those who lost money on a near ’sure bet’ yesterday, this was fascinating from an educational perspective.
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Over-Conservative Traders: Words from a Master
January 30th, 2008 by Corey Rosenbloom
www.amazon.com%2FTechnical-Analysis-Stock-Market-Profits%2Fdp%2F0273630954%3Fie%3DUTF8%26s%3Dbooks%26qid%3D1201714437%26sr%3D8-1&tag=afrtotra-20&linkCode=ur2&camp=1789&creative=9325]http://blog.afraidtotrade.com/wp-content/uploads/schabacker.pngIn his book www.amazon.com%2FTechnical-Analysis-Stock-Market-Profits%2Fdp%2F0273630954%3Fie%3DUTF8%26s%3Dbooks%26qid%3D1201714437%26sr%3D8-1&tag=afrtotra-20&linkCode=ur2&camp=1789&creative=9325]Technical Analysis and Stock Market Profits, Richard Schabacker - also known as â
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A Quick Look at Where We Are
January 28th, 2008 by Corey Rosenbloom
Here’s a quick Monday afternoon snapshot of the current US Indexes and what may be in store for this potentially volatile upcoming week:
First, where the Dow Jones Index stands:
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[*]2008 has gotten off to a very bad start[*]January is on course to set new lows on the index, which is bearish due to the potential “January Barometer” effect[*]Price made a new momentum low[*]The moving averages are in the most bearish orientation possible[*]Price appears to be making a bear flag, which potentially could be a failed flag (due to today’s action)[*]Price was rejected twice equivocally at the 11,600 level, creating a temporary bottom (or support)[*]The two long shadows (wicks) formed by these candles are bullish patterns[*]Volume is surging on the index and the respective ETFs. Capitulation? Or aggressive accumulation?[*]Bulls would love to see price clear 12,600, breaking above the falling 20 period moving average[*]The daily trend is clearly and confirmed downOnto the weekly Dow Jones:
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[*]A momentum divergence (sell) has been resolved soundly to the downside[*]Price made a new weekly momentum low[*]Price attempted a test of the 200 period weekly moving average, which found support[*]Despite all the volatility of last week, the Dow managed to close the week positive (bullish)[*]It appears that a counter-swing up (buy swing) is forming which could take price higher[*]A “death cross” of the 20 and 50 period moving averages seems imminent, but has not happened yet[*]The weekly chart is beginning a new confirmed downtrend[*]Price is below the levels where 2007 openedLet’s take a brief look at the US Dollar Index:
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On this weekly chart, we see the most bearish orientation possible of the moving averages.
We also see significant resistance by the 20 period weekly moving average
A swing divergence is forming, in which the index could traverse the average, but the trend is still uniformly down, and interest rate cuts don’t help this very much.
Should the Federal Reserve cut rates Tuesday or Wednesday at their scheduled meeting, then this would add further pressure on the dollar, but would probably help prop up the US Indexes a little more, further confirming the perceived up-swing in price which seems imminent.
Also, recall that Amazon (AMZN), Google (GOOG) and other heavyweights (including various Dow Jones components) will be releasing earnings this week, so - despite what the charts are hinting at - anything can happen so it may be best not to get too aggressive until some of those unknowns clear.
It seems like this week could be a win for the bulls, but let’s remember that any upward swing is only a counterswing, and we need price to stabilize before we start calling for the bottom or the birth of a new uptrend.
http://ino.directtrack.com/42/470/39
(Post Sponsor: INO TV, my recommended source for education, speakers, workbooks, ebooks, and trading information from experts)
Trade and invest safely this week.
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Goldman Sachs Divergence Trade
January 28th, 2008 by Corey Rosenbloom
It seems the divergence setup is becoming one of my favorites as well. Goldman Sachs (GS) recently exhibited a lengthy divergence with a snap resolution today on the smaller timeframe, which may bode well for the stock in the short term.
Let’s look:
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Typically, a divergence sets up a small target trade (retracement only), but a lengthy divergence can frequently precede a trend reversal and allow you to play for a larger target with a very tight stop.
Such is the case on the 5-minute chart today in Goldman Sachs.
A divergence occurs when a key oscillator fails to confirm a new price low in the stock. Multiple swing divergences can set up a bias in the opposite direction as â
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[ 本帖最后由 hefeiddd 于 2009-3-23 07:41 编辑 ]
Triangle and Divergence in Goldman Sachs
January 24th, 2008 by Corey Rosenbloom
Financial giant Goldman Sachs (GS) recently posted two major classic patterns on its daily chart worth an educational mention:
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First, notice the lengthy declining triangle formation (pattern) both in the actual price and the narrowing momentum oscillator.
Price ejected down from the horizontal support line (base) and formed a retest at the throw-back point, which corresponded nicely with the 20 period moving average that set up an extremely high probability trade (with edge).
As price made new relative lows (January 22nd), the momentum oscillator curved upwards and made a higher low (highlighted with the green line at the far right side of the chart). This served as a non-confirmation of lower prices, and allowed savvy traders to enter a quick “scalp” back to the declining 20 period moving average (another high probability trade with edge).
Price now sits at the key moving average, and the orientation of the three key averages is as bearish as it gets (20 beneath the 50, which is beneath the 200).
While a reversal may indeed occur, I simply wanted to point out a couple of examples of high probability trade set-ups that formed as a result of price action on the daily chart.
Adam Hewison further discusses trading triangles:
http://ino.directtrack.com/42/470/46
Always annotate your own charts based on how you view opportunities to trade and manage risk.
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A Little Edge is All You Need
January 24th, 2008 by Corey Rosenbloom
http://blog.afraidtotrade.com/wp-content/uploads/012408-1653-alittleedge1.pngIn trading, we seek to identify small windows of opportunity where we expect one event to occur over another event, given that we can monitor our risk should something go wrong. Take a moment and think about how you define your trading edge and what it means.
An edge is simply nothing more than a situation where the probability of one outcome happening over another has tipped slightly to favor that one event. An edge does not guarantee an outcome, however.
There is no edge to a coin toss because both sides of a coin have an equal probability of landing face-up.
There is edge to a certain pairing of cards in poker when they are dealt.
There is also edge in the roulette wheel (in favor of the casino) because of the two green zero and double zero spaces. You may think that there is a 50% chance (like a coin toss) of the wheel landing on a red or a black space, but actually there is a 47.3% chance of either red or black coming up, giving a slight edge to the casino.
Red: 47.3%
Black: 47.3%
Green: 5.2%
When we add these up, and if we play the game in terms of a player betting between red and black all night, he could expect to lose 5.2% of his money by the end of the night, provided he made a sufficient number of bets. On the other hand, the casino could expect to gain 5.2% of all money wagered by the player due to the edge from the green spaces.
An article on roulette at Wikipedia showcases an excellent table of the odds of every possible event occurring in Roulette, and the house retains a 5.2% edge ($0.05) for every dollar wagered.
So what might this mean in your trading?
All you need is a relatively small edge and a large number (sample) of trades taken carefully with that edge to become a net winner as a trader. However, so many people do not realize that and create all sorts of errors and problems for themselves by taking trades with negative edge for them, for whatever reason.
There are many sources of potential edge in trading, such as the use of a combination of indicators, beliefs in price fundamentals, recognition of certain price patterns, recognition of a trend, recognition of a structural price component (such as an extreme, gap, or high volume reading), etc.
It’s rare than any one indicator will give you sufficient edge, but you have to know what your edge is before taking a trade.
You can discover the patterns you perceive as giving you an edge through back-testing, forward (future) testing, hand-annotation of charts, etc.
Stay tuned to learn more about how to discover you edge and how to ensure you are taking trades with the odds in your favor for that moment.
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SocGen Trading Losses Greater than Amaranth
January 24th, 2008 by Corey Rosenbloom
The magazine and news site Trader Daily reports that Societe Generale, France’s second-largest bank by market capitalization, reported a trading loss today of $7.1 billion dollars, topping last year’s stunning $6 billion loss in the energy markets by Amaranth.
SocGen’s loss stemmed from potentially deceptive exotic derivatives positions and over-exposure to the sub-prime market.
Also, the magazine reports that in a twist of irony, Risk Magazine named Societe Generale “Equity Derivities House of the Year” due to their ability to sidestep major losses from declining equities markets.
Andrew Hurst of Reuters reports that this style of fraud could strike hedge funds again, but larger in the future. Hurst writes that the loss was “blamed on a single employee, is a stark reminder that rogue traders can elude the most sophisticated security systems until it is too late.”
Treasury Secretary Henry Paulson, as chairman of Goldman Sachs (GS), once stated that “fraud could never be eliminated because big banks were the size of small towns.”
There were a number of hedge funds (some from banks) that were closed in 2007, and it is possible that a larger number may close as a result of over-leveraged, over-exposed trading activities in 2008 as the markets roil with increased volatility as of late.
While hedge funds and extremely large funds can amass extremely large profits for investors, they can also lose on their bets and empty the fund by a significant amount when their bets go awry.
To me, this is a lesson that things are much more difficult in the current financial markets than most people realize. It could pay to trade with extra caution and reduced positions sizes until the markets return to a more balanced, less volatile state.
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US Market Shocks, Awes, then Shocks Again
January 24th, 2008 by Corey Rosenbloom
It is very difficult to remember a day as surprising as the intraday price movement on the major US Stock market as January 23, 2008. What’s surprising is that an almost identical pattern occurredâ
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[ 本帖最后由 hefeiddd 于 2009-3-23 09:34 编辑 ]
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[ 本帖最后由 hefeiddd 于 2009-3-23 09:37 编辑 ]
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