一个笨蛋的股指交易记录-------地狱级炒手

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A Recent View of Goldman Sachs GS
October 28th, 2008 by Corey Rosenbloom

Financial giant Goldman Sachs (GS) held its own relative to other large financial institutions who suffered worse or collapsed entirely.  Although Goldman recently broke beneath $100 per share recently, it might be worth looking at this stock’s recent journey to see if we can glean any insights.
Goldman Sachs (GS) Daily Chart:

The daily chart is clearly in a confirmed downtrend, as evidenced by numerous lower lows and lower highs, as well as price being beneath all three key moving averages and those moving averages being in the most bearish orientation possible.
Notice how over the last two months each retracement move to the falling 20 day EMA has served as an opportune short-sell entry… but wait… the Government banned short selling in Financial stocks.  Even with this ban in place, buyers exited long positions into this area of resistance each time it was tested.  Currently, the ban is lifted which could explain why the last sell signal (just after October 20th - the doji at resistance) worked so well.
Price continues to make new multi-year (since 2003) lows, and today (intraday) the price is off 7%.  It’s probably a little late to get a low-risk fresh short-sell on, and though we may be close to a buy signal (a test of the $75 lows or perhaps just beneath), it’s not here yet.
I did want to add a little bullish optimism that comes in the form of a positive, multi-swing momentum divergence.  At a minimum, divergences tell you the winning side (sellers) is losing strength and to exit any short-sell positions but generally we’ll need a little more confidence before initiating a fresh buy.
Notice also how the recent price triangulation action represents the difficulties for both longs and shorts - though you might know that a stock is headed lower, traders may find it difficult not only to locate an opportune short-selling entry, but once they’re short, they are subject to massive ‘rip-your-lips-off’ short-covering or ‘bottom fishing’ rallies.
Case in point, mid-September when the short-selling ban went into effect, price surged massively.  There have been similar one or two day surges that may have absolutely decimated some smaller (retail) short-sellers.  If only trading were easy (in the sense that what is headed down,  travels down neatly, cleanly, and predictably).
Stay safe in this environment and guard your capital.
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What a Fresh Five Year Low Looks Like
October 27th, 2008 by Corey Rosenbloom

Today, the S&P 500 (together with the Dow Jones, NASDAQ, and Russell 2000) made a new closing low not seen since roughly March 2003.  Let’s take a quick look at this development on the monthly chart and look at a possible, simple Elliott Wave count interpretation.
The S&P 500 Monthly Chart:

Beyond getting deep in the analysis, sometimes it’s just a good idea to pull back the timeframe and see where we’ve come and how fast we got there.
In less than a year’s time, we’ve almost destroyed the entire gain the S&P 500 index made in its 100% appreciation from the 2002 market bottom… bear in mind this constructive period took roughly five years to build.  There’s also a more than decent chance we could retest or even dip beneath those lows established in 2002, which would plunge us to decade lows.  I’ve drawn a blue line (across the volume bars) that represents these lows… now only 100 points away.
Volume has been surging on the index since mid-2007 and there’s no sign its letting up any time soon.
if you take a close look at the top right side of the chart, you’ll see that the S&P 500 index is down almost 30% in a single month… and the month isn’t even over yet.
What might be a simple Elliott Wave Impulse count?  Without getting too technical, notice that the “1″ represents a possible first wave down followed by a three-month counter-wave “2″ which gave way to the current possible (devastating) Wave “3″ into fresh lows.  If this is the actual Elliott Wave count, then we should be expecting another counter-wave “4″ up (perhaps to the 1,000 level or above) before giving way to the final Wave 5 that could take us down to lows beneath the 2002 levels (around 750).  Let’s not get ahead of ourselves, though or get too pessimistic with that possibility.
In other technical structures, price has made a significant new momentum low, breaching levels to the downside not seen before on the oscillator (the -100 indicator lows were the lowest lows seen on that oscillator.  Keep in mind it’s the difference between a 3 and 10 period moving average, and the current reading is near -200).
Also, price is beneath all key monthly moving averages, and the 20 month EMA is now crossing under the 50 month EMA.  The same EMAs on lower time frames (daily & weekly) already have crossed bearishly.  Keep in mind short-term momentum (and structure) precedes long-term momentum (and structure).
This is the current environment in which we trade, and though the larger structure does not change much, it is worth perhaps keeping a chart printed by your trading desk, updating it each month to note the most current bar - the structure will often remain the same.
Be safe out there.
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Foundations of Technical Analysis
October 27th, 2008 by Corey Rosenbloom

With technical analysis - the art of studying price and volume through visual charting and mathematical indicators - gaining momentum, I thought it would be prudent to take a moment to discuss the three underlying foundations of modern technical analysis and why they’re important.  Let’s examine them:
1.  Prices Move in Observable Trends
Prices have direction, or flow, which is observable through price pulses (waves) that form swing highs and swing lows.  Objective measuring of these respective swing highs and swing lows constitute rudimentary measuring of the direction of a security’s or market’s price.  Often a linear regression line or analysis through certain moving averages can also be beneficial in assessing a market’s overall direction.
The basic premise - as described by Charles Dow and many others - is that “the observed trend should be assumed to continue until the weight of the evidence has shifted in favor of a reversal.”  In other words, you’ll have greater ease in trading if you trade in the direction of an observed trend.
Price moves through imbalances in supply and demand, and these imbalances lead to price expansion and contraction as perceived “value” is discovered to be at a progressively higher or lower price.
2.  Market Action Discounts Everything
“All information (knowns and ‘unknowns’) is already factored into price, or is discounted immediately.”
As such, price and the auction process is an efficient discounting mechanism such that new information and even rumors of new information are acted upon instantly and assimilated by traders, investors, and funds as they interact in a market.
This principle also gives rise to the concept “Buy the Rumor, Sell the Fact” and helps explain why a stock price might fall when a positive earnings report or other seemingly good company news is released.
Chartists argue that the current price (and its movement) reflect the purest assessment of a company or a particular market, and that price study is a ’shortcut’ to complex fundamental analysis that can yield a clearer picture.  Charting also allows for instant cross-market analysis, eliminating the need to be an expert on a particular company, industry, sector, commodity, or foreign economy.
3.  History Repeats Itself
Price patterns (such as triangles, double-tops) were created by investor behavior at a certain time, and the similar currents that formed those patterns in the past tend to repeat into the future according to the underlying supply/demand picture a particular pattern creates.
Investors cycle through greed and fear (among other emotions) and a larger market cycle plays out indefinitely in response to similar information.  To put it crassly, investors tend to make the same mistakes over and over again (such as getting overly excited after a long market advance and getting overly pessimistic after a sharp market correction… or buying at market tops and selling at market bottoms).
Certain events trigger similar behaviors which appear as documented patterns (such as the head and shoulders) on price charts.  The Elliott Wave “Five Wave” impulse pattern may also help explain this (as investor psychology shifts from disbelief to realization to over-optimism).
Conclusion:
This is just a simple list of the three ‘academic’ reasons for the support of technical analysis (charting) as a market discipline which continues to grow in popularity.  For more information, check out the Wikipedia article on Technical Analysis which restates these points and draws more history and information on the page, as well as providing a good list of introductory books for more serious study on the topic.
Published by Corey Rosenbloom of Afraid to Trade.
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A Monthly View of Gold Prices
October 26th, 2008 by Corey Rosenbloom

With gold price movement confusing many traders, let’s pull the chart back to the monthly view to see if we can gain any insight from this higher time frame and note possible significant support under us.
Gold Monthly Chart (normal scale):

These charts are similar, so I’ll show them both and then discuss them.  I often prefer to use the arithmetic scale as it often clarifies the most recent data (assuming that data is to the top of the chart) while compressing past data (assuming that it is to the lower prices in the past on the chart) - my feeling is that current price data is more important to view than past data (in terms of clarity).  All that’s open to debate so I’ll show both charts.
Price is testing the rising 50 month EMA and has actually found temporary support at this level ($670 per ounce) and we could be about to see, or are currently seeing, a short-term run back to test a couple of higher levels.
Ultimately, despite the technical (chart) damage on the daily and now weekly charts (timeframes), monthly gold is still in a defined and confirmed uptrend, and is only pulling back to test the 50 EMA along with the (approximate) 38.2% long-scale Fibonacci retracement.
In addition, price formed a new momentum high in early 2008, but the momentum line (black) has now crossed beneath the zero line (of the MACD) which tempers the bullishness.
Let’s pull the view back and see the log-scale chart for a moment.
Gold Monthly Chart (logarithmic/percentage equivalent scale):

In terms of Elliott Wave (thanks to clarity from the log-scale), one could argue that Wave 1 lasted from 2001 until early 2004 with Wave 2 being an ABC ‘flat’ correction, giving rise to the almost vertical Wave 3 from late 2005 to early 2006, and seeing another “flat” ABC Correction for Wave 4 that ended in mid-2007 which gave way to the Final Wave 5 impulse into the $1,000 per ounce price highs that formed significant ‘topping’ price patterns and violations of key moving averages (and Fibonacci support) on the daily and (now) weekly frames.
As such, we’re seeing perhaps Wave A down (which may have been a roughly 5-wave impulse pattern down itself) and could be expecting a B wave yet to come (soon) which should take price up to $900 or so (rough estimation).
Either way, if some of the lower time frame charts seem confusing (the same thought goes for stocks), then pull the view back to the monthly charts for better clarity.
Always remember that the shorter time frames LEAD the longer time frames, and chart destruction on the shorter time frames will precede destruction on higher time frames (by destruction, I mean downside violations of support zones, moving averages, lower highs/lows, Fibonacci retracements, etc).
Be safe out there.
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A Glance at the Daily NASDAQ and SP500
October 25th, 2008 by Corey Rosenbloom

What a week we just wound down.  There was contraction in volatility and a possible triangle consolidation formation, but by Friday we had a lock-limit down move on the US Equity Index futures and the NASDAQ making fresh new 2008 closing lows.  Let’s see these up close and personal.
First, the S&P 500 Daily Chart - hovers above fresh 2008 lows:

We actually did make a new closing low (technically) on the S&P 500 for 2008, but not an intraday low.  Look closely to see the volume action on the recent pattern - volume surged as the pattern began (capitulation) and then contracted as the triangle continued (showing lack of confidence from the buyers - a hallmark of a true triangle consolidation/continuation pattern), but volume is again rising to the upside as the pattern completes (possibly breaking out to the downside).
The moving averages are in the most bearish orientation possible (20 beneath the 50 which is beneath the 200) and price is over 100 index points away from the 20 day EMA - signifying a retracement back up is likely but certainly by no means guaranteed - particularly if momentum continues to increase to the downside.
The ‘hammer’ bullish candle-pattern, as well as the test of the rising trendline from the triangle - have both failed on Friday’s action.  Price closed beneath the trendline and beneath the open of the hammer, signaling bearishness and invalidation.
The momentum oscillator is also hooking back down.
Let’s take a quick look at the NASDAQ Index to see a similar pattern, with the only major difference being an obvious fresh 2008 closing and intraday low.
Second, the NASDAQ Daily Chart - making new closing lows.

The analysis above applies to the NASDAQ as well, only we are roughly 250 points away from the 20 day EMA.
For additional insight into the triangle consolidation (which is now appearing to form a possible descending triangle), let’s see the S&P 500 60-minute chart.
Finally, inside the triangle consolidation on the S&P 500:

There’s a little oddity occurring, as price is trending downward but momentum appears to be rising, in fact possibly forming a triple-swing positive momentum divergence.
Price on the hourly chart is also under all key moving averages, and they are also in the most bearish orientation possible.  Price is also ‘nipping’ at fresh lows which would come in beneath the 840 level.
Keep a very close watch on the 860 to 880 level - if we can find some support here, we still could break to the upside but we’d have to clear that 940 to 960 level which is the upper (descending) trendline, which will become a target if we exceed the 900 level (above the 20 period EMA).
Until then, the larger structure remains bearish, and the trend is clearly down.
We’re likely in an Elliott Wave 4 (sub-wave fractal) of a larger impulse down, but keep in mind that corrective patterns tend to be quite difficult to classify and trade by their very nature of the fight or intense struggle of buyers and sellers - of bottom-fishers (and long-term value players) with short to intermediate term sellers of all types.
Hang on to your account - we’re not out of the woods yet.
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SP 500 Futures Overnight Lock Limit Down - Compare to Gold and Oil
October 24th, 2008 by Corey Rosenbloom

For four hours this morning, the US Equity Index Futures markets went “lock limit down” after moving a predetermined move that automatically halts trading.  Let’s see that overnight move on the charts and then compare what happened in the Crude Oil and Gold Futures Markets as well.
S&P 500 “e-mini” Futures Contract:  15-minute overnight session:
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It’s a stellar development - one that happened so quickly as price cascaded lower - along with overseas markets - after midnight and into the morning.  I circled the “lock-limit” session with an oval.
Unless you were awake at that time (many of us were not) then you may have woken up to a surprise - perhaps panicked surprise.  Nevertheless, at the moment, price is rallying sharply above that level, perhaps indicating an ‘overshoot’ in price ‘panic’ or some other factor.
One thing I wanted to make a special note - if you trade ultra-short time frames such as 5-minute charts - is to be careful in interpreting your classic indicators that hold data during this time period.  For example, if you’re using a 20 period EMA, it will take 20 bars to ’shake off’ this ‘data void’ in your moving average.  Stochastic (14 bars), RSI (14 bars) MACD (default) all will experience some “indicator failure” as a result, so do be very, very careful taking cues or signals from this time.
Just look at the “3/10 Oscillator” (blue) in the chart above - it flatlined during this time and is having to factor out the data for at least 10 periods (it’s the difference in a 3 and 10 period SMA).  In fact, with the volatility so rampant, it’s probably best to focus your skills on the price itself, rather than blind allegiance to any one (or combination of) indicator.
Don’t assume that fundamental valuation - pricing - is based solely on fundamentals.  Emotion, program trading (hedging), panic, greed are all playing a major part in today’s - and everyday’s - pricing action.
Let’s compare the S&P 500 contract to that of Crude Oil (and then Gold).
Crude Ofile:///C:/DOCUME~1/Corey/LOCALS~1/Temp/moz-screenshot-8.jpgil 15-minute overnight session:

Crude Oil dipped $6.00 to trade ever so shortly beneath $63.00 per barrel - ask yourself if you ever thought that was possible after seeing oil near $150 per barrel not that long ago.  Though oil didn’t “lock limit down,” it did experience a sharp decline overnight that likely yanked any overnight long stops (if you were unlucky enough to be long) and gave swift profits to overnight (brave) holders of short positions.
Interestingly enough, notice the clear and present positive “three swing” momentum divergence that set-up as price made new lows into 6:00am.  Odds are crude will close higher than $63 or $64 today as a result.
What’s been strange for me to observe is the close - almost exact - correlation in Crude Oil prices and the S&P 500 (equity market) prices.  That pairing was evident overnight almost tick-by-tick.
Now, onto Gold, which you would think would be doing exceptionally well in potential ‘panic’ environments.
Gold (mini) - 15-minute overnight session:

Though gold bottomed ahead of the S&P and Crude at 4:00am, it still suffered a sharp and stunning $40 decline overnight from peak to bottom, which is now being recovered/retraced.
It’s so difficult an environment out there, but the cynic can say “Gosh, all this stuff is so easy… just sell EVERYTHING.”
If only it were that easy.
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Published by Corey Rosenbloom of Afraid to Trade.  Click to receive the Afraid to Trade Feed.
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Charts courtesy TradeStation.
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Link: Really Scary Fed Charts!
October 23rd, 2008 by Corey Rosenbloom

Ben at The Financial Ninja has kept a running monthly summary of various charts from the Federal Reserve that are absolutely worth viewing in full detail.
His most recent post is entitled, “Really Scary Fed Charts [for] October - Now ‘Crazy’ Scary!“.
Ben plots the Non-Borrowed Assets of Depository Institutions (hint - it’s very negative… as in close to -$200 billion negative) and then compares it to the Total Borrowings of Depository Institutions from the Federal Reserve which shows a spike up to almost $300 billion in new borrowing.
He then shows the Discount Rate of Borrowing as well as the Total Borrowings and the Reserve Balances for the Fed.
Each chart is taken directly from the St. Louis Federal Reserve’s website, which allows you to customize your own views based on the data they’ve made freely public.
Ben then provides some commentary, additional links, and sources for more information.
If you can bring yourself to look at what he’s found, it’s a great read.
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Russia Hit Extremely Hard
October 23rd, 2008 by Corey Rosenbloom

We tend to follow our own country’s stock market extremely closely and only give cursory attention to other foreign markets.  Let’s take a moment to look at the Russian Trading System Index and view its stunning fall from 2,500 to 700 in five short months.
RSTI Monthly Chart:

The monthly chart would be particularly devastating to investors were this a single company, but in fact it’s the broader index for the Russian Stock market in general - meaning many individual Russian stocks have suffered worse than this chart shows, devastating investor equity virtually across the board in such a short period of time.
The Russian Index held its own during the 2000-2003 bear market in the US, and then expanded rapidly as commodity prices were in a strong bull market into mid-2008 when the Russian Index collapsed along with the expected global slowdown/recession and demand destruction in commodity prices.
The index is currently down 45% for the month of October alone (compared with the US S&P 500 Index which is down 23% for October).  The Russian Index is down over 70% from its peak roughly in June/July.
Neither the 20 period or 50 period EMAs, nor any of the major Fibonacci levels saved off the decline - not even for a moment.  This is an extremely rare example of five solid red bars in a row - on a monthly basis at that.
Let’s bring it down to the weekly chart to see how quickly things got so bad.
RSTI Weekly Chart:

For quite some time, the 20 and 50 week EMAs provided solid support until early 2008, which was a significant sign of an uptrend (notice the comfortable spacing of the moving averages until they crossed over recently).
The initial breaking of those averages was the early warning sign that things might not be right, or that at least the uptrend was coming into a consolidation or reversal phase ahead.  What got traders was the sharp upswing in May that took the index from 2100 to 2500 in roughly two weeks - what looked like a sign of strength at the time was actually a significant ‘trap’ or ‘blow-off’ top of some sorts.
Directly after that swift move, price fell slightly… and then accelerated as it broke the 20 and 50 period EMAs again, which set up a test of the 200 week moving average… which provided absolutely no support as expected.  Failing at the ‘last line in the sand,’ price had no where to go but down… and down it went, exceeding the bearish expectations of most that were analyzing it I would expect.
Finally, let’s translate the index into an ETF for those who wanted to participate in this move… I’m making no recommendations whatsoever on what to do next.
RSX - the Market Vector ETF for Russia:

Volume picked up throughout 2008, surging into the last few months as price plunged from $60 per share down to $15.
Be careful in this environment - it’s unlike what most people have ever seen.
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SP 500 Triangle Continues
October 22nd, 2008 by Corey Rosenbloom

We’re nearing the Apex of the Triangle formation that’s formed on the 30-minute and 60-minute chart of the S&P 500 (and other market indexes) so it’s worth going inside this formation and seeing what might lie ahead.
S&P 500 60-minute chart:

Right now - if you don’t follow Elliott Wave - we’re in a simple triangle consolidation pattern, and are reaching the apex of the formation which will converge about the 930 index level.  Most triangles break-out 66% to 75% of the way to the apex (point where the two trendlines converge).  The pattern will be invalidated should price travel through the apex without a price break-out in either direction.
Notice how price has actually broken slightly beneath the lower trendline in the momentum oscillator - that’s not a necessarily bullish development but - as of this writing - we’re not out of the formation yet.
If you follow Elliott Wave, then we’re completing sub-wave D of the Elliott Triangle pattern which is forming sub-wave 4 (retracement) against the larger trend on the daily and weekly charts.  According to EWT, we have sub-wave E yet to come and then a breakout is more likely to occur to the downside.
Let’s see this structure on the daily chart:
S&P Daily Chart:

The entire structure you see is Wave 3 of the larger impulse on the weekly charts (beginning with the October top).  Wave 3 - the largest and most ‘powerful’ wave - is subdividing down to its own 5-wave impulse… but let’s not get ahead of ourselves.
Wave iv (the current wave) is subdividing into a Triangle pattern (which itself is 5-waves) as a retracement against the prior downthrust.  Notice the new momentum low made on wave iii.
IF this is the dominant structure, then we probably have one more mini-wave up before the triangle breaks to the downside, testing the prior 850 level at a minimum and exceeding it possibly.
I have to share something a little humorous of a political nature.
I was reading a post on a website the other day where the headline read “Stock Market will Fall - McCain is finished before election day” or “Stock Market Move Down will Doom McCain” or something of that nature.  I had to read it.
The premise was that we’re in an Elliott wave 4 triangle (as I displayed above) and that the price will break out to the downside just before the election which will doom John McCain’s chances at the Presidency.  I kept envisioning my own headlines:
“Elliott Wave Triangle Dooms Sen. John McCain” or “Triangle Breakdown Defeats McCain” or something along that nature.
That sentiment is clearly biased and also holds quite a few assumptions.
First and foremost, that the Elliott pattern is valid and that price will break down sharply following sub-wave E.
Second, that - even if that happened (which does seem likely) - then a down market will help Senator Barack Obama and doom Senator John McCain.  Who knows?  Maybe a severe move down in two-weeks time will lead to a sudden call for leadership and experience and shift the dynamic. It’s so hard to tell!
Even if it is the case, it’s still - at least to me - a humorous way to interpret Elliott Wave Counts and then extrapolate them to the real world.
At any rate, I thought it was a an interesting use of Elliott Wave theory that I wanted to share with you all.
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Crude Oil Dips Beneath $70
October 22nd, 2008 by Corey Rosenbloom

Who would have expected such a headline on Crude Oil just five or so months ago?!  Today, it happened, with Crude oil trading just above $68 per barrel in the morning session on Wednesday.  Let’s look at the weekly and daily charts to see how this happened and what might be in store.
Crude Oil Weekly:

Note - the chart for Crude Oil - $WTIC - in StockCharts updates with end-of-day data, so it’s not showing the current sub-$70 prices yet.
Crude oil peaked just shy of $150 per barrel in July before falling over 50% to their current level in late-October.  Price cut all levels of support, both from Fibonacci retracements and moving average support with only a minimal retracement to the upside (on its sharp pathway down).  Price has also formed a new momentum low (”NML” on the chart) which is often a precursor to lower prices yet to come (following a retracement up).
Price is now testing the rising 200 week moving average, which is expected to provide support to prices, but it appears - at the time of this writing - that even that level is not holding price in check.  There are reports that OPEC will meet to cut production (reduce supply) which is expected also to give a boost to prices, or at least stave off some of the rampant selling in the commodity.
Common perception is that crude oil is falling due to “Demand Destruction” associated with a global impending recession, where companies will be downsizing/closing, retail sales will decline, and thus transportation costs (needs) will decline as well as airline travel and other sorts of economic factors that require gasoline (and products) to get supplies/people from one place to another.
Falling crude prices are deemed to be a boost to consumers, as falling gas prices at the pump helps consumers keep more in their pockets - all of which will be very needed if the economic conditions continue to deteriorate.
Let’s zoom the chart in to the daily chart.
Crude Oil Daily:

We see the progression of three “new momentum lows” on the chart as price moved steadily to the downside.
Price initially found support about the 200 day moving average, but failed at the confluence zone of the 20 and 50 EMAs overhead.  Selling accelerated as price broke the 200 average.
A clean retracement took price back to the ’super-confluence’ zone of the 20, 50, and 200 period moving averages… where it failed to overcome such resistance and traveled lower into new October lows.
Despite all the red (selling), there’s a potential for good news, at least according to a simple Elliott Wave count (not labeled).
The initial price thrust down to the 200 period MA could be Wave 1; the flat retracement before breaking the 200 MA could be Wave 2.
Wave 3 may have occurred when price broke to new lows in September while Wave 4 was a quick, four day solid advance to the confluence resistance zone which then led to new October lows in the current Wave 5.
IF this is the correct count, then Wave 5 is expected to end soon, and upon its termination, the “ABC” Corrective phase will commence, which could take price as high as $100 (in time) as these three waves begin (A wave up; B wave back down; C wave back up).
Let’s see if this indeed is the case, and if so, it might be a good idea to exit short trades in oil soon.
As a special Bonus, I wanted to include a link to the Market Club’s Third Quarter ‘trade triangle’ trading results (performance) in Crude Oil.  They reported six ‘trade triangle entry’ trades, with four winners (capturing the trend moves) and two losers, for a potential gain of over $20,000 for pure signal-based traders using their software (slippage and trade size will affect results - they quote results based on trading one futures contract).  Check out the video for more information.
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Monthly Charts of a Homebuilder and a Financial Company
October 21st, 2008 by Corey Rosenbloom

It’s worth looking at some of the long term charts on the monthly time frame of some of the key homebuilder stocks and how they peaked around 2005, and then compare that to various Financial Companies that peaked in late 2007 to see the leading characteristic that brought down the Equity Markets lately.  For this example, let’s look at Beazer Homes (BZH) and then Citigroup Financial (C).
First, Beazer Homes (BZH):

Clearly, what goes up does not have to go up forever - but usually the fall isn’t this hard.  The mortgage and homebuilder ‘collapse’ in 2007 showed up previously in the charts, as most leading homebuilder stocks (Pulte Homes - PHM, Meritage Homes - MTH, etc) peaked similarly before news began to be massively public that these companies were in trouble.
Many of these stocks had run-up in value so much that it was difficult to see any potential danger in them.  But let’s look at the charts for clues of early deterioration.
Beazer showed a “Three Push” pattern which can often form tops - the pattern was complete with a ‘flatline’ negative momentum divergence (shown) which confirmed the pattern.  In essence, the pattern signals that bulls are giving it all they have, fall back down to sellers, push prices higher, and finally give up to sellers, having exhausted buying power available.
Following the “Three Push,” price shattered the rising 20 month EMA without even a hint of a bounce and found temporary support just beneath the rising 50 day EMA which is the second target of support after an initial 20 EMA break (Pulte Homes supported exactly at the “50″).
A bear flag formed, the flag of which lasted 3 months before finding resistance about the (now) falling 20 month EMA and shattering the ‘50′ again into new lows for 2007.  A quick two-month bounce (now a retracement in a confirmed downtrend) fell short at the major confluence point of the 20 and 50 period EMAs as they crossed, signalling “abandon ye all hopes all bulls who enter here.”  Price then plunged to $10 a share, and now trades currently beneath $4.00.
Beazer peaked in late 2005/early 2006, and financial stocks were up next on the firing line, so to speak.
Let’s look at a major example:  Citigroup
Citigroup (C):

Citigroup found multiple support tests (buying opportunities) each time price creeped back to the rising 20 month EMA before rallying sharply above it, testing it in a semi-”Falling Three Methods” candle pattern before breaking the “20,” finding only temporary support at the “50,” forming two doji candles (of indecision) and then falling quite precipitously down through these averages as 2007 came to a close.
The selling was relentless, as was the volume.  We never know how far a move will take price, and we always have a tendency to wait for a reaction, whether to get short initially, or exit (”Oh, I’ll exit at the next bounce-up”).  It’s these run-away, mammoth sustained volatility moves that can do severe damage to trading and especially investment accounts.
The lesson is to pay attention to the larger structure and how price is behaving or situating itself on the larger timeframe for insights into what type of position/bias to have on the smaller timeframes - no matter what your style of trading.
***
Copyright and Published by Corey Rosenbloom of Afraid to Trade.
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Gold the Game Changer?
October 20th, 2008 by Corey Rosenbloom

Gold has been stunning traders both on the longside and short-side.  Adam Hewison released a great video to describe different time frame action, as well as reveal insight into possible future direction thanks to their “Trade Triangle” Technology.  Let’s compare charts and see what he means about gold.
First, let me display my quick interpretation of the daily chart:

Most noticeable is the series of lower lows and lower highs in gold prices (per ounce) which defines a stable downtrend.  Price is beneath all three key daily moving averages, and they are in the ‘most bearish orientation’ though just slightly so (20 beneath the 50 beneath the 200).
I wanted to make a note of something many people may miss in their analysis - regarding candle patterns.  We get caught up in defining what a candle is (hammer, doji, evening star) but sometimes forget the structure or ‘meaning’ behind them (why we expect them to ‘work’ because of how they reflect the struggle between buyer and seller).
I don’t know of a term for this other than “Long Upper Shadows” which had developed consistently about the $920 - $940 range, but just look at the numerous ‘price rejections’ of these levels considering how many times they have been tested in September/October.  Long upper shadows mean that price opened at a certain level, rallied up intraday, then gave back all or most of the gains of the day to close nearer to the open or beneath it.  Whatever you call it, it has bearish implications, because sellers are stepping up at those levels despite buyers continuously trying to push them there.
Should the buyers ‘give up’ or should value be determined at a lower level, price will fall, which is what is currently happening in a down-swing from these ‘long upper shadow’ levels.
Other than that, momentum broke a trendline to the downside and is not far from a potential new momentum low, and subsequently new price lows should we take out the $740 level.
That being said, let’s watch the decent sized (8-minute) video from Adam Hewison entitled “Gold - the Game Changer”.
Hewison takes us through the monthy, weekly, and daily gold charts, annotating them heavily, and emphasizes his take on the most likely direction with price targets.  He then describes a few methods to trade this move beyond buying/selling futures contracts, such as trading Barrick Gold (ABX).
Let me (Corey) make a comment about Barrick (ABX).  ABX actually made a lower low beneath the September low in Gold, which has even more bearish overtones for the commodity, as often stocks will lead their respective commodities.  Take a look at ABX and compare it to the price of gold.
Hewison writes (copied with permission):
“There’s no doubt about it, these are volatile times and that is reflected in the broad swings in all of the markets. One market that had a huge move Thursday (10/16) may have produced a game changer that you can make money on.
I’m referring to a major commodity that has not acted like it would normally act in an economic crisis. In this short video, you will see exactly how we have positioned ourselves and what we expect will be the course of this market in the short term.
The new video, which requires no additional download, also includes a well know stock that tracks the above market very well. You will see first hand where we expect this market to go to.
The video is available now. There is no charge and we believe it will help improve your trading in these volatile times.”
***
Copyright and Published by Corey Rosenbloom of Afraid to Trade.
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A Little Daily Index Triangulation
October 19th, 2008 by Corey Rosenbloom

Despite the volatility of last week, a relatively orderly symmetrical triangle is forming on the S&P 500 Index which could be resolved early next week.  Let’s examine the S&P 500 daily structure and then the 30min chart for clearer insights on this consolidation pattern.
S&P 500 Daily:

The daily chart looks horrendous for long-term investors and indeed it has been.  Price was unable to successfully rise above the 50 day EMA meaningfully since May (what a long time ago that seems).  Price is now beneath all three major moving averages and they are in the most bearish orientation possible.
Price appears to be winding down into an equilibrium level (consolidation pattern) to digest some of the rampant movement over the last few weeks.  It would seem logical to expect some sort of upside break and test at least of the falling 20 period EMA or beyond, but we wait for the current structure to unfold for insights or clues of that occurring.
Momentum made a new significant low and I cannot underscore how large a low that was.  The oscillator is the difference between a 3 period and 10 period exponential moving average, and on October 13th, that differential (spread) was 100 S&P points - remarkable.  The spread now is around 40 points and will likely narrow as price consolidates.  Still, new momentum lows are not bullish long-term.
I wanted to highlight the triangle consolidation forming on the lower-time frame charts.
S&P 500 30-minute chart:

As of Friday’s close, the triangle was well-defined and perhaps has a little more ‘way to go’ until it is complete, or when price breaks out usually 2/3 to 3/4 of the way to the “Apex” or place where the converging trendlines meet.
If the triangle is the dominant structure, then a test of 890 to 900 - the rising lower trendline - would be the expected play, particularly since the most recent up-swing was a full and complete 5-wave Elliott Pattern (that I highlighted and predicted on Thursday and Friday’s posts).  I’m finding success applying Elliott’s principles to the shorter time frames.
We’ll see if this structure continues to play out, and will be waiting the eventual break - up or down - of the triangle which should lead to yet another volatile or sustained price move (which ‘feels like’ it will be to the upside - but no promises yet).
Join the MarketClub for daily commentary/analysis/trading signals.
Copyright and Published by Corey Rosenbloom of Afraid to Trade.
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How to Project Measured Move Flag Targets in TradeStation
October 18th, 2008 by Corey Rosenbloom

If you’ve ever wanted an easy, three-click method for price projection targets from what you perceive to be bull or bear flag set-ups, check out this simple method using traditional Fibonacci tools in TradeStation (similar in other charting packages with the Fibonacci Projection Tool).
Let’s not discuss Fibonacci, but just the “100% Equal/Measured Move” of a prior impulse.  Flags target an ‘equal move’ of the pole, once a retracement has formed.  Search this blog for “Bull and Bear Flags” for more information, or check out any reference on bull/bear flags.
The Flag forms a clean retracement against an intial impulse (usually a sharp price swing) which often retraces to a key moving average or perhaps the 50% Fibonacci retracement.  Once you believe that price has broken OUT of the mini-channel that a flag forms, THEN it’s time to enter and project a price target for how far the move is expected to travel (for purposes of risk/reward and trade management).
Here’s how I do it in TradeStation:
Once you identify a possible flag breakout (we’ll discuss bull flags here), then click on the “Fibonacci Price Extension” lines under the “Drawing” tab.
Your cursor will change to the extension tool, and your objective is to click on the BOTTOM of the Flag Pole, then click at the TOP of the Flag Pole (the “Impulse Swing” move), and finally make your third click at the BOTTOM of the perceived flag.
Keep in mind you’ll need to do this AFTER price has broken above the trendline to the upside so that you’ll have a confirmed break to the upside.  Failing to wait for the break could cause a premature projection, and the price may travel a little lower than where your projection started… but if this happens, simply re-draw the Projection.
The program then draws multiple lines on the graph, but you’ll need to cull it down a bit for clarity.  Double-Click on the Fibonacci lines drawn and open up the Editor tool for the Price Extension.
Uncheck everything EXCEPT fot the 100% retracement line (this is really the most important step).
After this, you can change the color or thickness of the lines - which is of secondary importance.  Here is a screencap of what this looks like:

Once you make these changes, you’ll wind up with a grid that only projects the 100% projection, which is an exact measured move of the “Pole” that begins (is added) at the bottom of the Flag you chose.
I’ve cheated a bit and given you a complete projection, and sometimes you’ll need to drag your chart (scale) to see the actual projection.  Click for larger image:

TradeStation gives you the EXACT price of the target, which will help give you an exact idea in mind and will help in Risk/Reward calculations (as your stop will be an exact number as well - placed just beneath the lower-trendline of the flag).
The Blue Line (100%) was drawn by TradeStation, and what you’ll find more times than not is that price at least pauses and sometimes totally reverses at the 100% projection, or exact Measured Move of prior impulses.  Whatever the reason (those are all debatable), it sets up an excellent trading opportunity with low risk (tight stop) and larger target (100% Projection).
Try it out and see what additional insights you can find with this very useful tool.
Copyright and Published by Corey Rosenbloom of Afraid to Trade.
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Possible DIA Intraday Elliott Wave Interpretation
October 17th, 2008 by Corey Rosenbloom

In the previous post, I mentioned the possible Elliott Wave Count for the intraday DIA 5-minute chart.  Let’s look at that in more detail and see if the Elliott Wave count plays out through the rest of Friday:

Wave 1 rose from $82 to $87 for a $5 wave before Wave 2 retraced to the 50% Fibonacci zone of Wave 1 and found support.  A fractal “ABC” correction confirmed Wave 2.
Wave 3 began around 1:30 and spanned from $84.50 to $90 for a $5.50 Wave into the close (also completing a “Bull Flag target), which itself sub-divided into a 5-wave impulse, confirming the powerful 3rd wave.  Notice also that the sub-wave “iii” itself sub-divided into a fractal 5-wave impulse (visible only on the 1-minute chart) which further gave evidence we were seeing the 3rd Wave.
Wave 4 was sudden and was created by the overnight gap this morning which retraced to sub-wave iv of the prior 3 Wave.  Wave 4 also retraced to the 50% Fibonacci retracement of Wave 3.
What’s happening now?
Wave 5 is underway, which has apparently already formed sub-waves i and ii (which subdivided into its own “ABC” Correction).
IF this count is correct, then we are currently in sub-wave iii of the final Wave 5 of the completed impulse.  Wave iv is yet to come which - depending on how far sub-wave iii goes, could retrace to $85.50 or so.  The final Wave 5 should terminate around $90.50 to $91.00, but if the principle if “Equality” is correct (when Wave 3 is the longest, Wave 5 should be equal to Wave 1), then if we add $5.00 to the start of Wave 4 (at $87.00), then that would give us a Wave 5 ‘equality’ target of $92.00.
We’ll see if this plays out according to my interpretation of Elliott Wave!
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Breaking Down Thursday’s Action
October 17th, 2008 by Corey Rosenbloom

Thursday’s action in the US Equity Markets was quite … interesting.  The day began with a large volatility move down 300 points, reversed, then the Dow closed 400 points higher.  I wanted to deconstruct some of the action and highlight a particularly interesting set-up.
October 16, 2008 DIA 5-Minute Chart:

The day initially retraced into resistance via the falling 20 period EMA (forming the “Impulse Sell” trade) and then making new lows on the day.  A three-swing positive momentum divergence formed, hinting that at least a small reversal was likely yet to come, which was realized just after 11:00am.
Price broke the 20 and 50 period EMAs with no resistance, forming a new momentum high and what would correctly be interpreted as a “momentum impulse” forming the “Pole” of a potential “Bull Flag” trade.
What I wanted to point out was that it wasn’t your classic - easy - bull flag trade.  Entry came as price broke above the upper trendline at $85.50 (where I’ve labeled “Break”) with a stop being placed beneath the lower trendline around $84.00.  Instead of price rocketing up to the target, price retraced back to test the uppper trendline, causing a little nervousness to longs as they took ‘heat’ in the trade.  Usually, flags don’t retrace to test this level - they resolve quickly.
The impulse move was from $82.00 to $86.50 for a $4.50 target upon break, which - when added to $85.50, would be $90.00 - the exact intraday high - but keep in mind I used rough estimates in this example - you would use exact prices in actual trading and targeting.
I also labeled a simple Elliott Wave count into the close.  It resembled to me to be Wave 3 of a larger impulse on the day (Wave 1 was the 11:00 to 12:00 move; Wave 2 was the correction to this move (the flag) and Wave 3 was the impulse into the close, which also sub-divided), which we’ll see if it plays out by the close of Friday’s action (Wave 4 would retrace down to around $88 before wave 5 goes up to test the $90 level or beyond).
Thursday’s action was quite interesting - print it out and annotate it on your own for additional insights.
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Damage on Monthly Charts - XOM and JNJ
October 16th, 2008 by Corey Rosenbloom

The recent stock market downturn has taken down many otherwise strong stocks, destroying yearly uptrends and shattering large-scale support levels.  Let’s take a quick look at the current S&P 500 Index as well as large “Blue Chip” companies Exxon-Mobil (XOM) and Johnson & Johnson (JNJ):
S&P 500:

I cannot underscore how much damage has been done to investors in this recent downturn.  Also, that large red bar on the right side of the chart is NOT yet complete - it represents only the half of October which has currently transpired - It’s absolutely devastating in its relentlessness.
Ultimately, I’m convinced we’ll retest the 750 S&P index level before everything is said and done, and could potentially exceed it - while that was perhaps considered unfathomable last year - just last week, we were only 100 points away from that level.  We’re currently beneath the lows of the 1998 ‘crash’ which was particularly painful at the time - that’s long behind us but we’re actually beneath the index level 10 years ago.
Enough of that - let’s look at oil giant Exxon-Mobil (XOM):

XOM reported record profits recently, but with the sharp decline in crude oil prices and the expectation for a potentially deep US/Global recession (combined with “Demand Destruction”), the stock  has plunged precipitously in October after peaking in mid-2008.  In six months, price has fallen from a peak at $95 to a current low just above $55 - slicing all pertinent monthly EMA support and the 50% Fibonacci retracement just above $60 (roughly where the candle’s real body is supporting currently).
Until then, the rising 20 month EMA provided clean and clear buy signals - it was violated on a closing basis not long ago before price officially turned down to new price lows on the year.  Volume is also surging to record levels (trend has been up) and - again - the month is half-over and the volume almost matches that of all of September - massive turnover.
Finally, let’s look at a ‘defensive’ Consumer Staples (safe) stock Johnson & Johnson (JNJ):

Generally, we look to invest in ’safe havens’ during economic uncertainty, and if you still want exposure to the Stock Market, ‘consumer staples’ is the ideal way to go during bear markets/recessions.  We’ll always need toothpaste, shampoo, cosmetics, etc.
However, JNJ is even suffering, as investors are likely ‘throwing the baby out with the bath water’ and selling everything that has the name “stock” or “equity” attached to it.  It can create value for long-term investors, but in the short-term, can be particularly painful for swing and position traders (sudden downturns, that is).
Nevertheless, price is finding current support at the rising 50 month EMA during a strong and pervasive up-trend.  Aggressive investors/traders may find this to be an appropriate buy signal for accumulation - others may just want to stay away from all stocks until the uncertainty and volatility subsides.
Either way, even ’strong’ stocks are taking brutal hits that are providing (unexpected) risk and possible opportunity.
Stay safe - these are turning out to be very difficult times for both longs and shorts.
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Current NASDAQ Elliott Wave Count
October 15th, 2008 by Corey Rosenbloom

I wanted to offer my interpretation of the Elliott Wave Count structure on the NASDAQ chart, which is very similar to that of the S&P 500 and Dow Jones.
For “Basic Elliott Rules,” see my prior post.
Let’s get started with the current possible (preferred) Elliott Count on the NASDAQ:

Elliotticians know that - if this predominant count is correct - then bad things (bearish) are in the horizon for the US Equity Markets.
Starting with the October 2007 price high (which was the completion of a larger 5-wave pattern not shown), we begin our Wave 1 Down into March, 2008.  To confirm internal wave validity, there was a complete 5-Wave sequence (fractal) that comprised our Wave 1.
Wave 2 formed a “Flat” or ABC Corrective (3-wave) pattern from March until August 2008.  Corrective waves are comprised of 3 waves.
From the peak of Corrective Wave 2 (notice it clearly did not retrace 100% of Wave 1), we began our current Wave 3 impulse (surge or “Thrust”) down, which is not yet complete.  I show that we just completed fractal wave iii of the larger Wave 3 structure, meaning that we’re either in, or have just completed sub-wave iv.
It could be the case that we’re currently in sub-wave v (of the larger Wave 3) and if this is indeed the case, we have new lows yet to be made in the short term as Wave 3 completes/resolves itself.  Wave v could ‘truncate,’ meaning it could test but not exceed the lows of Wave 3 (just beneath 1,600), but if that is the case, then a larger Wave 4 counter-trend rally (retracement - correction) is yet to come, which could take price up to as high as 2,000.
Additional Fibonacci work will be needed for exact projection prices upward (and, eventually downward).
If this count is correct, then following the Wave 4 corrective rally, we’ll make yet more new lows as we descend into a potentially nasty Wave 5 impulse yet to come, which could take prices down to test (or perhaps exceed) the 2002/2003 market bottom - but let’s take everything one day/one week at a time and not get too far ahead of ourselves.
I’ve drawn below the ‘idealized’ or “noise free” version of the above chart for better clarity:

If this is indeed the case, then clearly the bottom is yet to come, which is also becoming the consensus of many of the “Talking Heads” on TV.  Wave 3 is important (to Elliott) because it is the wave that ‘everyone’ realizes what’s going on and piles on (or out).  Also, Wave 3’s tend to be where the most powerful (or unrelenting) price action occurs.
It’s because of the absolute violence of the prior swing down that leads me to believe (or confirms my suspicion) that we’re in a Wave 3 Impulse Down.
If this count is correct - look out.
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NASDAQ Hit the Hardest
October 15th, 2008 by Corey Rosenbloom

Of the major US Equity Indexes, the NASDAQ has suffered the most on Tuesday and now on Wednesday, and was only able to retrace to the 38.2% Fibonacci retracement of the August highs to the October lows.  Let’s see this index on the daily and weekly charts:
NASDAQ Daily Chart:

Price clearly made news lows into 2008, which also were new price lows (1,550) not seen since 2003.  The technical picture favored a retracement going into this week (actually favored it towards the end of last week yet price continued to fall), with initial retracement targets being the 38.2% Fibonacci retracement at 1,899, and secondary resistance via the falling 20 day EMA at 1920.
Also, there was expected to be a time component, taking at least a few days to meet this objective.
From the looks of things as it stands now, we met that Fibonacci objective in three short days before the retracement - as it appears currently - completed.
Notice also the new significant momentum low, registering beneath -150.  This means that the difference between the 3 and 10 day EMA reached a spread of 150 index points - remarkable.  New momentum lows frequently precede new price lows, so be aware of this.  We’re not currently far away from testing these new price lows soon unless the situation changes.
On to the weekly chart.
NASDAQ Weekly Chart:

Price found tentative support about the rising 200 week SMA, though it violated it on two closing instances prior to the official break in September before breaking down to new annual lows.  One could have drawn a triangle (draw a trendlne beneath the lows) which represented price consolidation which would have favored eventual price expansion - we got that expansion via the recent surge to the downside.
Elliott Wave analysts likely identify a full Elliott pattern (Wave 1) from the October Highs to the March lows, with an “ABC” corrective pattern from March to August forming the larger Wave 2.  If this is the correct count, then the NASDAQ and other equity indexes are in (or are completing) Large Wave 3… meaning there’s a Wave 4 up expected and then a Wave 5 down to new price lows yet to come according to that count.
Stay alert and don’t get complacent either long or short in this volatile environment.
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Is the Retracement Rally Already Finished?
October 14th, 2008 by Corey Rosenbloom

The day’s action hasn’t closed yet, but I wanted to throw this chart out quickly and ask the question:  “Is the retracement rally everyone expected already over?”
Let’s look at the DIA Daily Chart:

Not only have we already tested (and failed officially) at the 50% Fibonacci retracement from the August highs to the October lows (the 50% price is $98.61), but we have also came into confluence resistance just shy of the falling 20 period EMA.
We’ve rallied from $80.00 (Dow 8,000) to $98.80 (Dow 9,880 estimate) in three short days - is that all she wrote?
If so, that’s horrible.  I’ll try to look at more charts on a closing basis this evening.
Be aware that this could be a possible technical development that has just occurred faster than perhaps anyone expected.
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Fear
October 14th, 2008 by Corey Rosenbloom

Adam Hewison of Market Club released a video I wanted to share with you today entitled “Fear.“  In it, Hewison describes Roosevelt’s famous quote “The only thing we have to fear is … fear itself” and then applies this concept to trading as he discusses the recent moves in Crude Oil, Gold, and the US Dollar Index.
Here is a portion of Adam’s text introducing the video (reproduced with permission):
Looking back on Roosevelt’s speech in 1933, 4 years after the infamous crash of ‘29, he was referring to the economic conditions of the time — better known as The Great Depression. In essence he was saying that if we can’t shake our pessimistic economic outlook, it will be tough to turn things around.
The question is… are things different this time?
The answer is yes and no. People are still fearful of what the future holds and they have very little confidence in the economy. The big difference between the crash of ‘08 and the crash of ‘29 is that we now have India and China on the world stage. Back in ‘29, both of these countries were not on the radar. In fact India was under British Rule.
Both India and China’s economies will suffer with the downturn here in the US. They are now going to have to generate their own domestic consumption patterns for the goods and services they formerly sold to the US. This is going to be hard to do as so much of their economy is based on exports which are evaporating quickly.
The fact of the matter is that the markets are extraordinarily turbulent. We do not expect, even with the worldwide bailout, for things will be rosy again anytime soon. However, that does not rule out some extraordinary trading opportunities in the markets. This is a time for rational thinking. It is also a time to eliminate fear from trading.
There is no need for fear in one’s trading plan if you’re running with a diversified program that has proven to be successful over time. What I mean by over time is not just the last six months, or six years, but over a long period of time I mean as much as 30 years.
When you have a program that puts the odds on your side, you can trade with confidence knowing that you’re going to lose some small skirmishes in the market, but overall you will make money based on your own trading decisions.
Hewison then describes how the Market Club services and strategies can help newer and intermediate traders:
Many of you know that we trade using MarketClub’s “Trade Triangle” technology. This approach has proven successful in all types of markets, including the ones we are in now.
I’ve put together a short 12 minute video (entitled “Fear”) to show you how we have fared in three different markets using this technology.
Trading should be an unemotional experience. If you are trading for the excitement, odds are you’re going to lose. If you are trading just to say that you trade, you’re probably going to lose. If your trade for any other reason than to make money, you’re probably going to lose.
The possibility of successfully trading any market is out there. This video will show you how our unemotional, time tested approach to the stock, future, forex, etf, and mutual fund market will put the odds in your favor that you are on the right side of these extraordinary trading times.
“The only limits to our realization of tomorrow will be our doubts of today.”
Franklin D. Roosevelt
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Classic (though record) Trend Day Example
October 13th, 2008 by Corey Rosenbloom

What a day and what a recovery we have underway!  The major US Equity Indexes surged over 10% today, with the Dow gaining a record point gain in a singular day.  It gave us a good example of a classically defined “Trend Day” so let’s waste no time in looking at this example.
DIA (Dow Jones) EFT:

This rally was long overdue and the magnitude of it should not be all that surprising, given the rampant volatility climate we’ve experienced recently.  Let’s define a couple of points on a classic “Trend Day:”
Generally, Trend Days open with a (relatively) large Index Gap
Often, Volume at the Open is larger than prior opens (this was NOT the case today)
Price Fails to fill the opening gap
Price finds support at multiple tests of the 20 period EMA
Price NEVER crosses beneath the 50 period EMA
The Market opens at its lows and closes at its highs
There are many other characteristics of a trend day, including Breadth insights, TICK/TRIN, prior day’s range, larger time-frame, etc.
Let’s keep it simple and just focus on the large gap open and finding repeated support about the rising 20 period EMA.
This was the case until the 2:00 break, but the 50 period EMA supported price, and created a clean retracement buy signal.
Often, a hallmark of trend days is that most people can’t resist ‘fading’ them, or are - in this case - looking for zones to get short.  That is a fatal strategy.  Once you feel the odds are strongly in favor of a trend day, establish a core position that moment and place a trailing stop beneath the 50 period EMA and plan to exit at the close - if it is a true trend day, you will make profit no matter where you enter originally.
You’re able to scalp each time price retraces to the 20 period EMA with a tight stop beneath it.  How aggressively you trade can dictate the size and frequency of your trading activity on perceived trend days.
The SPY shows an identical chart as the DIA.
SPY (S&P 500) ETF:

Let’s look at the Sector Breakdown via StockCharts of the day’s activity:

Energy surged the most on the day, with XOM gaining 17% and Chevron (CVX) rising 20%.  Materials came in 2nd on the day’s gains, with the Consumer Discretionary (retail) sector underperforming the S&P and all other major sectors (posting ‘only’ a 4% gain).
Morgan Stanley (MS) surged almost 90% in a single day, though the ‘gold’ was not distributed throughout the broader Financial Sector - it only gained just under 8% on the day (nothing to sneeze at, but clearly not part of the larger gains on the day - how amazing is that).
Congrats to all of you who did well today, and for being ‘vindicated’ (as some of you emailed me) that we were due for a bounce.
Still be careful - we’re clearly not out of the ‘volatile’ woods yet.
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Why is the US Dollar Index Rallying So Sharply?
October 13th, 2008 by Corey Rosenbloom

A popular question I’ve been asked recently is “With the US Government ‘printing money’ and the Economy going into recession, why in the world is the US Dollar Index rising?!?”  Let’s take a look at a possible prevailing reason.
While clearly, there are dozens of fundamental and economic reasons as to the development, I wanted to focus on one of those major reasons:  It’s because foreign currencies are falling faster/harder than the US Dollar due to fears their economies will suffer worse than the US Economy.
Think in terms of relative strength.  Currency indexes are baskets of currency crosses, or how a particular currency is performing relative to other currencies.  It’s just like if you perform relative strength analysis on a stock to an index.  For example, if you want to know if Microsoft is doing better or worse than the S&P 500 over time, you would divide MSFT by the S&P 500 (in StockCharts.com, this is done by typing MSFT:$SPX into a chart).  You are then given a ratio which either rises or falls as MSFT outperforms (rising line) or underperforms (falling line) the S&P 500.
There’s a particularly strange phenomenon that develops when both are declining in price, but MSFT is declining at a lesser pace than the S&P 500, in which the relative strength line will be rising while Microsoft is falling.  It can be a puzzling scenario, especially when you see MSFT has a rising relative strength line and you invest in it, only to lose money and get confused.  In reality, MSFT declined less than the S&P 500, but it still declined.
This occurrence likely a major reason in the US Dollar Index rise relative to other countries’ currencies.  Remember, the US Dollar Index is structured as the following:
The Euro (57%), Japanese Yen (13%), British Pound (12%), Canadian Dollar (9%), Swedish Krona (4%), and Swiss Franc (4%).
For a full definition of the US Dollar Index and its calculations, see the Wikipedia Article or the explanation from Akmos Trade.
That being said, let’s view a comparison at some of these currencies, and then look specifically at the Australian Dollar, which has declined precipitously recently:

Remember that the Euro currency makes up roughly half the ‘value’ of the US Dollar Index, and it fell sharply from the mid-July peak (along with other currencies) to the current lows on the year.  The Canadian Dollar also suffered sharply during this time, along with the British Pound.
The Japanese Yen (not shown in the comparison) actually has shown relative strength as well against other currencies, and it almost mirrors the US Dollar Index recently (though again, a recent phenomena - not a salient one).  While the Yen is rising against other currencies, the Yen makes up only 13% of the US Dollar Index, thus the impact is mitigated, and clearly offset by the majority of currencies falling relative to the US Dollar.
Look at some of these currency index charts on your own for more insights.
Although the Australian Dollar does not comprise the US Dollar Index, it represents a ‘poster-child’ of the commodity collapse (along with Canada) and its currency - and economy - has suffered in kind:

This is a weekly chart, which captures the rising trend which coincided along with the commodity rally, both of which turned sharply downward in mid-July 2008.  The Aussie Dollar paid the severe price.
So, perhaps it’s not necessarily that the US Dollar Index is the ‘greatest thing since sliced bread’ or that the value is rising because of the hopes and dreams of investors.  It’s more likely that the Credit Crisis has spread and investors are expecting foreign economies will suffer worse relative to the United States in this global economic ‘recession,’ and that commodities - which often trade ‘inverse’ the US Dollar Index - have fallen under the same hypothesis of global ‘demand destruction.’
This is just one of the many phenomena at play - continue to watch the US Dollar Index and other currency pairs for deeper insights going forward.
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Apple Holds its Own
October 12th, 2008 by Corey Rosenbloom

Apple Inc (AAPL) showed relative strength last week while the market declined so sharply.  I thought I’d show this speck of positive news in the sea of negative - let’s look at Apple’s daily and weekly chart.
Apple (AAPL) Daily:

While it doesn’t look like there’s anything positive to discuss on this chart, look at the top-right part of the chart:  Apple increased over $8.00 on Friday, marking a 9% daily increase over Thursday’s close.  The weekly gain (shown below) is worth attention, as Apple lost ‘only’ 0.26% while the broader market lost roughly 20% in a week.  That is a strong showing in relative strength, particularly on Friday’s price action.
Is there reason to buy Apple here?  That’s up to you and your risk-tolerance/trading strategy.  The price (chart) structure shows the following:
Momentum making a new (significant) price low.
The Moving Averages are in the most bearish orientation possible
Price has made a large volatility price swing from $180 to $90, losing half its value in roughly 2 months
Price appears to be ‘hooking up’ to form a countertrend rally (retracement) back up currently
If price indeed is to undergo a countertrend retracement, the first target would be the $115 level at the declining 20 day EMA.  After this, we’ll need to consider Fibonacci retracements for possible targets.
Let’s gather some insight from the Weekly chart now.
Apple (AAPL) Weekly:

Price is challenging the 200 week moving average, which could also make the case for a support bounce up.  If anything, it would appear that the risk of being short Apple has significantly increased now.
Still, trade extremely cautiously no matter what you strategy is, and continue to make capital preservation your #1 goal.  The environment is currently far more difficult than it has been even in the recent past.
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Wild Intraday Action
October 10th, 2008 by Corey Rosenbloom

I’ve never been so happy a weekend has arrived.  Before that weekend starts, let’s take a look at the 1,000 point intraday swing in the Dow and other insights from the intraday trading for October 10, 2008.
$INDU 5-minute chart:

Folks, a 1,019 point Dow intraday range is nothing to sneeze at - it is absolutely remarkable and worth further attention.
The global markets fell roughly 10% each, and the US Equity Futures were off around 5% with the equity markets opening roughly in line with the futures, selling off, then sharply rallying… only to drift slowly lower all day… until the final hour where miracles happened (or curses for the short-sellers) into the close.
Are technicals valid in this environment?  They provide and identify structure and probabilities and allow snap-analysis of risk-management points as well as possible price targets.  It’s just that this environment is driven far more by emotion and news than anything, so while technicals can be helpful, they are not, and will never be absolute or infallible.
Nevertheless, price did respect the falling 20 period EMA and made a series of ‘clean’ lower lows and lower highs all day until the positive momentum divergence ‘caught up’ with price and then the index violated the 50 period EMA, shifting to a bullish breakout from consolidation and resistance.  That sharp 8-bar rally up underscores why it’s difficult for both longs AND shorts - if you were short and didn’t take a stop-loss, you could have endured a sudden 800 Dow Point rally against you, potentially destroying a small (overleveraged) account.
Price stopped at 8900 - the 200 period SMA before falling back into the close - how wonderful (for the bulls) would it have been to have achieved a positive close this Friday?  It wasn’t meant to be (in the Dow).
With 8 consecutive down-days in the Dow, where does that leave us on the Daily chart?
$INDU Daily Chart:

Price made a new low well beyond where most people expected - it was absolutely brutal.  People tried to catch bottoms along the way but it also wasn’t meant to be.
Price has now formed a ‘doji’ which could be a reversal signal but you don’t need to bet the farm on anything in this environment - stay small and heavily risk-controlled.
Print and annotate multiple stock charts and analyze them this weekend - it will be a helpful exercise that will add some perspective, as well as enhance your pattern recognition.  Plus, this kind of persistent down-moves aren’t likely to occur often (so we hope) so it could be interesting to observe them while the exist.
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The Two Prior 7 Day Declines in the Dow since 2000
October 9th, 2008 by Corey Rosenbloom

I thought it might be helpful to look back since 2000 to show the two previous times the Dow Jones Index was down seven consecutive days in a row.  The next two charts show the before, during, and aftermath of these instances for you to see for yourself.
The first time it happened since 2000 was just before and after the September 11th terrorist attacks in the USA.  The Dow had declined three days prior to the attack, and the market was closed for a week after the attack.  Here is what the chart looked like then:

(Note:  I programmed a strategy to identify these times and as an exit, I programmed a 16 day time exit - you may ignore the green bar - I don’t discuss it.  16 was an arbitrary time-based exit I chose).
The market actually fell for 8 days in a row before recovering sharply back to the 10,000 level by the end of the year.  Price ultimately went lower, bottoming at 7,200 almost exactly a year later in 2002.
If you are astute, you notice the red highlighted price bar “8,579.”  That’s TradeStation’s way of saying “This is what the currently symbol you’re looking at closed at most recently-” in other words, the Dow Jones is currently very near the price levels achieved on the 9/11/01 attacks - let that sink in for a moment.
Ultimately, price peaked at 10,600 in March, 2002 before heading lower to bottom in October.
The next time it happened was in mid-2002 in the throes of the Bear Market a few months prior to the actual bottom.

If you look closely, you see my strategy (buy at the next open after a seven-day consecutive decline occurred) fired actually in the middle of the consecutive move.  There was a white (up-day) candle in the middle, and were it NOT for that solitary up-day, price would have closed for 12 days in a row - remarkable.  I label the down days, excluding the single up day.
Price ultimately “snapped back” but not before plunging 1,000 more Dow points before a reversal.  Even then, the ’snap-back’ reversal only took price to 9,000 before plunging down to 7,200, marking the Bear Market bottom (price ultimately retested this low in March, 2003 before beginning the Bull Market that ended just a year ago - October 2007).
So now that the Dow Jones index has declined 7 days in a row, which will it be? A snap-back rally or a continuation?  We can go back further to test, but since 2000, a seven-day consecutive price decline has happened only two times, and for both times, a divergently different outcome resulted.
Be safe, guard your capital, and don’t expect a rally “simply because it is due.”  It may happen; it may not.  Either way, price is likely to move violently, quickly, and (perhaps) erratically.  If you’re on the wrong side, you will lose capital quickly.  It might be better to wait until the waters calm down a bit before stepping back in.
NOTE:  If you are a TradeStation user, here is the simple code I programmed to run this study.  You can use it to test different indexes over longer time periods.  Simply add more days or subtract days (in the close[7] lines) for more analysis, including possible exit/stop-loss strategies:

if close<close[1] and
close[1]<close[2] and
close[2]<close[3] and
close[3]<close[4] and
close[4]<close[5] and
close[5]<close[6] and
close[6]<close[7] then

buy next bar at open;

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Devastation
October 9th, 2008 by Corey Rosenbloom

Just when you thought it was safe to enter the market.  Also, “what a difference a year makes.”  Exactly one year ago, the S&P 500 and Dow Jones made all-time highs… one year later, we’re making fresh and significant five year lows.  Let’s look at the S&P and the XLF Financial Sector on weekly charts.
S&P 500 Weekly Chart (compressed):

To say the ferociousness of the recent price swing down was unexpected (in its magnitude) is perhaps an understatement.  Many of us - myself included - did have price targets beneath S&P Index value 1,000 (some even down to the 2002 lows near 750) but I don’t know of anyone who had the targets being achieved this quickly - it was stunning and remarkable.
Notice how the market was making lower swing lows and lower swing highs in an orderly fashion - that is the ‘rules of the game’ and normal conditions.  The trajectory (trend) is clearly down but it is peppered with stable, salient retracements (usually to key Fibonacci levels such as 50% of the prior decline).  In this current swing (which - as of this writing - is not over yet), there wasn’t a pause or breath - it fell like a rock, blinding many fundamental, technical, and quantitative analysts.  “This isn’t normal.”
But it is what it is - Mark Douglas said it best:  “Anything can happen [in the market]” and “Every moment in the market is unique.”  I thought of his quotes immediately when the government banned short-selling on Financial stocks - did anyone see that coming… or even as a conceivable possibility?  Even if you did, could you have foreseen the ramifications of that decision?
So we’re in a new world with perhaps new rules - what worked in the past doesn’t seem to be working (in terms of long-term investing or short-term/position trading when it comes to ‘buying what’s overextended’ for a ‘reversion to the mean’ style trade).  It is what it is.
Anyway, let’s look at today’s 7% index decline as distributed across the AMEX select Sector SPDRs.
The intraday Sector Performance:

The Energy and Financial sector were hit hardest, with - surprisingly - the Technology sector holding its own (Apple - AAPL - though it closed slightly lower, did well for the day and could be starting a counter-retracement up along with RIMM - but that’s another story).
Let’s zero-in on the Financial Sector.
XLF Financial Sector:

The major culprit behind the recent ‘crisis’ stems from past practices with Financial related companies.  The financial sector - and investors in it unfortunately - have suffered dearly for those mistakes.  Banks are in serious trouble and are seizing up - credit is no longer lubricating the US Economy as freely as it had in the past - banks are afraid to lend and no one’s exactly sure when the next shoe will drop or how much ‘toxic debt’ is still on the books.
So what is the expected play now?
You’ve heard it 100 times now - the market is so overextended that a rally is due.  But the next day brings more selling, so the sentiment grows more urgent:  “Well, we’re certainly due for one now.”
My response?  Absolutely, and it’s probably going to be a quick rally - but it seems like the government is doing everything it can to start that rally (cutting rates, giving speeches, passing the Bail-out bill, etc).
But it hasn’t happened.
Let the professionals play in this market.  Let them catch the falling knives - somewhere (perhaps here), price will hit valuations that fundamental (and even technical) traders will find unbelievably attractive and they will begin buying - perhaps aggressively.  But as long as fear and panic rules the day, it’s uncertain when that time will come.
Whatever you choose to do, your #1 goal should be capital preservation - be it taking smaller positions, trading more selectively (not just jumping at anything that moves), going away from stocks temporarily and only trading ETFs (perhaps even Index ETFs), or even just sitting in cash while avoiding the market altogether - it’s your choice.
But don’t think you’re going to make a killing when everyone is getting killed.
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Market Club: Is Gold Ready to Skyrocket?
October 9th, 2008 by Corey Rosenbloom

Adam Hewison of Market Club released a video analysis of Gold prices today that I wanted to share with you, as well as provide you with my own chart of daily Gold prices.
Adam discusses how to use the Market Club software to identify larger trend then drill down to the smaller time frame for trade entry - full details are available for MC Members (click to join).
The Video is entitled “Is Gold Ready to Skyrocket?” and Adam assess the past and current trends, as well as asks “Why hasn’t gold surged as many people expected - is it ready?”
Here is a quote from part of the text from Hewison:
“I have just finished a new video on gold that I would like you to see. This new video deals with some of the strange events that we’ve been going through the past two or three weeks, or in some cases several months.
I know most of the gold bugs have been disappointed that their favorite yellow metal hasn’t skyrocketed to new highs. Some people said that we’d hit two to three thousand dollars an ounce when gold topped the one thousand mark a few months ago. I’m not sure that we will see levels like that, but the reality is, we could be seeing more interest come into this market which could push it higher.
In this short five minute video, you will get to see how well our “Trade Triangle” technology has done in the gold market. I will also show you when I think gold should hit its peak.
This is an educational video that is meant to inform you on the dynamics of the gold market and how it can help you improve your trading and timing in the future.”
And here is an annotated chart from Corey on Gold’s daily price:

We see the $920 per ounce level creating short-term resistance (actually it’s failed three times at this level and is lower as of this writing - trading around $892/ounce) which may serve as a formidable level in the short-term - a break above this level could propel prices higher as Hewison suggests, particularly because the momentum oscillator is clearly uptrending and showing a stronger momentum positioning.
A positive divergence preceded the sharp rally from $740 to $920, though we never know how far price will go just from momentum divergences alone - they only warn of increasing or decreasing momentum/acceleration of prices.
It’s hard to draw on the chart because it’s evident just in the price itself, but there’s significant congestion about the $860 - $940 range:  notice the numerous swings (and price/bar overlap) that occurred in that price area.  In Market Profile terms, this could be deemed a “Value Area” or “Balance Area” where fair value has been established multiple times.  Departures from value brought price right back to this area, so it will take a major change to drive prices to a new higher (or lower) value area… in other words, a trend-break move could soon occur as the perception of value shifts.
The weekly chart is in a confirmed downtrend and appears bearish, but note that a break to new highs around $920-$930 on the daily chart would officially confirm the birth of a new uptrend (having made a higher high, higher low, and then taking out the recent swing high).
It’s certainly worth watching (or trading) gold closer, but beware the rampant volatility (as in record one-day price moves) that has taken place in this uncertain economic environment - often gold benefits from uncertainty.
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SP 500 Tests Major Monthly Moving Average
October 8th, 2008 by Corey Rosenbloom

With all the rampant volatility of the last few days, it’s easly to lose focus on the larger structure.  Tuesday, the S&P 500 tested its 200 month moving average - Wednesday, it broke it.  Let’s view the monthly S&P 500 and Dow Jones Index charts.
S&P 500 Monthly:

After price violated the 50 month EMA to the downside, the eventual initial target was indeed the rising 200 month SMA - I’m just shocked at how quickly it happened.  We’ve lost 300 S&P points in just over one month - a remarkable and stunning development.  We’ve also blown through the well-known large-scale Fibonacci retracements as well - almost as if they weren’t there.
Price is now back to levels not seen since 2003, and there’s the great potential that if you put money to work at virtually any time since 1998, you are currently underwater (have lost money).  I cannot underscore how staggering that sentiment is - to be fully invested for 10 years and have little to nothing to show for it.
Also, the momentum oscillator has made a multi-year low.
Dow Jones 30 Monthly:

The picture is similar here, with the exception that the Dow Jones outperformed the S&P (and NASDAQ) in terms of exceeding the 2000 bear market highs (in this case, by around 3,000 index points).  Price has still fallen precipitously, has made a significant new momentum low, and is also likely headed to test its rising 200 month SMA.
The prevailing thought among traders and many professionals is that the market is ‘overdue’ for a technical (corrective) rally to work off some of these oversold conditions and ‘internal’ indicators (as well as near record high VIX readings). While we will get a rally ‘eventually,’ Dr. Steenbarger of TraderFeed recently addressed this topic in his must-read post “The Financial Panic of 2008:”
“Normal historical indicators of market bottoms are broken. We cannot count on market rallies simply because we are oversold, even though those oversold levels may have represented past opportunity. As long as money flows are negative and traders are hitting bids in size, weak markets will get weaker;”
I must confess it has surprised me deeply that the Rescue Bill in Congress failed to lift markets higher, and this morning’s surprise 50 bps rate cut (as of noon) is also failing to lift markets higher.  I find myself with an irresistible urge to put on a long (buy) swing position (I’m primarily an intraday index futures trader), but every morning I want to try that, the market has opened lower or sold off on the day, preventing my greed from taking over (and violating my core trading strategies).
Steenbarger is right:  “We cannot count on rallies simply because the market is [grossly] oversold.”
It’s rough - on both sides.  Shorts aren’t loving this and neither are longs.  The market is making stunning swings in both directions, often without provocation.  Also, what we feel like justifiable provocation often turns out to have the opposite effect than was expected - even if expected by a large consensus.
These are very, very difficult trading conditions and you shouldn’t beat yourself up if you feel you need to stand aside, especially if you are a swing or position trader until conditions become more favorable.
Stay safe and keep capital preservation as your #1 goal.
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Interesting Developments in Potash POT
October 7th, 2008 by Corey Rosenbloom

Potash (POT) was a highly watched, profitable stock from 2007 to mid-2008.  However, as the commodity markets began falling sharply, so did shares of Potash, destroying profits and sending prices plunging from $240 to $80 in four months.  Let’s see these developments on the Weekly chart as well as potential support both from the weekly structure and a potentially completed Elliott Pattern.
Potash (POT) Weekly:

The strong and pervasive uptrend since late 2006 terminated in mid-2008, and price came down to test the rising 20 period EMA (a strategy which had been ultra-successful) and then failed at that level, setting up a “support trade” or “magnet trade” to test the rising 50 period EMA which succeeded… until price found resistance yet again at the (now) falling 20 period EMA (two tests).
After price broke beneath the 50 week EMA, it set-up yet another ‘magnet’ support trade to test the rising 200 week SMA - however unimaginable this was.
Price is now finding potential support (as expected) at these levels (roughly the $75 per share level) and we appear to be due for a counter-swing back up to a key Fibonacci retracement of the prior swing down.
The Daily Chart shows this recent plunge was part of a clean Elliott Wave structure.
Potash (POT) Daily:

First look at the larger 5-wave impulse and then note that Wave 3 sub-divided into a 5-Wave impulse move down itself.  Notice also that a positive momentum divergence formed as the sub-wave 5 terminated into new daily price lows (before the counter-wave 4 up commenced).
At the moment, we could be terminating Wave 5, which is the End of the Elliott Impulse and could be stepping into an A Wave Up correction (followed by a B wave down then a C wave up - I haven’t drawn these on the chart).
The A Wave up could take price to the $120 - $130 per share level before finding potential resistance and then coming back to a B Wave back down.
Notice that price made a new momentum low on the daily chart. which underscores the ferociousness of this downtrend and the violent recent downswing from $180 to $90 (roughly a 50% decline) in less than a month.
Potash also offers (at least) two quick investment lessons:
1.  Just because a stock is popular and is ‘going up’ doesn’t mean it can’t come down… HARD
2.  Don’t double-down and try to keep calling a bottom, thus eroding capital.
If you thought this stock would continue going up at any point, that was fine, but you could not have let the prior move or public opinion (or the TV) cloud your judgment - take your stop-loss and move on.  Don’t try to force your will on the market or a stock.
Visit and join the MarketClub and MC Blog for analysis, indicator-based technical analysis, and education.
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A Little Elliott Wave Into the Close
October 6th, 2008 by Corey Rosenbloom

Just when you thought the trading day couldn’t get any weirder… price gaps down strongly (and likely unexpectedly) in the morning, forms a trend day virtually all trading day long, and then destroys the trend-day down structure into the close.  Let’s look at the intraday 5-minute structure and the sneaky Elliott Wave pattern that formed into the close.
Let’s use the DIA - Dow Jones ETF - for a trading proxy:
5-minute chart showing the busted “Trend Day” structure:

Up until 3:00pm, Monday’s action was a classic example of a “Trend Day” trading tactic environment.  We opened with a large gap with nary an attempt to fill it, quickly made new lows on the day, and subsequent rallies to the falling 20 period EMA all failed, offering opportune short-selling entries (with a stop-loss just beyond the average).  The down-trend structure was also confirmed by the falling 50 period EMA.
It was a day to trade aggressively short - if you had the stomach for it.  However, as has been written by TraderMike and many others, short-selling in a bear market isn’t as easy as you think.  It’s not as easy as “throw a dart, get short, rake in profits.”  Notice that the end-of-day rally didn’t hold resistance at either the 20 or 50 period EMA, and in fact, virtually erased all gains if you got short at any point in the day and held until the close.
A positive momentum divergence preceded the late-day surge, and with conditions so oversold, it certainly shouldn’t have been entirely unexpected, but the rally was quick, unrelenting (to shorts), and persistent, rallying roughly $4.00 (400 Dow Points) before the closing bell sounded.
On an educational note (including higher/lower time frames), the 10:30 rally into the falling 20 period EMA - setting up a powerful short-sell entry - was actually a complete Elliott Wave pattern I pointed out this morning in my “One Minute Elliott Wave Example” post this morning.
The final rally was also a five-wave Elliott Pattern, where the first, third, and fifth waves all contained fractal impulse 5-wave patterns as well - it’s clearly worth examining from an educational (example) standpoint.
1-minute chart showing Elliott Fractal Wave into the Close:

Elliott Wave is fractal, and ‘waves within waves’ are often labeled with Roman numerals (as well as parentheses or circles - not used in this example by me).  The larger Arabic numerals (1-5) represent the large-scale Elliott Impulse while each of the 1, 3, and 5 Waves are subdivided with Roman (i - v) numerals.
Notice that in both sub-wave 5 (of Wave 3) and sub-wave 5 (of Wave 5) both ended with negative momentum divergences.  I’m finding higher probability plays when I identify potential Elliott 5-Wave completed patterns that form negative momentum divergences - there’s higher probabilty than just saying “Oh, look - a negative divergence” when you apply a perceived (potential) Elliott Wave count.
Also, sub-waves ii and iv (of Wave 3) found support at the rising 20 period EMA.  Again, applying a potential Elliott count may grant higher probability than simply saying “it’s a pull-back to a moving average” as I’m so accustomed to doing - it’s taking time for me to incorporate Elliott but I’m finding it fascinating and an excellent complement to the work and trading I’m doing already.
Even though this Wave pattern is drawn on the 1-minute chart (I don’t recommend trading this time-frame), notice that the impulse crossed a large price territory, from roughly $95.25 up to $100.25 (a $5.00 swing) in just over an hour - folks, that’s remarkable.
Today’s trading activity will yet again go down in the history books.  At one point, the Dow Jones was down 800 points in a single day.  The VIX (Volatility Index) made new highs at index value 58.24.  Many stocks made new lows.
Stay very safe in this environment - it’s not the place for quick wealth generation.  More fortunes are being destroyed in this environment than are being created.  Use extreme caution and continue to make capital preservation your #1 goal.
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One-Minute Elliott Wave Example on today’s DIA
October 6th, 2008 by Corey Rosenbloom

I know - probably the last thing you want to read on a day when the US Equity Indexes are down over 5% is an example of the Elliott Wave Theory applied to a one-minute chart of the DIA, but sometimes it helps to envision structure in an environment of perceived chaos and randomness.  If anything, we can use it as an educational example of applying Elliott to all time frames.  Let’s see it in action.
Recall back to my previous post on the “Three Hard Rules of Elliott Wave Theory.”  Let’s see it on the 1-minute chart of today’s (October 6th, 2008) DIA chart:

Elliott Wave Theory is fractal, meaning the structure (5-wave move) can be observed and applied to all timeframes - even the one-minute chart.
Price makes the first wave into the 20 period EMA resistance just before 11:00am.  The resistance holds but price makes a higher low and then breaks above the EMA, signaling strength.  Momentum makes a new high and price rockets through the 50 period EMA resistance.  The structure is actually a counter-trend wave up against a pervasive downtrend day which began with a large gap.
Price then finds support as it retests EMA support but forms a momentum divergence and fails soon after.
Was there a clearer structure that could have given more clues about price’s probable (or possible) short-term swings ahead?  Now, of course, on this short of time frame, it is extremely difficult to implement trading strategies, but keep in mind that some professional traders utilize tick charts, which can even require faster trading tactics than the 1-minute chart - and I scarcely ever recommend trading off the 1-minute chart.  The 5-minute chart is ‘as low as I’ll go” usually.
There was actually a complete, picture-perfect Elliott Wave full cycle example, complete with the “ABC” Corrective Wave following the standard 5-wave impulse.  I’ve labeled it for you in the above chart, and simplified the full wave motion in a diagram below:

In today’s example, Wave 3 was an extended wave which actually contained a Full Elliott Wave Cycle inside it - complete with the ABC Corrective Wave - I had to point out this fractal pattern for its education implications.
Also, notice that the bottom pane momentum oscillator formed a clear negative divergence as price completed the 5th Wave of the larger impulse - the odds were overwhelmingly high for a new down-swing, not only as a result of a completed Elliott 5-Wave Pattern and the Negative Momentum Divergence, but due to the larger time frame (5-minute, 15-minute, 30-minute, daily, etc) structure.  As of this writing, price is making new lows on the day after this Elliott Impulse formed and completed.
The more I apply Elliott Wave Theory, the more impressed I am with the understanding of price structure both in hindsight and in real time as I apply my current interpretation of price structure (momentum, support/resistance, etc).
Elliott is just one of the many tools to provide interpretation of price action and to establish price targets and risk-management points.
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SP500 Damage Done on Monthly Chart
October 6th, 2008 by Corey Rosenbloom

Today’s equity decline undersay has stunning ramifications for the larger time-frame structure of the S&P 500 and other US Equity Indexes - we’re now at levels not seen since 2003.  Let’s take a quick look at this structure to see where this takes us.
S&P 500 Monthly Chart:

First, let me state that we’ve now officially ‘blown through’ the long-term (large scale) Fibonacci retracements from the 2002 lows to the 2007 highs.  The sellers took out the 61.8% Fibonacci retracement at roughly 1,080 this morning.
Price is undeniably in a monthly downtrend, though the 20 and 50 month EMAs have yet to cross (the 10 and 30 month EMAs have done so - a popular combination used on longer time frame charts).
Where’s the next level of possible support?  I suggest it’s potentially the rising 200 month SMA just under 1,000.  We may get a bounce off current levels, but should price test the longer SMA, a bounce would be in order.
Ultimately, I find it highly conceivable that we retest the 750 - 800 area which  marked the early 2000’s bear market low - it looks clearer than ever now that we’re headed there at some point - but not before a few more counter-trend rallies occur.
This is not an environment for aggression on either side (long or short).  Though it may not seem so, bear markets are much more difficult to trade than bull markets.  Case in point, it took only one year to totally destroy the equity gains that were achieved in five years - let that sink in.
It’s worth noting also that the momentum oscillator registered a new monthly momentum low not seen even during the devastating early 2000’s bear market - don’t overlook this point as well.
Scale your charts back to the larger time frame to see massive technical (price) damage being done across multilpe stocks and sectors - it’s horrific out there for investors and many traders as well.
I’ll keep you informed on new developments and insights across the various markets.
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US Dollar Index Makes Fresh 2008 Highs
October 5th, 2008 by Corey Rosenbloom

The US Dollar Index made fresh 2008 highs on Friday, but only marginally so.  Let’s look at the daily chart as well as the longer term monthly chart for potential clues to the future.
Also, Adam Hewison of Market Club recently released a two-part video series entitled “The Past and Present of the US Dollar Index - What’s Ahead?“  It’s worth viewing as Adam walks us through the longer-term charts down to the present.
US Dollar Index Daily Chart:

Price formed a new high marginally just shy of index level $81.00.  There’s a potential bearish development, in that price has formed a doji candle pattern at the upper channel of the Bollinger Bands - other oscillators (such as Stochastics and RSI) are showing “overbought” readings.  It’s probably not the best time to be short-term bullish on the Dollar as a result, as price has cleanly made a sharp run up, despite bearish sentiment out there.
Momentum made a marginal new high which is roughly equivalent to the previous oscillator peak in early August.  A negative divergence formed into September prior to the large down-swing (retracement) which took price to the exact 50.0% Fibonacci retracement of the move from July to early September.
Let’s pull the view way back to the Monthly charts.
US Dollar Index Monthly Chart:

We can see two good example of triple-swing momentum divergences, first to the downside in early the early 2000s and then to the upside from 2003 to 2005.
Momentum is making a long-term divergence from the 2003/2005 lows to the current price lows - notice how momentum is making a clearly higher low as price made new lows into 2008.
Price has broken above the 20 month EMA and could find resistance via the falling 50 month EMA just above $82.50 - we’ll need to watch this area closely as price tests these levels.
Continue to watch the US Dollar Index closely, and apply your own analysis to your research for more insights.
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Hey, Who Stole My Rally?!
October 3rd, 2008 by Corey Rosenbloom

On Monday, the US House of Representatives rejected the “Bail-out/Recovery” Bill narrowly, sending the Dow Jones plunging, closing down 777 points.  Today, hours ago, the House passed the Bill by a comfortable margin.  Did the Dow rally like virtually everyone expected?  No - it fell almost 500 points from its intraday high.  It almost makes you want to pull your hair out - let’s look at these developments.
Friday’s House Passage and the Market… Rally?

Now that wasn’t supposed to happen!  Trading off news can be extremely unreliable - so why go through the frustration if you don’t have to?
I must admit I was one of those expecting an upwards move after the Bill passed and was a little (ok, a lot) surprised at the market discounting and screaming to the downside at the moment the Bill was passed.  One wonders if this was some sort of cosmic joke!
I’m not here to discuss the fundamental or news factors that goes into the Recovery/Bail-out bill (there are plenty of sites for that), but to focus on the charts and price moves themselves.
Price formed a measured move (flag-style) pattern that terminated with the intraday high at roughly $108.00 per share (Dow 10800) as the House began voting on the bill.  The “flag” pulled back to the 50 period EMA to find support and a run-up of an equal or ‘measured’ move of the first impulse of the morning.
Instead of continuing to the upside, price began a large impulse to the downside.  The impulse has a 5-wave structure a la Elliott Wave, but can you tell me how this proposed 5-wave count down violates 2 of the 3 “Hard” Rules of Elliott Wave Theory?  Click the prior link to take you to the post that I wrote last night on the topic.
So price made a new low on the day, closing down 2% from the open - this coming after a morning gap-up and completed Elliott Wave 5-wave impulse up (can you classify it on the chart - look at the morning impulse).
What a day.
For reference, look what happened last Monday when the House performed the opposite outcome - voting down the “rescue” bill.
Monday’s House Bill Failure and the Market Plunge

Let’s play a logic game.
House votes down Bill, Market Plunges.
So if we use the opposite terms, we get the following:
House approves bill, Market Surges.
Even though the logic may be correct, the market action did not confirm this logic, nor does it have to.  That’s why - despite what everyone thinks and despite the highest probability likely move - the market can do anything at any time for any reason (per Mark Douglas in Trading in the Zone and the Disciplined Trader).
Trying to apply logic to the market can tie you into emotional knots and cause endless frustration.
It’s better to assess the probabilities, make a decision, and take your stops when wrong and (try) not to get upset at the outcome - you don’t control the outcome.
Why did it happen?  Who knows.  Plenty of explanations will be offered.  I heard a gentleman on CNN a few minutes ago declare (loose quote):
“It’s like celebrating when the Ambulance finally arrives.  You’re happy, but you realize that the patient is still sick/injured.”
If that logic holds, then the patient (the Economy) is now in the ambulance - there is much recovery ahead. Maybe the market realized that - or perhaps they’re skeptical with the current bill thanks to all the pages of legislation and ’sweeteners’ added.  Or at threats that “the party’s over” or any number of reasons.
Stick to the charts, manage your risk, and be extraordinarily careful in this wildly swinging, uncertain environment.
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Two Recent Elliott Wave Impulse Examples
October 3rd, 2008 by Corey Rosenbloom

I previously posted the “Three Hard and Fast Rules of Elliott Wave Theory” and now it’s time to see these simple rules in action on two stocks on different time frames.
First, let’s review those rules:
1.  Wave #2 Cannot Retrace 100% of Wave #1
2.  Wave #3 Cannot be the Shortest Wave (but does not have to be the longest)
3.  Wave #4 Cannot Enter the Territory of Wave #1
Now, let’s see them in action:
Apple Inc (AAPL) 15-minute chart (to current):

I may not have mentioned but Impulse (5 swing) waves can occur going up or going down.  In this case, we’ll look at a Five-wave Elliott Wave Impulse down on Apple’s 15 minute chart.
In this interpretation, Wave 2 does not retrace more than 100% of Wave 1 (it actually retraced the 61.8% Fibonacci retracement, as we’ll soon see); Wave 3 was the longest wave (clearly not the shortest), and Wave 4 did not enter the territory of Wave #1.
This actually is - in my interpretation - a near perfect example of Elliott Wave in action in terms of Impulse Waves (down).
What if we combine simple Fibonacci Retracements with basic Elliott Wave Theory in this chart?

The Blue lines represent the wave count (labeled in the first chart) and the blue and red horizontal lines represent retracements - the Blue grid represents a retracement of Wave #1 while the red grid represents the retracement of Wave #3.
I mentioned that Wave 2 is expected to be deep - but not deep enough to retrace all of Wave 1.  Often, the 61.8% Fibonacci retracement will be tested or breached in a Wave 2 correction.  Indeed, this is the case, such that price retraces to the 61.8% Fibonacci zone of the prior impulse down.
Wave Three then unfolds as price finds resistance at the 50 period EMA as well as the 61.8% Fibonacci retracement.  This would be an ideal location for a short-sell trade, but if you overlay a possible Elliott Wave Interpretation over that, you can apply possible price projections as well as have higher confidence in a possible successful trade (with experience, that is).
Elliotticians know that Wave 3 impulses can be some of the strongest moves in a price swing, and if you think you might be identifying a Wave 3 impulse, you’ll want to press your edge a little if possible.
Nevertheless, Wave 3 finished with 2 dojis (obscured by my drawings) and then retraced exactly to the 38.2% Fibonacci retracement of the prior Wave 3 impulse down… and also to the declining 20 period EMA (which - in and of itself - would have set up a short-sell trade.  Keep in mind wave 3 made a new momentum low on the oscillator - not shown).
Armed with the prior four wave count, you can trade with confidence in the higher probability (but clearly not certainty) that these levels will hold and the next impulse will be down to new lows as Wave 5 commences and terminates just beyond Wave 3.
This example in Apple would be an ideal reference for a near perfect Elliott Wave count on the basic level.
How about another example on the Daily Chart?
Sears Holding (SHLD) Daily:

I chose this recent example for fun because this chart actually contains two Elliott Impulse Waves.  Wave 5 is actually an “Extended” Wave which contained its own ‘fractal’ 5-Wave pattern.  Elliott is Fractal, in the nature that wave counts occur on all time frames that build up to the larger picture (to the monthly charts).
Let’s look at the larger impulse drawn in Blue first.
I won’t discuss Fibonacci but you can apply the grids yourself to find that Wave 2 retraced 50% of Wave 1 while Wave 4 also retraced 50% of Wave 3.
Following the basic rules, Wave 2 did not retrace 100% of Wave 1; Wave Three was NOT the shortest (Wave #1 was - but Wave 3 was NOT the longest!); and Wave #4 did not retrace into the price territory of Wave 1 (though it was close).
Wave 5 was actually an extended Wave and it had its own mini-Elliott Wave Impulse that follwed the same rules as mentioned above.  You may want to pull-up Sears (SHLD) on your own chart terminal to see it, but the rules are the same.
Wave 2 (Green) was a deep reracement of Wave #1, Wave #3 wasn’t the shortest (it was the longest), and Wave 4 did not enter the price territory of Wave 1 (though again, it was close).
The Moving Averages in both Waves served as support, as well as from confluence from Fibonacci retracement levels.
As I continue to learn more and apply Elliott Wave to different stocks and markets, I’ll keep you informed and educated on these concepts and more.
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The Three Hard Rules of Elliott Wave Theory
October 2nd, 2008 by Corey Rosenbloom

Despite how difficult Elliott Wave Theory seems - and it’s certainly not easy to interpret possible wave counts - there are really only three solid, objective rules that your wave count must follow - the rest is mere guidelines.  What are these three main rules you ask?
Let me preface by saying that Elliott proclaimed that Impulse or Motive waves unfold in five wave sequences (three up separated by two corrective waves down) which forms the core of Elliott Wave.   Interpreting corrective waves can be endlessly difficult, but it’s wise to start with the initial Impulse Structure and follow these unbreakable rules:
1.  Wave #2 Cannot Retrace 100% of Wave #1
2.  Wave #3 Cannot be the Shortest Wave (but does not have to be the longest)
3.  Wave #4 Cannot Enter the Territory of Wave #1
Let’s look at these closely:
Rule #1:  Corrective Wave 2 CANNOT Fully Retrace Wave #1
Generally, we look to Fibonacci retracements in terms of impulse moves - especially to 31.8%, 50.0%, or 61.8%.  If you try a Wave Count and your possible Wave #1 fully (100%) retraces what you think is Wave #1, you need to re-lable Wave #1 and start your count over.  Often, it’s very difficult to trade real time in developing Wave 1 structures.
How does this look in an idealized example?

Wave #1 is Green and Wave #2 - the Corrective Wave - is Red.  The Red Dotted line signals a wave ‘danger zone’ and if Wave #2 crosses the blue dotted line (the start of Wave #1), then the Wave Count violated Rule #1.

Often, Wave #2 will be a deep retracement of the first wave, and can retrace to 61.8% of the prior wave or slightly beyond.

Rule #2:  Wave #3 CANNOT be the Shortest Wave

Often, Wave #3 moves are traders’ dreams, as they contain sustained price action in a given direction.  These are also the zones of the “Sweet Spot” structures in price moves as well.

When I was first learning Elliott, I though that Wave 3 had to be the strongest, longest wave - not so.  It just can’t be the weakest/shortest of the impulse waves.  If wave #3 seems week, it could signal a stronger Wave #5 is possibly yet to come.

What does this rule look like?

I’ve highlighted Wave #3 in this example.  Wave #1 is the shortest in this diagram, and Wave #3 is slightly longer than Wave #5 - this fits the criterion.

If you’re trying out a Wave Count and what you label as Wave 3 turns out to be shorter than your Wave #1 and Wave #5, you need to start again and re-label your chart according to Elliott.

Finally, Rule #3:  Wave #4 CANNOT Enter the Price Territory of Wave #1

Wave #4 is known as a profit-taking wave, and as such, shouldn’t give back a large portion of Wave #3.  Something’s wrong if Wave #4 is a very deep retracement.  Let’s look at this on a diagram:

Wave #4 can be expected to retrace perhaps 31.8% to 50.0% of Wave 3, but start to worry if the retracement gets deeper than these levels.  I’ve compressed this idealized image, but if what you think is actually a Wave #4 correction, you could place stops just beneath the top of Wave #1 - the black dotted highlighted line in my diagram.  I’ve drawn an “X” at this level.

These are just the surface level basics of Elliott Wave Theory.  We’re having to go deep within the concept, perform counts on multiple charts and multiple markets, and read multiple sources for the Chartered Market Technician (CMT) program from the Market Technician’s Association (www.mta.org).  It’s eye-opening and perspective broadening and very interesting.  The information above comes from these sources, which also can be found on a variety of sources online including  the Elliott Wave International site.

I’ll continue to try to share insights and basic lessons learned.

Don’t try to become an expert overnight if you’re interested in Elliott Wave.  However, if you do want to try it out on a few charts (it tends to ‘work better’ for broader indexes and markets than individual stocks), then memorize and apply these three rules to your proposed wave counts.

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Intraday Ascending Triangle Example in DIA
October 2nd, 2008 by Corey Rosenbloom

On Wednesday, the Dow Jones ETF - the DIA - gave us a good example of an ascending triangle… that brokeout in the opposite direction as expected.  Let’s examine it and learn from its development.
5-Minute Chart DIA:

Generally, an Ascending Triangle is a continuation pattern and has an upwards break-out bias, as strength is thought to be building as evidenced by buyers stepping up to higher levels (higher swing lows) to support prices while overhead resistance remains constant.
However, this is not always the case, and triangles at their core represent a ‘pause’ or consolidation with an uncertain - though expected - ‘ejection’ or break-out point in either direction (though some triangles have built-in bias).
In this case we see the $108.60 level proving to be significant resistance, as the price repeatedly tests this level (even going back to September 30th) and price cannot break above this area - it is confirmed resistance.
The fact that higher swing lows are occurring sets up this consolidation pattern labled an “Ascending Triangle.”
We know from the price principle “Price Alternates Between Range Expansion and Contraction” to expect some sort of break, often close to the apex (convergence point) of the triangle and that is exactly what happened here - with this morning’s overnight gap.
In my experience, it’s better to wait for a price breakout instead of trying to enter inside the triangle.  Why?  In this case, the bias would have been to the upside and you would have entered long and then been trapped in this morning’s gap and downburst in prices and clearly would have been stopped out of the trade.
Stepping aside and waiting for the break, you would have sacrificed initial trade location in return for higher probability of a successful trade - entering short early in the morning.  The overnight gap was roughly $1.00 in DIA terms, meaning there was a reduced probability of a successful morning gap fade trade.
When you see clean or clear patterns you recognize, print them, document them, annotate them, and store them in a notebook for further reference.  The more times you see these patterns, the more able and confidence you will be to act upon them in real-time.
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Gap Fade Stats for September
October 1st, 2008 by Corey Rosenbloom

What a month September was for the Market.  It lived up to its reputation as a weak month historically.  So, how did the gap-fade tactic work in the Month of September?  How many overnight gaps occurred in the Dow (DIA) and how many of those filled?  It’s time to take a look as a new month is upon us.
I define an “overnight gap” as an open that is at least 20 cents in the DIA  (20 Dow Points) different than yesterday’s (or Friday’s) close.  A “Fill” is when price ‘gaps’ greater than 20 cents from yesterday’s close and then price equals or exceeds yesterday’s close.  With that, let’s see the numbers:

A staggering and perhaps record 90% of the 21 trading days in September experienced an overnight gap of at least 20 cents.

Of these 19 gaps, 10 gaps ‘filled’ giving us a “Gap Fill” percentage of 52.63%.

Of the 9 “up” gaps, the average gap was $1.44 (144 Dow points roughly).

Of the 10 “down” gaps, the average gap was $1.41.

Roughly the same amount of up and down gaps filled, with a razor thin edge going to the up-gaps filling more than the down gaps (5 of 9 ‘up’ gaps filled while 5 of 10 down gaps filled).

What if the Gap Size was 50 cents (50 Dow Points)?

If we only classify a ‘gap’ as a 50 cent overnight price change (roughly 50 Dow Points), we return the following:

As goes the classic research, the larger the gap size, the lower the odds of a successful ‘fill.’  I find the same stats here.

Raising the gap to a 50 cent threshold finds 76% of days (16 of 21) showing an overnight gap and only 43.75% (7 of 16) gaps filling.

Just for fun (and one time only!) I thought I’d show you the magnitude of gaps that occurred in September.  It may well go down as one of the record months in terms of overnight gaps (focusing on the DIA - the Dow Jones ETF):

A grand total of 1 day (9/9/08) had an exact match from yesterday’s open to the morning open and a second day had a change less than 10 cents.  All other days gapped in some fashion.

We also had a $6.17 upside gap on 9/19/08 and a $3.64 downside gap on 9/15/08.  There was also a $3.18 gap on 9/8/08.

Will October continue the trend?  We’ll see!

To see prior months’ Gap-Fade Statistics, click on the corresponding month below:

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
Stay safe in these hyper-volatile times.
Update:
Rob Hanna of Quantifiable Edges recently released these posts on Gaps:
What The Recent Gap Action Is Suggesting About The Intermediate-Term
1% Gap Down Stats Since The Top
Gaps Stats And How The Lack Of Shorts Could Influence Action
Thanks to the NewsFlashr Business Blog Page for aggregating these links.

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Roller Coaster Market
October 1st, 2008 by Corey Rosenbloom

The only way I can describe the recent stock market activity is that of a wild “Roller Coaster” ride.  Up, down sharply, up again, down again - nauseating, but fun if you like the wild swings (or have short-term strategies to take advantage of them).  Let’s take a closer look at the S&P 500 to see some of these swings.
S&P 500 15-min chart:

We expected to begin the week on a high note with the passage of the “Bail-out/Recovery” Bill and I think Wall Street itself had priced in this legislative ‘victory.’  The Bill failed narrowly in the House of Representatives, sending the US Stock Market plunging along with the failure - giving us the largest one-day point drop in the Dow (777 points) and large percentage drops in all major equity indexes as well as a 10% plunge in Crude Oil prices on the fears of economic slowdown.
The technical structure at this time was that of a quite perverse bear flag that had vertical drops separated by a flat rectangle - forming one of the worst and most sudden bear flags I’ve ever seen.
Notice the 30 point swings in the S&P at the close of trading on Monday, September 29th.  Up, down, up, down, close.  Tuesday’s trading was a healthy ‘trend-day’ up which may have also defied expectations, especially if you followed the headlines “worst plunge ever” etc.  With headlines like that, who needs friends?  Seriously, the expectation was for a down market Tuesday but the Stock Market often has other plans in mind against the majority or even ‘common’ thought.
So here we are intraday on Wednesday and the market is - as of noon EST - falling.  Down big Monday, up big Tuesday, down Wednesday.  What a Roller Coaster!
What does the daily chart show?
S&P 500 Daily Chart:

The structure is, has been, and will still be a primary downtrend - price is making lower lows, lower highs, and is beneath all three key moving averages - and the averages themselves are in the most bearish orientation possible.
Caution is merited in this environment and the edge has shifted strongly to the professionals and away from the smaller/retail traders due to the increased volatity (and retail/newer traders not being accustomed to such large one-day swings followed by equal swings in the opposite direction the next day).
Again, capital preservation and risk-management are the top goals in this environment!
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Research in Motion RIMM Falls - Support Below?
September 30th, 2008 by Corey Rosenbloom

Research in Motion (RIMM), a popular stock for day-traders due to its volatility - recently plunged from an August swing high of $135 to a September low of $60 per share.  Let’s look at the current chart to see a good “Measured Move” pattern example as well as potential support for RIMM on the weekly chart.
RIMM Daily:

RIMM has fallen from $100 per share to $60 per share in a matter of days - but a support ‘counterswing’ bounce may be ahead.  But first, let’s look at the good example of a “Measured Move” pattern in the daily chart.
A “Measured Move” is similar to a flag pattern, only the price doesn’t cleanly resemble the sharp impulse that characterizes a true “flag” pattern.  I label the Measured Move Pattern using ABCD in the formula:
“Price Swing A to B will be Equal to Price Swing C to D” or simply “A to B equals C to D”.
Or to put it in trading terms, “Expect the breakout of the rising trend channel to complete an equal swing as the prior “A to B” move that preceded it”
I have more confidence trading true Flag patterns (especially those that retrace to clean support or resistance) but measured moves can also provide low-risk, high reward trades with a fixed stop and target.
RIMM shows us this pattern as price complets the “A to B” swing from $145 to $100 and then forms a parallel rising trend channel (forming a 45 degree angle) and then the breakout (which also breaks beneath the moving average support) launches the price projection $135 - $45 (the measured move) = $90 (price target).
Price stopped at $90 per share (these are rough estimations) before forming a counter-swing up into moving average resistance before plunging overnight last week to the current $60 level.
But is there support at these prices?
RIMM Weekly:

Indeed it apperas so, with the 200 week Moving Average just below the $60 per share level, and price bouncing off this level.  How long the bounce will last is anyone’s guess, but odds do favor some sort of continuation move (counter swing) up.
A negative momentum divergence preceded the recent trend reversal and change in trend.  As price made new highs into May 2008, the momentum oscillator was making a lower high, signaling ‘possible trouble ahead’ and a potential change in trend (or at least non-confirmation of the recent price swing high).
Capital preservation remains the #1 goal of this environment.
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When the Dust Settles - NASDAQ, Dollar, Crude Oil
September 29th, 2008 by Corey Rosenbloom

Today’s action was historic and will likely be remembered for some time to come.  The NASDAQ fell almost 10% - Crude Oil also fell 10%.  The Dollar Index rallied slightly through all the turmoil and the 10-Year Yield fell 5.0% today.  Let’s see all these developments on their respective daily charts.
The NASDAQ Fell 10% today - the largest one-day drop since April, 2000.

Price made new lows for 2008, and also we’re just beneath the 2,000 Index level - not seen since early 2005.  I’m showing the NASDAQ, as it was the largest percentage decliner on the day of the four major US Stock Market indexes (the Russell 2000 - which ‘only’ fell 5% today - is actually not currently making new 2008 lows).
Next, the Dollar Index actually rose on the day:

As I’d highlighted as a possibility prior, the $76 index level provided to be significant support and we’re now on a bounce move off of those levels - how long it continues is unclear, and we may be finding resistance at the 20 day EMA.
The Yield on the 10-Year Treasury Note fell today (note/bond prices rose sharply) as investors sought safety in fixed income.

There’s been a lot of volatilty in the bond/note/bill market, as seen here by the yield.  “We’re safe!  No, we’re not” mentality has contributed to the ‘back and forth’ in the fixed income markets.
Finally (and there’s so many more charts I’d love to show today), Crude Oil plunged 10% for a large move down with the sentiment of “Demand Destruction” forecasting a US and perhaps Global Recession… or worse.

Crude Oil settled beneath $100 per barrel again, which will in time should bring relief at the gas pump, freeing up needed cash for consumers.
If you’re a newer trader, your best bet is probably staying out of all markets and turning on the Simulation Mode until you get more experience/practice.  If it’s hard for the professionals, it will be even harder for you - 700 point swings in the Dow are not something any of us are totally used to so keep this in mind when committing hard-earned capital in your trading accounts.
Capital Preservation is the goal of the day until ‘the dust settles.’  While this might be a good environment for long-term investors, it’s certainly not a forgiving one for new active traders.
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VIX Surges to New High Not Seen Since 1998
September 29th, 2008 by Corey Rosenbloom

What a day - as of 2:05 EST, the US House of Representatives has rejected the Economic “Bail-out” Bill and the Dow Jones plunged as far as almost 700 points down on the day (currently down 525 but rapidly changing) while the Volatility Index (VIX - the “Fear Index”) surged to 10-year highs - outpacing upper readings even during the early 2000 bear market.
We’ll need to focus closely on this, and analyze after the close, but as of now, let’s see this development on the Monthly and Weekly charts:
VIX Monthly Index:

The VIX peaked at just under 45 in 2002 in the throes of the Recession and Bear Market, but actually the higher level was reached just above this level during the 1998 ‘Asian Contagion’ etc crisis and now price (intraday) is scraping against those levels.
In 1998, the VIX reached 45.74 and today (as of 2:00 EST) the level reached an intraday high of 45.61 - dangerously close to exceeding that multi-year high level.
VIX Weekly Index:

We’ve cleanly severed the 2008 highs and the downtrend in the highs of the VIX (even as the market made lower lows in price).
On the bright side, now might be a good time for professionals to sell puts and calls, especially in spread or otherwise positions.  Newer traders may need to step aside in this wildly swinging, highly volatile environment to protect capital.
Crude Oil has fallen more than 8% and the US Stock Market are down more than 4%.  Yields on t-bills/notes are falling as note/bond prices are rising.
Guard your capital and stay tuned to the rapidly changing conditions as they unfold - this is a great time to build experience so long as you’re not eroding your capital in this environment.
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Apple AAPL Slides Sharply on Downgrade
September 29th, 2008 by Corey Rosenbloom

One underlining headline you might miss today in the media’s focus on the Bail-Out Bill is the fact that Apple Inc (AAPL) was downgraded by RBC and Morgan Stanley - Apple’s share price declined over 15% in early trading on Monday.
The Street.com reports that RBC Capital downgraded Apple Inc from “Outperform” to “Sector Perform” and set a price target of $140 and cited that Apple is not recession proof and there’s more risk to the ‘growth’ story in the company.
Also, Morgan Stanley downgraded Apple Inc. from “Overweight” to “Equal-Weight” on concerns that iPhone sales and computer sales in the general retail sector will be weak going forward.
What does this look like on the charts?
Let’s start with the Weekly Structure:

The picture has clearly turned more bearish on this stock due to two factors:
Price has made new lows for 2008, breaking the weekly major support from the prior swing low at $120 per share - this is significant because it confirms an official downtrend on the weekly chart - having made a new swing low, lower swing high, and then taking out that swing low for confirmation.
Volume also is showing a bearish structure, with the recent rally occurring on lower volume (trending down - red arrow) but the recent sharp downswing from $170 to $110 has occurred on higher relative volume and has broken the downtrending arrow to the upside on the volume trend.
Now’s probably not an opportune time to ‘get short immediately’ because price has moved quite a bit in the recent downswing and is likely due for a countertrend rally (upwards) which would find resistance about the $150 level (due to the moving averages).  Should price retrace that high, that level would be the opportune short-sell entry.
AAPL on the Daily Structure:

The Daily chart represents the recent ‘price plunge’ or impulse move clearly.  The daily chart ha been in a confirmed downtrend since June, having made lower lows and lower highs and violating its moving averages to the downside.
The August rally did break the moving averages but failed to make a higher swing high (and was preceded by a lower swing low).
I had expectations that the $170 price would hold, thinking the strong price swing would form a possible ‘measured move’ or bull-flag pattern, and that the moving average confluence zone would be sufficient to hold price - and it did for about a week, but price cleanly broke this zone, stopping out any trades that were taken as price emerged into a sharp and persistent down-impulse move into the new lows of 2008.
This was a lesson how even good set-ups can fail (bearing in mind the set-up was a counter-trend entry at the time) and how stop-losses should always be used because you never know how far or how fast a stock may fall, yes even amazing stocks like Apple.
Price made a new momentum low in late September, formed a quick retracement, and then today has fulfilled the ‘new price low yet to come’ hinted by the prior momentum low.
Odds are good that we’ll get some sort of upwards retracement, but it will be just that - a counter-trend retracement rally - so the upside gains may be muted and resistance may come in about the $130 to $140 per share zone on the daily chart.  Breaking above this, the $150 zone would likely prove too much resistance - but we’ll see how Apple trades in the coming days and weeks for additional clues.
Note:  The Fibonacci Retracement levels from the August high to the September low (intraday - if it holds) are the following:
38.2%:  $134.50
50.0%:  $143.25
61.8%:  $152.05
These levels would also provide possible resistance IF the intraday lows of September 29th hold.  If not, we’ll need to re-draw the current Fibonacci retracement grid.
Note 2:  Google (GOOG) and Research in Motion (RIMM) are also making new 2008 lows.  RIMM was sharply punished last week with an overnight gap from roughly $100 to $75 last Thursday - price is now trading at $65 per share.
The MarketClub commentary by Adam Hewison and website does a great job of following these stocks and many others so check them out and consider joining them if you have not done so already.
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Weekend SP 500 Overview
September 28th, 2008 by Corey Rosenbloom

Although volatility and volume were less than the previous week, we still had some wild swings that left some traders confused and frustrated at the seeming ‘randomness’ of last week’s equity index action.  Let’s take a quick look at the S&P 500 and see if we can glean any clues from that action.
S&P 500 Daily Chart:

The larger structure shows price is still in a confirmed and clean downtrend on the daily chart, with no sign of strength yet in terms of shifting the trend (no higher high or higher low yet, or break above key moving averages).  This remains the dominant structure until price breaks above the 20 and 50 day EMAs.
Price appears to be embarking on a counter-trend retracement swing up to test moving average resistance, and appears to be failing to break above these key averages - resistance comes in at the 1,220 to 1,250 zone.  A break above this zone would be bullish, and a break above 1,300 (the prior swing high) would be supremely bullish.  Until then, we have to keep looking down as the higher probability play.
Also, note that momentum made a new low in September, indicating the potential that a new price low is indeed an upcoming possibility.
Keep in mind the market is focused on news, especially word of the Economic Bail-Out plan in Congress, and should that come to resolution Sunday or Monday, the Equity Markets would be expected to rally sharply - in absence of a plan, they would be expected to fall - perhaps precipitously.
On to the weekly structure.
S&P 500 Weekly Chart:

Despite all the wild volatility of the last week, the “wave-like” trend structure is clean and apparent - sometimes you have to raise the time frame to a higher level to discern the technical (chart) structure and realize that one week often does not break the higher time frame structure.
Price is also in a confirmed and pervasive downtrend on the weekly chart (lower lows and lower highs) and is beneath the key 20 and 50 week EMAs which are in a bearish orientation.  Price recently found key resistance at the 1,300 level, which was the area of the declining 20 week EMA.
Price is in a precarious position, having made a key swing low beneath 1,150 on a ’spike’ basis which could turn out to be a key reversal - but we’d need more bullish price action to help confirm that status.
Notice the Momentum Oscillator forming higher lows, which is good news for the bulls as this is a multi-swing positive momentum divergence.  Momentum also made a higher low on the recent ‘plunge’ to 1,150 but the way the oscillator is calculated (using closing prices to form the 3 and 10 period EMAs), the intra-week spike will not be calculated in the indicator so keep this in mind as a potential caveat.
It’s a bit premature to signal the “all clear” and it’s probably best to be in a holding period still until Congress works out the Economic Bail-out bill for better or worse.
Until then (and even after), continue to keep risk management and capital preservation as your #1 goal.
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A Quick Look at the US Presidential Election
September 27th, 2008 by Corey Rosenbloom

Whoever wins the White House in November will affect the economy and of course the Stock Market in different ways, so let’s take a quick look at the polls and see who’s up and what could transpire in the upcoming election just over a month away now.
By virtually all accounts, Democratic Senator Barack Obama leads Republican Senator John McCain in national polls, and Real Clear Politics averages multiple polls to come up with the aggregate Obama lead of 47.9% to 43.6% (a 4.3% advantage).

However, it’s not national polls or a national vote that elects the US President, it’s the series of state-wide elections and state-by-state results that contribute to an overall majority vote by electors in the Electoral College, and - not surprisingly - Senator Obama leads by almost all accounts in the all-important “Electoral Vote” count as it stands currently - which is always subject to change in light of significant new developments.
Real Clear Politics - an independent/non-partisan site - currently lists Senator Obama with 223 solid/leaning Electoral Votes to Senator McCain’s 163 vote total - it takes 270 Electoral Votes to win the Presidency.  RCP lists the remaining 147 votes as “Toss-Ups” from averaging polls that determine a lead less than 5% for a candidate.

Over the next month, watch the “Gray” states closely, as it will be voters in these states that will determine the next President of the USA.

So what is the current status according to RCP, if you assign all Toss-Up states according to the aggregate averages so far?

The RCP Average gives Senator Obama the edge currently - 286 votes to 252 for McCain, and if this holds until November 4th, Barack Obama would be the next US President.

It goes without saying that a lot can change between now and then, and plenty of websites will be full of information, punditry, analysis, commentary, projections, etc.

If you’re interesting in following closer, I suggest visiting some of the sites (all over the political spectrum) included in the “Three Blue Dudes” Presidential Election Projection Database which categorizes and updates 78 sites that hold their own projections (some through statistics, some through polls, others through ‘wishful thinking’) of the outcome of the Electoral College vote.

As it stands now, of the 78 sites, 69 sites project an Obama win; 4 project a McCain win; and 4 sites project a 269/269 EC Tie (which is a distinct possibility this year).

The Vice-Presidential Debate is yet to come, as are two more Presidential Debates, as well as the resolution of the Economic “Bail-out” Bill which is currently working its way through Congress.  The race so far has been quite eventful, and I suspect it will continue to be so until that fateful evening in November!

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The End of Washington Mutual WM - A Look Back
September 26th, 2008 by Corey Rosenbloom

First, we never know when a company will declare bankruptcy or cease trading - charts can’t tell us that.  What they can do is warn us to a deteriorating situation and allow risk-management procedures to take place, as well as warning us that we should probably avoid or reduce exposure to a given stock.  Let’s look back at Washington Mutual (WM) on multiple time frames for such clues - and let’s try and find the optimal moment when we could have known something was wrong.  Let’s start at the top!
Washington Mutual Monthly:

If you put up a momentum oscillator, you’ll find that as price swings narrowed, a massive negative momentum divergence developed on the monthly chart and a ‘Triple Top” chart formation became the dominant structure into 2007.  Still, those are not necessarily reasons to exit - only hints.
The largest warning sign - a dramatically significant one - came when price violated the 50 month exponential moving average in mid-2007 - a simple lookback on the chart shows that this has never happened since 2000.  In fact, each time the “50″ was tested, it represented an excellent investment opportunity.  Price broke the average, which would have been a conservative exit point for long-term investors.
When did things get ‘really’ bad on the montly time frame?  Price closed two months beneath the 20 and 50 month EMAs but the most significant development - and the source of last resort for the bulls - was the negative crossunder of the moving averages on the monthly time-frame.  At this point, there was absolutely no justification from the charts (basic technical analysis) to be ‘long’ or owning this stock - best to move on to others in more favorable technical (chart) positions.  This occurred around $32.50 per share.  Though there was no way to forsee the impending decline, the odds did clearly shift to warn of lower prices ahead.  Technical analysis forecasts probabilities - not magnitudes.
Let’s drop to the weekly chart to see this and the subsequent development closer.
Washington Mutual Weekly:

There was another significant clue that the structure had turned overwhelmingly bearish in mid-2007.  What was it?
Price supported at the 200 week moving average, but broke in in late July ‘07, but even that wasn’t the significant bearish development.  It was actually that price closed multiple weeks beneath all three key weekly MAs and then found resistance and formed an ’shooting star’ candle at the confluence of the three key moving averages (I’ve circled this point).  This was the absolute ‘last resort’ for buyers and was a clear and evident signal to exit this stock on a position trade or investment basis - it was also a very high probability ’short sell’ with a stop around $40 (and entry around $35 or so).
Ultimately, the moving averages had crossed over, formed a confluence, were tested, and were found to be resistance.  What happened next was awful for buyers, but the signs were building and the dark clouds were gathering.
I point out a 100% rally in early 2008 which was ultimately brutal for short-sellers and confusing for buyers who may have thought this was the bottom.  All it did was draw price back to the 20 week EMA which formed an “impulse sell” trade that ultimately achieved its target and far more - this was another high probability short sell entry.
Price met its target, formed a bear flag (actually a wedge) back into its 20 week EMA in May and then continued its plunge almost unstopped.  The stock is now worthless.
Washington Mutual Daily:

Just to show how confusing and how difficult ‘calling bottoms’ can be, notice the massive, multi-swing divergence that set-up for the better part of 2008.  It looked like the $3 per share level might just be a bottom, and we had multiple tests and a momentum divergence to back up this case.  However, the moving averages were still in the most bearish orientation possible on the daily chart and price still was unable to gain traction at all above these averages.
It looked like the divergence was working in early September as price rose quickly, fell even quicker (knocking out stops from any divergence or support trade) and then rallying more than 100% yet again in mid-September, drawing in many new investors and signalling a possible “all clear here” sentiment.
That was ultimately not to be.  Investors punished the stock this week, sending it cascading lower, destroying all bullish hopes and as of this morning, the Goverment seized Washington Mutual’s assets and were sold to JP Morgan Chase.
There’s many lessons to be learned here, from the notion “Identify the downside and always guard against risk” to “never catch a falling knife” to “never bet against the trend” to “never buy a ‘cheap’ stock” and many others.  Take time to learn more from this development, and add it to your growing arsenal of knowledge.


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Dollar Supports… For Now
September 25th, 2008 by Corey Rosenbloom

In a testament that classic technical analysis is still ‘working’ in this environment, the US Dollar Index supported at the $76.00 level, which I highlighted in prior posts “US Dollar Index and Support” and “Dollar Index Targets Achieved Today“.  What’s likely in store now and has the structure changed?
Earlier, I indicated that the $76.00 level had Fibonacci retracement support, as well as weekly and daily moving average support.  For now, it has held as expected, but we’re already nearing upside targets and the price could turn back down after its expected pause.
Let’s look back (reference the earlier blog posts) and see what the chart looks like and how it is playing out.
US Dollar Index Daily:

Technically - and until proven otherwise - the Dollar is on an impulse swing up.  However, it’s worth noting that the recent price swing down was significant (quick) and could be the start of a new motive impulse down, such that these past three up-days may be part of a bear flag retracement pattern, especially if we keep rising at a 45 degree angle as we are.  It could even be a “dead cat bounce.”
Either way, let’s look at a couple of potential resistance confluence points.
The next obvious possible resistance would come in at the declining 20 day EMA at $77.60, which also happens to correspond roughly with the 38.2% Fibonacci retracement of the recent down-swing at $77.65.  Watch the $77.63 level closely for signs of possible weakness.  Should we blow through this zone to the upside, the 50% Fibonacci retracement comes in at $78.15.  There are no obvious MA Resistance zones beyond the 20 day EMA.
If this structure does wind up forming a bear flag, look for a retracement to these levels and then determine if a ‘measured move’ trade sets up on the chart.  Also, if price heads lower, carefully watch the $76 level again - there’s a lot of confluence of support at that level that - if broken - would be significant.
US Dollar Index Weekly:

Not much to show on this chart, other than the $75 to $76 level is a critical Index support zone, both from EMA confluence and Fibonacci retracements.  Notice how the index ’stuck’ the $76 level at the weekly 50 EMA.
And, as indicated earlier, Oil and Gold retraced a bit this week, but we need to keep constant focus on these inter-related markets… and now a careful eye on the News and Government action as it develops… and changes moment by moment.
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Intraday Action Since Last Friday - Divergences
September 25th, 2008 by Corey Rosenbloom

Contrary to popular belief, the US Equity Market did not rise when Monday morning’s trading opened… or Tuesday’s… or Wednesday’s… but a lenghty and significant positive momentum divergence formed which has given us in part today’s rising index action.  Let’s see this informational formation and what could be ahead.
We’ll use the SPY (S&P 500) ETF as a proxy on the 15 minute chart:

Envision the large surge Thursday/Friday - this chart only shows a portion of that surge as I wanted to focus on the ‘let-down’ period that has become this week.  I heard many people say over the weekend “The bottom is here! Get back into the Stock Market on Monday!” and while that may indeed be the proper play, I was skeptical for further upside price action - I felt strongly that a retracement at least partially of the large ’surge’ was due - that has happened but in a much more interesting structure than I anticipated.
First, look at the stability of the downward sloping trend channel than has formed and the steadiness of the retracement so far.  The 20 period EMA quickly resumed its place as overhead resistance and quickly crossed beneath the 50 period EMA - signaling a bearish shift in orientation.
Price formed a few mini-bear flag patterns into positive momentum  divergences… which turned into a multi-swing or ’super’ divergence… which is playing itself out this morning.  You can note at least a four-swing positive divergence pattern with price and the momentum oscillator beneath it - significant price moves can often arise from a lengthy divergence.
Price is now above all moving averages on this timeframe, hinting that they will serve as support (or at least a low-risk long entry should price test these ‘confluence’ levels soon).  Also, we have an officially confirmed positive change in trend on this short time frame (for what it’s worth).
Let’s rise to the 30 minute chart.
Next, we’ll step up to the 30-minute chart:

This takes into account part of last week’s action and shows the initial surge and clean retracement (which almost looks like it’s forming an extended bull flag or possible “A to B = C to D” Measured Move pattern.  It would be fascinating if we achieved that target, but we’ll have to see.  Look back to last week’s multi-swing positive momentum divergence and the resolution that occurred - I’m not saying that will happen again, but it’s an interesting observation.
Oh, and is the $118 level ‘magic’ support?  Possibly, but it also corresponds with the 61.8% Fibonacci retracement of the Thursday low to the Friday (opening) high which rests at $118.48 (roughly where price has supported).
What’s the expectation?  Odds seem to favor upside action and a potential positive reversal to the upside in these short-time periods, and a move beneath $118 would clearly invalidate this view (potential to place stops).
Keep in mind that breaking news can change the structure, so be careful to trade exclusively off technicals (or fundamentals for that matter) or to use excessive leverage right now or large position sizing in this environment where rapid swings can emerge seemingly out of no where.
Still, risk control and capital preservation are the goals of the day.
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Had Enough Therapy?
September 24th, 2008 by Corey Rosenbloom

I came across a relatively new blog on psychology with a unique perspective and title that I wanted to share with you entitled “Had Enough Therapy?” written by Stuart Schneiderman, an executive life coach.
Though the blog is not entirely focused on trading (but touches a variety of topics from politics to sports), Schneiderman has written a few stand-out posts on trading discipline and that mirrors the insights and teachings of Dr. Brett Steenbarger at TraderFeed.
I wanted to highlight two specific points, one of which is entitled “Learning to Win” where Schneiderman specifically draws upon Dr. Steenbarger’s insights on trading traumas.  He sarcastically yet effectively describes how standard “just talk it out” approaches to trading traumas caused by losses doesn’t really work because of the psychological conditioning mechanism which bypasses logical thought processes.
He writes:
“Let us say that a trader was traumatized by a loss? How will he conduct himself to avoid it every happening again?
He may be too quick to take small profits because he panics about the possibility that they will disappear. He might allow his bad positions to decline too long because he refuses to take a small loss.
In the end he might become accustomed to losing money because he has gained extensive experience at it. And he will accept it because he will feel that trauma has defined him as a loser.”
Read the full post for the full background, but I wanted to pull out this specific quote from Dr. Steenbarger that I have written down and memorized deeply:
“It’s not about thinking more positively about yourself; it’s about removing the self from pure performance skill.”
In “Is Virtue its Own Reward,” Schneiderman again addresses the fincial markets and the skills required to trade them.  He discusses pure contrarian thinking, sentiment, investment vs. trading, and Liar’s Poker and When Genius Failed.
I could’t agree more with this statement:
“A market is made up of billions of individual decisions. To imagine that you can walk into it and make it do what you think it should do is a recipe for financial ruin. Humility, not pride, will make you a better trader and a better person.”
Finally, “Virtue may be its own reward, but it may also reward you in other, less mysterious ways.”
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A Look at Gold Prices - Two Views
September 23rd, 2008 by Corey Rosenbloom

Gold prices have made record movements recently, and has defied classic technical analysis, so let’s take a quick look at the current structure and listen to an analysis that projects possible gold prices out six months.
First, the Daily Chart that I refer to as “mystifying” technical analysis structure:

Price broke through the 200 day SMA in early August, a classic bearish signal which indeed preceded the new downtrend confirmation in the commodity.  Price then formed a classic retracement in a bear flag-style formation to the declining 20 period EMA (with the structure being in the ‘most bearish orientation possible).
Throw in a couple of shooting star (bearish) candles at resistance (which also happened to correspond with the 38.2% Fibonacci retracement of the July to August price swing) and you had a high-probability short-sell trade set-up which fell just shy of its bearish price target objective (a measured move down of the prior swing).
A bullish divergence formed as price made new lows close to its price target before reversing - gently at first - and then with increasing ferociousness to the upside with the economic uncertainty of last week.
What “mystified” or defied the classic technical structure?  It wasn’t that price failed to meet bearish price objectives - it was that price skyrocketed through all three daily moving averages and all three Fibonacci retracement price zones (taken from the July highs to the September lows - the 61.8% ‘final’ retracement is at $887.00).
Folks, this is an extremely rare occurrence where price shatters so much potential resistance in such a short period of time - it underscored just how panicked investors and the ‘big players’ were last week - the price movement was the evidence of genuine fear in the economic prospects going forward (amongst many other factors).
Next, the Weekly Chart with possible resistance levels:

We see the same bearish structure in the weekly chart.  Price formed its high in early 2008 before falling quite quickly to find support, form a consolidation zone, break out, fail to reach new price highs, and then afll precipitously to make new lows on the year and confirm a weekly downtrend (lower lows and lower highs).
In terms of technical analysis structure (does it still apply?), price is above the 20 and 50 week EMAs yet beneath a declining trendline whih terminates at $930 or $965 depending on how you draw it (using candle shadow highs or closing highs - I drew both versions).
It goes without saying that a break above these levels, and especially above $1,000 per ounce (which would put us above the recent significant swing high) would redefine the structure into a majorly bullish development and potential confirmation of a new up trend.  We’re not there yet.
The moving averages now become potential support about the $850 to $870 level so watch that level closely if we do get a pullback (retracement) which is increasingly likely.
Adam Hewison of the Market Club released a video today that goes beyond the analysis above (I tend to focus on the next likely immediately price swing) and projects price movement using cycle and trend analysis (as well as the Market Club “trade triangle” technology software) to February/March of 2009 - he has quite an interesting take you should definitely check out, along with the Market Club service itself which is benefitting many traders and investors.
Adam’s video is aptly titled “Where is Gold Headed in the Next Six Months” and includes a bit of colorful commentary on the current economic ‘crisis’ underway.
Hewison opens, “I believe the only help the government gave us last week was pushing gold prices higher. During last week’s massive bailout and intervention in the credit markets one of the few markets to close higher for the week was gold. This tells you a tremendous amount about how traders are thinking about the future.”
There’s so much going on - watch these developments closely.
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Dollar Index Targets Achieved Today
September 22nd, 2008 by Corey Rosenbloom

Early this morning, I highlighted the possibility that the US Dollar Index would test the $76.00 level soon which would set up a test of support - surprisingly, that target assumption was achieved in one day - and here we are at the critical test.
Dollar Daily Chart (with Fibonacci):

I mentioned that the next play was to the $76.00 support (with gold and oil likely to rally in response) and that is exactly what happened… far sooner than I anticipated.  I, along with almost all others, was quite shocked at the rapid price movement up in oil today as well as the sharp decline in the US Dollar Index, though the Dollar decline really should not have come that much as a surprise, given the potential inflationary effects the Treasury’s economic bail-out plan will have on the Dollar.
Price stopped exactly at the 50.0% Fibonacci retracement from the July lows to the September highs, and the bulls now have a chance to defend these levels.  The $76.00 level is also significant on the weekly chart as I mentioned earlier today.
US Dollar Index Weekly at Support:

If price continues its trek down beneath $75.50 per share, the bullish bet would be threatened and that would be quite a bearish development - the bearish side probability would greatly increase with a close beneath the $75.00 index level - watch this closely.
The 20 and 50 week EMAs are converging at these levels, and are expected to provide support.  If they fail to, then watch the $75.00 very, very closely, as a close beneath this (especially $74.50) would violate all potential support (from all major moving averages and Fibonacci retracements) and would set-up a retest of the $71.00 index level.
These are critical levels on the index, and the ramifications following the index levels the next few days will dictate the expectations going forward for the index.
Continue to watch the US Dollar very closely.
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US Dollar Index Structure and Support Zone
September 22nd, 2008 by Corey Rosenbloom

With many eyes focused on the US Dollar Index, the value rose significantly, surprising many analysts, but now is experiencing a pullback in prices.  What does the structure look like and where will we likely find potential support?  Let’s look.
US Dollar Index Daily Chart:

The US Dollar Index turned a new leaf and emerged into a confirmed uptrend in June as price formed a higher high, higher low and then took out the marginal price high at $74 (the full reversal is not shown in this chart).  I highlighted this potentially significant development, but price continued to consolidate and form a base (rectangle bottom) before breaking out above consolidation and the 200 day moving average (conspicuously at the same price level) and rallying to a significant percentage gain to present.
Price was only able to form a marginal retracement which wound up being a bull flag continuation pattern that achieved its target and formed a negative momentum divergence at the upper Bollinger Band - odds became high for a retracement/reversal which is what we’re experiencing (consummate with a positive reversal in gold/oil/other commodities).
So where might we find support in the index?
On the daily chart, it might be at the 50 day EMA at $76.50.  Does that level have additional significance?
US Dollar Index Weekly Chart:

The $76 index level appears to signal at least potentially major support from the confluence of the 20 and 50 week EMAs, as well as a positive moving average cross-over (confluence).  Watch this area closely.
Momentum clearly has made a new high and the odds shift to a more bullish posture until proven otherwise.  This “until proven otherwise” would be challenged should price fail at these weekly moving averages - it would be a significant negative development.  Until then, we must take the bullish case on the Dollar.
What of the Fibonacci retracements for potential support?
Drawing the Fibonacci grid (easier on the Daily Chart) from the $71.50 price low to the price high just above $80.00 gives us the following Fibonacci Retracement Levels to watch:
32.8%:  $76.94 (roughly $77.00)
50.0%:  $75.92 (roughly $76.00)
61.8%:  $74.90 (roughly $75.00)
Once again, the $76.00 Index level becomes a multi-correlated area of potentially strong support.
That means there’s ‘play’ to this level, meaning that gold and oil should continue to rise until the Dollar tests this area and the ‘battle to hold $76.00′ begins.  Until then, the structure should hold up in a classic price retracement in an up-trend in the Dollar.
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Right Back Where We Began
September 20th, 2008 by Corey Rosenbloom

In an amazing turn of events, the Dow Jones and the S&P 500 stock market indexes ended one of the most turbulent weeks in their history virtually unchanged in percentage terms, while the NASDAQ and Russell 2000 closed higher on the week, with the Russell increasing almost 5.00%
Let’s take a quick look at the week that will live in history.  I mentioned on Monday’s post “Use Extreme Caution in the Week Ahead” that the trading ‘environment could swing violently up and down due to market events scheduled to happen this week’ but I should have included the word “unscheduled events” as well!  It was a tumultous week, and it seems virtually all strategies were tested to their breaking points in the week.  But when the dust settled on Friday’s close, it was a very tame if not negligible percentage change for the week, despite multiple back-to-back 5% moves in the major US Equity Indexes.
First, let’s look at the Dow Jones 30-minute bars to capture the intraday wonders that shaped last week:

The Dow began the week gapping down from 11,450 to plunge 1,000 points in a few days to a low near 10,450 before skyrocketing 1,000 points in less than 24 hours.  It will distinctly go down in history.
What we had was a relatively orderly decline with the 20 period EMA serving as major resistance on the way down (minus a few blips above the average).  A lengthy positive momentum divergence took hold prior to the price rally.
Let’s not kid ourselves with the technicals, however.  Technical analysis is used to forecast probabilities and assess price structure;  it assumes that “all that can be known is filtered into the price” and it cannot tell the future and certainly major economic announcements cannot be anticipated or ‘discounted.’  Friday’s major accelerated advance was exascerbated (created?) by the SEC regulation banning short-selling in Financial stocks and word of an economic bailout which could total over $1,000,000,000,000 (that’s a trillion).
Also, I’m using the Dow because it paints price without overnight gaps for a cleaner picture - for a total intraday representation of the wild week, view the DIA or other major market ETF - Every single day last week gapped - some of the gaps were in excess of 3.00%.  We’ll have yet another ‘high percentage gap’ month, though it will be interesting to see the gap-fill rate (only 2 of the 5 gap days in the DIA filled).
Next, let’s look at the S&P 500’s daily chart to see where we are in the structure.

Price actually did meet a bearish technical price projection and was on its way to complete an orderly down-swing (primary or impulse swing) which terminated at 1,140 prior to the Government Rescue Plan eroded the technical price structure.
How do you manufacture a price rally in the markets?  Force a short-squeeze; force people out of their positions.  Folks, there must be some dramatic reasons the Fed/SEC chose to institute this rule and price manipulation - the consequences of not doing so must have been unimaginable or devastating.  I will continue to reassure myself of this and think beyond the ‘trading world.’
Nevertheless - if technicals still apply - (spoken tongue in cheek), price is testing resistance at the declining 50 period EMA with the moving averages in the most bearish orientation possible in a primary downtrend.  We would invalidate this structure with a clean break and close above 1,300 - the May price high (and above both EMAs).
Instead of discussing the structure of the weekly chart, I wanted to introduce you to the “Doji of Doom” (so I call it) which will forever now be a part of our weekly charts (and memories of those of us who survived through it)

I’ll let you bask in the beauty (horror?) of this long-legged dragonfly doji.
TraderMike captured the sentiment of the risks of Short-Selling in his recent post “Picking Your Spots when Selling Short” which I now deem required reading. Shorting is not the mirror image of ‘going long’ even if the execution (button clicking) is identical.  You really have to be more accurate and aware of the trade management tactics that are different from long (buy) trades.  In regards to Friday’s short-covering rally and subsequent losses, Mike deals out an appropriate yet hard to digest statement:
“My contention is that if you were caught short Friday morning you should consider your losses as tuition paid to the school of hard knocks.”
He then discusses a variety of sources that could have warned you against aggressive shorting in the week (including my “Use Extreme Caution” post warning of massive swings in both directions - much appreciation for the link), prior intervention by the Fed at “magical” times during prior sell-offs (causing ‘rip your lip off’ rallies), bullish technical divergences (via Dr. Brett Steenbarger), and a few others you should read on his post.
Mike has it exactly right:  “I think it makes much more sense to short bounces back to a trendline or moving average.”
If you are new to shorting, please start small - while it’s still legal!  The dynamics really are different in professional trading.
Continue reading and studying in an effort to put last week’s activities into perspective, and realize that the activities last week were clearly the exception in trading - not the rule.
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Five Days that Shook the Financial World: A Chart
September 20th, 2008 by Corey Rosenbloom

MarketWatch.com released a visual representation and timeline of the wild economic and trading activity of the previous week in their image post entitled “Five Days that Shook the Financial World.”
The image compares the daily percentage change (in an informative line graph) for Gold, the Dow Jones, CBOE Volatility Index, Financial Stocks ETF, and the 3-month T-bill yield (which - on Thursday - fell to roughly 0%).
When you put all five of these variables together, the Dow Jones - which swung wildly up and down almost 5% on many of the days last week - looks like it didn’t change at all when it’s filtered in the percentage swings of the CBOE Volatility Index (gaining 60%) and the 3-month T-bill yield (which lost almost 100%).
Gold futures, as volatile as they were - also look relatively tame when compared to these.  Gold futures (priced per ounce) had the greatest 1 day gain in over 20 years, followed immediately by the largest 1 day loss in over 20 years - that was a remarkable move).
The Dow Jones also experienced the greatest 2-day price jump in six years on extremely heightened volatility.
Take the weekend to read news reports, follow your favorite bloggers’ take on the situation and fall-out, and regain your composure for the week ahead.  Enjoy the weekend!
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A Quick Peek at the S&P and Russell Morning Pop
September 19th, 2008 by Corey Rosenbloom

I wanted to show a quick snapshot of the S&P 500 and Russell 2000 indexes this morning following the massive overnight gap which is so far being faded but it would surprise me to no end if the entire gap was filled.  Let’s look:
S&P 500 Daily:

Whether or not ‘the technicals still work,’ we did have intraday resistance (so far) at the 50 day EMA temporarily, but the day is young.  We’re not that far from the August price highs but let’s keep our cool and not get overexcited at these developments.  Volume is reaching record levels and rightly so - there’s so much going on and so many people are affected.
The Russell 2000 actually almost surpassed its August highs intraday.
Russell 2000 Daily:

Finally, for a little fun, let’s look at the DIA 1-minute chart to see the massive gap ($6.00 - the actual Dow didn’t gap up that far, however) which the ‘gap fade’ model would tell us not to fade due to its size, but that is exactly what is occurring.
DIA (Dow Jones ETF) 1-minute fill:

Right now, we have a 50% fill of the gap (at $113) which would be an initial (or 1/2 position) exit under normal conditions, but there just aren’t that many large gaps of this nature to build a historical edge or gather historical insights to guide our trading decisions.
Be extremely careful and stay on your toes in this rapidly changing environment.
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US Dollar Index Structure and Support Zone
September 22nd, 2008 by Corey Rosenbloom

With many eyes focused on the US Dollar Index, the value rose significantly, surprising many analysts, but now is experiencing a pullback in prices.  What does the structure look like and where will we likely find potential support?  Let’s look.
US Dollar Index Daily Chart:

The US Dollar Index turned a new leaf and emerged into a confirmed uptrend in June as price formed a higher high, higher low and then took out the marginal price high at $74 (the full reversal is not shown in this chart).  I highlighted this potentially significant development, but price continued to consolidate and form a base (rectangle bottom) before breaking out above consolidation and the 200 day moving average (conspicuously at the same price level) and rallying to a significant percentage gain to present.
Price was only able to form a marginal retracement which wound up being a bull flag continuation pattern that achieved its target and formed a negative momentum divergence at the upper Bollinger Band - odds became high for a retracement/reversal which is what we’re experiencing (consummate with a positive reversal in gold/oil/other commodities).
So where might we find support in the index?
On the daily chart, it might be at the 50 day EMA at $76.50.  Does that level have additional significance?
US Dollar Index Weekly Chart:

The $76 index level appears to signal at least potentially major support from the confluence of the 20 and 50 week EMAs, as well as a positive moving average cross-over (confluence).  Watch this area closely.
Momentum clearly has made a new high and the odds shift to a more bullish posture until proven otherwise.  This “until proven otherwise” would be challenged should price fail at these weekly moving averages - it would be a significant negative development.  Until then, we must take the bullish case on the Dollar.
What of the Fibonacci retracements for potential support?
Drawing the Fibonacci grid (easier on the Daily Chart) from the $71.50 price low to the price high just above $80.00 gives us the following Fibonacci Retracement Levels to watch:
32.8%:  $76.94 (roughly $77.00)
50.0%:  $75.92 (roughly $76.00)
61.8%:  $74.90 (roughly $75.00)
Once again, the $76.00 Index level becomes a multi-correlated area of potentially strong support.
That means there’s ‘play’ to this level, meaning that gold and oil should continue to rise until the Dollar tests this area and the ‘battle to hold $76.00′ begins.  Until then, the structure should hold up in a classic price retracement in an up-trend in the Dollar.
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Right Back Where We Began
September 20th, 2008 by Corey Rosenbloom

In an amazing turn of events, the Dow Jones and the S&P 500 stock market indexes ended one of the most turbulent weeks in their history virtually unchanged in percentage terms, while the NASDAQ and Russell 2000 closed higher on the week, with the Russell increasing almost 5.00%
Let’s take a quick look at the week that will live in history.  I mentioned on Monday’s post included the word “unscheduled events” as well!  It was a tumultous week, and it seems virtually all strategies were tested to their breaking points in the week.  But when the dust settled on Friday’s close, it was a very tame if not negligible percentage change for the week, despite multiple back-to-back 5% moves in the major US Equity Indexes.
First, let’s look at the Dow Jones 30-minute bars to capture the intraday wonders that shaped last week:

The Dow began the week gapping down from 11,450 to plunge 1,000 points in a few days to a low near 10,450 before skyrocketing 1,000 points in less than 24 hours.  It will distinctly go down in history.
What we had was a relatively orderly decline with the 20 period EMA serving as major resistance on the way down (minus a few blips above the average).  A lengthy positive momentum divergence took hold prior to the price rally.
Let’s not kid ourselves with the technicals, however.  Technical analysis is used to forecast probabilities and assess price structure;  it assumes that “all that can be known is filtered into the price” and it cannot tell the future and certainly major economic announcements cannot be anticipated or ‘discounted.’  Friday’s major accelerated advance was exascerbated (created?) by the SEC regulation banning short-selling in Financial stocks and word of an economic bailout which could total over $1,000,000,000,000 (that’s a trillion).
Also, I’m using the Dow because it paints price without overnight gaps for a cleaner picture - for a total intraday representation of the wild week, view the DIA or other major market ETF - Every single day last week gapped - some of the gaps were in excess of 3.00%.  We’ll have yet another ‘high percentage gap’ month, though it will be interesting to see the gap-fill rate (only 2 of the 5 gap days in the DIA filled).
Next, let’s look at the S&P 500’s daily chart to see where we are in the structure.

Price actually did meet a bearish technical price projection and was on its way to complete an orderly down-swing (primary or impulse swing) which terminated at 1,140 prior to the Government Rescue Plan eroded the technical price structure.
How do you manufacture a price rally in the markets?  Force a short-squeeze; force people out of their positions.  Folks, there must be some dramatic reasons the Fed/SEC chose to institute this rule and price manipulation - the consequences of not doing so must have been unimaginable or devastating.  I will continue to reassure myself of this and think beyond the ‘trading world.’
Nevertheless - if technicals still apply - (spoken tongue in cheek), price is testing resistance at the declining 50 period EMA with the moving averages in the most bearish orientation possible in a primary downtrend.  We would invalidate this structure with a clean break and close above 1,300 - the May price high (and above both EMAs).
Instead of discussing the structure of the weekly chart, I wanted to introduce you to the “Doji of Doom” (so I call it) which will forever now be a part of our weekly charts (and memories of those of us who survived through it)

I’ll let you bask in the beauty (horror?) of this long-legged dragonfly doji.
TraderMike captured the sentiment of the risks of Short-Selling in his recent I now deem required reading. Shorting is not the mirror image of ‘going long’ even if the execution (button clicking) is identical.  You really have to be more accurate and aware of the trade management tactics that are different from long (buy) trades.  In regards to Friday’s short-covering rally and subsequent losses, Mike deals out an appropriate yet hard to digest statement:
“My contention is that if you were caught short Friday morning you should consider your losses as tuition paid to the school of hard knocks.”
He then discusses a variety of sources that could have warned you against aggressive shorting in the week (including my “Use Extreme Caution” post warning of massive swings in both directions - much appreciation for the link), prior intervention by the Fed at “magical” times during prior sell-offs (causing ‘rip your lip off’ rallies. Brett Steenbarger), and a few others you should read on his post.
Mike has it exactly right:  “I think it makes much more sense to short bounces back to a trendline or moving average.”
If you are new to shorting, please start small - while it’s still legal!  The dynamics really are different in professional trading.
Continue reading and studying in an effort to put last week’s activities into perspective, and realize that the activities last week were clearly the exception in trading - not the rule.
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Five Days that Shook the Financial World: A Chart
September 20th, 2008 by Corey Rosenbloom


The image compares the daily percentage change (in an informative line graph) for Gold, the Dow Jones, CBOE Volatility Index, Financial Stocks ETF, and the 3-month T-bill yield (which - on Thursday - fell to roughly 0%).
When you put all five of these variables together, the Dow Jones - which swung wildly up and down almost 5% on many of the days last week - looks like it didn’t change at all when it’s filtered in the percentage swings of the CBOE Volatility Index (gaining 60%) and the 3-month T-bill yield (which lost almost 100%).
Gold futures, as volatile as they were - also look relatively tame when compared to these.  Gold futures (priced per ounce) had the greatest 1 day gain in over 20 years, followed immediately by the largest 1 day loss in over 20 years - that was a remarkable move).
The Dow Jones also experienced the greatest 2-day price jump in six years on extremely heightened volatility.
Take the weekend to read news reports, follow your favorite bloggers’ take on the situation and fall-out, and regain your composure for the week ahead.  Enjoy the weekend!
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A Quick Peek at the S&P and Russell Morning Pop
September 19th, 2008 by Corey Rosenbloom

I wanted to show a quick snapshot of the S&P 500 and Russell 2000 indexes this morning following the massive overnight gap which is so far being faded but it would surprise me to no end if the entire gap was filled.  Let’s look:
S&P 500 Daily:

Whether or not ‘the technicals still work,’ we did have intraday resistance (so far) at the 50 day EMA temporarily, but the day is young.  We’re not that far from the August price highs but let’s keep our cool and not get overexcited at these developments.  Volume is reaching record levels and rightly so - there’s so much going on and so many people are affected.
The Russell 2000 actually almost surpassed its August highs intraday.
Russell 2000 Daily:

Finally, for a little fun, let’s look at the DIA 1-minute chart to see the massive gap ($6.00 - the actual Dow didn’t gap up that far, however) which the ‘gap fade’ model would tell us not to fade due to its size, but that is exactly what is occurring.
DIA (Dow Jones ETF) 1-minute fill:

Right now, we have a 50% fill of the gap (at $113) which would be an initial (or 1/2 position) exit under normal conditions, but there just aren’t that many large gaps of this nature to build a historical edge or gather historical insights to guide our trading decisions.
Be extremely careful and stay on your toes in this rapidly changing environment.
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Gold’s Stunning Two-Way Reversal
September 18th, 2008 by Corey Rosenbloom

If you haven’t been following gold prices lately, there’s something interesting that may grab your attention and is at least worth a second look.  First, gold prices skyrocketed 10% Wednesday and then rose by a similar amount today, yet closed lower on the day.  What gives?  Let’s look at these developments.
First, Gold ($GOLD) on the Daily chart:

Gold prices initially violated the 200 day moving average in late July and trended sharply lower to $740 per ounce before forming a positive momentum divergence prior to the neckbreaking rally of this week.  Notice the mini-bear flag that formed that in late August that truncated prior to reaching its target.  These are good examples of these patterns for further reference.
Nevertheless, gold broke above the bearishly slanted (and oriented) moving averages and now hovers at possible support (from the prior swing high and the 50 day EMA).  As you’ll see from the weekly chart, the 50 week EMA is currently providing resistance, though a penetration has occurred.
Gold Prices Weekly:

Though the MA orientation is still positive, the 20 EMA is not far away from a cross beneath the 50 EMA, and if price closes beneath $850 per ounce on Friday, we’ll still have the moving averages acting as primary resistance.
Gold is generally a ’safe haven’ from inflation and uncertainty, but if people who fled the stock market in fear begin to regain confidence, then we could expect to see these recent gains in gold disappear quickly (as evidenced in the stunning intraday reversal today).
Let’s see that on the GLD - the Gold Trust ETF.
GLD (Gold ETF) 5-minute:

There were a couple of price consolidations and another mini-flag pattern and buy set-ups at the rising 20 period EMA, but ultimately price ran up to form its intraday high in the afternoon and then began its gentle slide which turned into a sudden sell-off as the broader stock market indexes recovered quickly and violently.  This pattern could continue into the weekend if the markets are strongly higher on Friday.
Keep in mind it’s quadruple witching, which often brings unpredictable price swings and volatility as large funds unwind and roll positions in the futures and options market as needed.
Guard your accounts!
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Underperforming Emerging Markets
September 18th, 2008 by Corey Rosenbloom

A reader asked me to check on emerging markets and discuss their recent underperformance since the July market bottom.  Here, I look at the MSCI Emerging Market Index, and compare it to the EAFA (Europe/Asia/Far East) and the S&P 500.
First, let’s put them all together and look at their performance for 2008:

The EFA (the EAFA will be referred to as the “EFA” as this is the ETF) held its own with the S&P 500 and actually outperformed into May, but shortly after the May market peak, both the EFA and Emerging Markets Index began underperforming, with the Emerging Market Index showing the greatest underperformance - off 35% for 2008 while the EFA is down 25% and the S&P is down roughly 20%.
Let’s take a closer look at the Europe/Asia/Far East ETF - the EFA on a daily chart:

The EFA peaked in May along with the S&P 500, but price has steadily declined at a much faster pace and began losing relative strength shortly after the top.  We are seeing dramatic underperformance currently.
Notice where I marked the “July Bottom” - it looks like nothing more than an afterthought and price traded higher for only six days before forming a doji at the sharply declining 20 day EMA, setting up a short-sell signal which was validated as price resumed its relentless downtrend into present.  The moving averages are in the most bearish orientation possible (20 below the 50 below the 200).
Odds are we’ll get some sort of retracement to (or close to) the 20 day EMA so stay clear of any new short trades here.  Notice the massive volume into September.
Let’s pull the perspective back and now look at the Emerging Markets Index, and use the GMM - the S&P Emerging Markets SPDR ETF (tradable fund) for a proxy.
The Emerging Markets SPDR:  The GMM

Notice how strong emerging markets performed into the May highs which actually made new highs for 2008 (while the S&P was clearly away from new highs).  However, from this 2008 peak, price began a steady and accelerating decline into September.
These markets tend to be volatile and can add returns in up-markets, but during downturns, these prices can fall faster than the S&P 500.  Emerging markets have not been the rapidly increasing haven they have been and if a global slowdown is coming, then they’re likely to continue to outperform, especially those tied specifically to commodities/exports should commodity prices continue to fall.
Be safe out there.
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A Quick Look at Apple Inc AAPL and Technology
September 17th, 2008 by Corey Rosenbloom

The selling pressure was not contained today to Financial stocks - the NASDAQ lost 4.94% today, the greatest decliner of the four major US Equity Indexes, followed closely by the Russell 2000 (off 4.82%).  Many technology and small-cap stocks fell greater than 5.00% today.  Let’s take a quick snapshot of Apple Inc (AAPL) and view its daily and weekly graphs.
Apple Inc (AAPL) Daily:

What surprised me and many other traders I’m sure is that Apple set-up a relatively strong buy signal - a potential bullish flag - at the $170 level after a new momentum high followed by a clean and orderly retracement to the confluence of support via the 20 and 50 day EMA (complete with doji candles).
Ultimately, the trend failed to shift back to the upside and the support was taken out which set-up a test of the 200 day SMA which also formed a doji and potential entry pattern - it also failed.
Since then, investors have punished the stock from $180 to less than $130 in the span of a month - a sharp decline.  We now have a new momentum low registering on the chart and we have to pull back to the weekly chart to find potential support.
Apple Inc (AAPL) Weekly:

The weekly structure (overlaid with Fibonacci retracements) shows potential support comoing in at the 2008 price lows and 61.8% Fibonacci retracement at roughly $120.00 per share.
Should price break $120 solidly on a weekly closing basis, this would set up a potentially quick test of the rising 200 week moving average and also ’round-number’ support at $100.00 per share, which would likely cause bulls to step up and acquire sizeable positions at those prices.
Also, breaking beneath $120 per share would officially classify Apple as being in a confirmed downtrend on the weekly chart (having formed a lower low, lower high, and then swinging down to take out the swing low at $120).
I mentioned that other Technology stocks suffered today, though Apple was hit particularly hard.  Let’s view a snap-shot of performance today on the broad sector.
Technology Sector as a Whole (S&P 500 HeatMap courtesy FinViz.com):

There were only three green spots in today’s trading in technology:
Nvidia (NVDA) actually rose 4.28% which - if you view its daily chart - appears to be in a retracement back to the $11.00 level to the 20 day EMA - it’s in a confirmed downtrend and is experiencing a counter-trend retracement.
SanDisk (SNDK) actually offered a significant ray of light, jumping (gapping) up almost 40% today.  A massive bullish divergence preceded today’s action, and it’s one you might want to look at for a potential long-term position trade.
Finally, Dell (DELL) rose just over 1% today but I wouldn’t get overly excited, given the massive decline Dell has experienced this month - it’s been a culprit in dragging down the entire NASDAQ index until present.
Everything else was deep red.
Check out the MarketClub for support and education if need be, including their informational free daily blog.
Continue to use caution in this difficult and challenging market environment.
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A Quick Look at Goldman Sachs GS
September 17th, 2008 by Corey Rosenbloom

Goldman Sachs (GS) has held up remarkably well throughout the 2008 Financial sector decline, but even it is now not immune from sharply and rapidly declining prices, as the markdowns in the Financial sector continues.  Let’s look at the multi-time frame charts of Goldman (GS) to see if there’s any clues or to assess what’s happened.
Goldman Sachs (GS) Daily:

Goldman had entered a declining channel formation (not drawn) on the daily chart with the $150 level as key and major support.  Why was this price significant?  Beyond being round-number support (tested four times), it was also the 50.0% Fibonacci retracement of the 2002 low to the 2007 high (shown on the Monthly chart at $153.30).  When looking at stocks, it can be extremely beneficial to rise to the monthly chart and determine large-scale Fibonacci retracements.
That being said, Monday brought on the large price decline across the market and Goldman was quite volatile - gapping down to $142, rising to virtually fill the weekend gap at $150, and then closing down on the day at $135 (after testing $130) which all makes up roughly a $20.00 range.  Tuesday brought the earnings report for Goldman, which actually did well, and though Goldman opened sharply lower, it managed to fill the overnight gap, adding intense volatility and opportunity for intraday traders.
However, today’s action has GS gapping down to $120 and then plunging very rapidly to $100.00 per share (low so far on the day).  That’s a roughly $30 swing and - as of the time of the posting - the day is only half-complete.  That’s stunning.
Goldman Sachs (GS) Weekly:

Pulling the chart back to the Weekly chart exposes a symmetrical continuation triangle and a clear and confirmed down-trend in prices.  We’re registering a new momentum low on the weekly chart and a breakdown of the triangle formation, with a potential price target near $100 per share (the height of the triangle is roughly $60, and subtracting $60 from the breakout level around $155 actually gives a $95 target).  That target has roughly been achieved in less than one week - a nearly unprecedented technical resolution for such a large company.
The Monthly structure shows the amazing run-up and sell-off, and I’ve overlaid the large-scale Fibonacci retracements.
Goldman Sachs (GS) Monthly:

We draw the Grid from the 2002 price low to the 2007 price high and then calculate the Fibonacci retracements as shown on the chart.
The $153 level was able to provide initial support, but once broken, it sets up a test of the 61.8% retracement which actually came immediately after the violation.  Unfortunately, price is quite beneath the 61.8% level, and that is a significant development.  Notice also how the 50 week EMA contained price as support until broken (as did the 20 month EMA contain price as support).
Continue to watch this stock closely, as well as the implications for the broader market.  Things are happening so quickly.

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S&P Hits Large Scale Monthly 50% Fibonacci Retracement
September 16th, 2008 by Corey Rosenbloom

I’ve been listing it as a potential target for some time and today the S&P 500 Index tested the 50% Fibonacci Retracement from the 2002 low to the October 2007 high major price swing - it’s also a 50% Retracement of the recent Bull Market - breaking beneath this level would be extraordinarily significant.  Let’s look:
S&P 500 Index Monthly Chart with Fibonacci Retracement Overlay:

These are the levels to watch, write down, and memorize.  From the 2002 lows to 2007 highs, here are the following major/long term Fibonacci Retracement levels on the S&P 500:
38.2%:  1,26750.0%:  1,17261.8%:  1,077Generally, these levels provide significant support, and as you can tell above, the 38.2% retracement provided support three times before it was broken.  The market has not closed beneath this level on a monthly basis, but it looks like the odds are high that we’ll close beneath it for September, barring a bullish recovery.
Right now, the 1,172 area is expected to provide support - significant support at that.  It’s a psychological level, and a known level used by large funds and traders/investors. We breached this level temporarily today, making an intraday price low of 1,169, but as of noon EST, the market appears to be holding this level for the time being.
Should price fail at the 50% retracement level, it will set up a test of the 1,077 level for the next logical area of support, and if that fails then we’re looking at S&P value of 1,000 or less - all support bets will be off at that point.
A bounce may occur at these levels, so it’s probably not the best idea to rush out and get maddeningly short, so do use caution if you’re buying or shorting in this market, and watch that 1,172 level with Eagle Eyes!
The Market Club offers daily commentary, scans, watchlists, news/videos, education, and trading signals and I recommend joining them if you’re looking for help in these difficult times - they tend to focus strongly on the charts and how to trade unemotionally with a system.   They offer 30-day trial memberships and they’re growing rapidly as a service/company so do check them out for further information and assistance.
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Sector Performance from Monday
September 16th, 2008 by Corey Rosenbloom

There were so many stories and cross-currents from Monday’s index declines, but let’s break it down by sector and see what the respective percentage decline was per AMEX Sector.
AMEX Sector SPDR Performance:

The Financial sector declined almost 10% in one day, with Energy prices - spurred by the 5% decline in crude oil prices - notching the second largest loss on the day at 7.5%.
Consumer Staples - which are a defensive sector that tends to hold its own in bear markets - showed relative strength on the day by declining only 1.20%.
What may be shocking to some - given the bearish news and price performance of Monday’s trading - is that the XLF Financial ETF actually did not make new lows on the year, but holds currently above those lows this morning.
XLF Financial ETF:

The XLF is actually showing relative strength to the broader market indexes in terms of being above its July low while the Dow Jones, S&P 500, and NASDAQ Indexes all broke to new lows for 2008.  The Russell 2000 also held above its July lows which is worth examining.
Let’s turn quickly to see the commodity performance on Monday.
Commodity Indexes:

Crude Oil/Energy declined the most, while Gold/Precious Metals showed gains on the day.
Be careful out there.
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A Quick Look at Previous 4% Down Moves in the S&P 500
September 15th, 2008 by Corey Rosenbloom

Indeed today will be remembered for quite some time, but as history tells us, a 4.7% down move in the S&P 500 is not the end of the world by any means.  In this post, I list the previous 4.00% down moves in the S&P index and then run a study on what historically has occurred if you bought the S&P on these 4% down days.
The following table ranks the top 20 largest one-day percentage declines in the S&P:

The data are from Yahoo Finance and trace back to 1950 (to today), thus it does not include the 1930s Stock Market.

The largest one-day decline since 1950 ocurred 21 years ago as price plunged 20% in a day (mirroring that of the 1929 crash).  In fact, the 1987 - 1988 period was extremely volatile, as these two years encompass six of the largest 20 price declines since 1950.

You can look at the dates to determine when these price declines happened and can pull up your own charts of the S&P 500 to see what happened before and after these declines.

To put things into perspective, today’s 4.7% rout was actually the 14th worst decline since 1950, and was not the bloodbath some had expected and certainly today’s decline didn’t set any percentage records.

I know that’s no comfort for those who lost money in today’s market, and certainly a near 5% down move in the S&P 500 is certainly significant.

The fact that the S&P 500 notched a new closing low for 2008 is extremely significant.

I’ll continue to provide insights, updates, and charts as they become available.

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Use Extreme Caution in the Week Ahead
September 15th, 2008 by Corey Rosenbloom

We could see a week ahead that will be discussed years later - as such, if you are a newer trader, it might be best to switch to simulation mode this week or use this week as a training experience, rather than risking real capital in an environment that could swing violently up and down due to market events scheduled to happen this week.
First of all, we start this Monday (as of 10:15 EST) with a 2.5% plunge in the S&P 500, Dow Jones, and in broader global indexes which suffered as well.  Today’s headlines are that Lehman Brothers (LEH) declared bankruptcy, with uncertain fall-out on other companies, and Bank of America (BAC) purchasing Merrill-Lynch (MER) for $50 billion.  Also, though a smaller headline, Industrial Production numbers were disappointing, declining 1.1% (with a drop of 11.9% in automobile output).  Also, AIG (Insurance Giant) is searching for a buyer and could be at risk.
Also, Crude Oil is plunging 5% ($5.00) today in early trading, which may come as a shock to many who expected significantly higher prices from the dual hurricanes in the Gulf.
Let’s look quickly at the Dow and the US Oil Fund:

US Oil Fund:

What’s ahead for this potentially dangerous week (both for longs and shorts)?  Briefing.com posts the list.
I wanted to show some highlights:
Tuesday is a FED DAY, meaning an extreme move could come either way.  If the Fed uses the today’s action as a reason to Cut interest rates, we could see a huge surge higher in the market. The rate decision will be announced at 2:15 EST.
In addition, Goldman Sachs (GS) reports earnings on Tuesday, which could move the market higher if Goldman reports better than expected earnings, or send it lower if it reports beneath expectations.  Many eyes will be focused on this stock on Tuesday.
As usual, Weekly Crude Oil Inventories will be reported early Wednesday, and with the recent drop in oil, the potential for oil to spike (or plunge) from this report exists.  More eyes than usual may be focused on this report and the direction oil takes as a result.
On Thursday, the Leading Economic Indicators will be reported, which could potentially move the market if there’s a major change or unexpected result.
Friday is Quadruple Witching!!! According to the Street Authority, “Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume. As a result, investors can anticipate and plan for the potential effects of these relatively turbulent trading days.”
Once we settle down and think we’ll be cruising into a peaceful weekend, extreme and random volatility could permeate the market as large institutions unwind and hedge (and re-hedge) major positions on expiration Friday.
I don’t necessarily recommend taking a total vacation, because there will be so much to learn in the week ahead - take lots of notes, screenshots, documentation, and observations for your educational and experiencial benefit… but by all means reduce trading activity if you need to if you’re newer or don’t particularly benefit from a volatile environment, particularly if you hold positions for days.  Day traders may love this heightened volatility, especially because they will be able to avoid these possible overnight gaps and can be able to profit from fast-moving markets.
The #1 goal this week might just be Preservation of Capital due to the number of market moving events ahead.  It would be one thing if all events moved the market in one direction or the other, but it’s likely to be more of the same in terms of a large day up, a large day down which can increase frustration and trading losses.
Do be careful above all this week.
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How I Set Up My Charts
September 13th, 2008 by Corey Rosenbloom

A number of readers have asked me to define what chart settings and indicators I use and I thought I should post regarding this information.
I trade with TradeStation and do all trading through them, but for the blog, I enjoy posting charts from StockCharts.com because of the professional look and feel of their charts, and because they’re much more commonly seen than TradeStation charts, which can be endlessly customized to your needs.  I started out years ago with StockCharts and have become accustomed with their format and style, and so I find it much easier to teach or show examples using their charts so that is why I post public charts using their format instead of TradeStation.
Here is an example of the settings I use on the charts I post:

I start off selecting CandleStick charts as my preferred way to view the data, and then overlay the following moving averages:
20 period Exponential
50 period Exponential
200 period Simple
Exponential averages track the more recent data quicker (by their calculation) and I’ve found most ‘tests’ or pullbacks are better captured using exponential than simple moving averages, though this point is certainly up for debate, as others swear by simple moving averages, or even triangulated or linear averages.
I also overlay volume and set ‘colored bars’ which gives the red and white tint to the candles for ease of viewing.
The background is the “Mohave” setting, though you can change this setting to fit your needs easier.  If you look at hundreds or thousands of charts, you generally want the image to be as appealing to you as possible.  I avoid black and white charts as much as possible because honestly I don’t find it as fun as viewing charts that have more aesthetic visual appeal - you’ll sustain motivation if you find the charts appealing and interesting.
I also overlay the Bollinger Bands (default, 20 period setting), though you may have difficulty seeing them and that’s also the point.  I don’t want the Bollinger Bands to confuse me for a moving average, or to saturate the data with too many lines - data clarity is paramount.  I use Bollinger Bands to assess the volatility environment as outlaid in the “Range Expansion/Contraction” price principle.  Also, it’s helpful to know if price is at or above a Band extreme (particularly if you see a momentum divergence or other form of resistance/support).  I use the “Area” setting and dim the opacity of the Bands so I can see where price is in the Band area - Bands represent 2 standard deviations away from a 20 period moving average.
What is that strange oscillator in the bottom panel? It’s a common and appropriate question, and the oscillator is commonly known as the “3/10 Oscillator” but it’s really a simple, customized MACD indicator.
To convert the MACD into the “3/10,” simply change the three numbers in the parameters (default 12, 26, 9) to 3, 10, 16 respectively.  Discussing how to use this oscillator is far beyond this post, and there are lengthy articles out there that describe how to use this indicator effectively.
Essentially, the Black line represents the difference in a 3 period and 10 period Exponential Moving average (for TradeStation, I use Simple Moving averages for the 3 and 10 period, but that’s not possible in StockCharts).  The oscillator is unbounded, and pivots about the zero line.  The Red (’signal’) line is a 16 period average of the Black “MACD” Line, which serves as a trend indicator (and roughly parallels the Black line on a higher time frame).
Although I do more with this oscillator, I tend to frame my discussions in terms of “Momentum” and describe this simply as a “Momentum Oscillator,” which it is.  In truth, the 3/10 is a trend indicator, momentum oscillator, and a swing oscillator.
What I’m looking to do mainly is to compare price highs with oscillator highs and look for divergences, particularly if price makes a new swing high and the  oscillator fails to make a new high.  I’m also concerned with New Momentum Highs (or Lows) which clues me in that an actual price high is likely yet to come.
When comparing price swings of certain magnitudes, I look to draw Fibonacci Retracements of key price pivots, and look to use Fibonacci levels as both targets and entries (as well as support and resistance).  I don’t always show Fibonacci retracement levels on my charts, but they are very important to me and I have a white board in the office where I write down key Fibonacci levels based off significant price pivots.
I’m also applying of Gann price/time projection principles as well as Elliott Wave theory, into my trading and analysis as well, neither of which can be expressed by default in StockCharts.
I always show the top portion (chart) on the site, so let’s pan the camera down and look at the settings/engine that drive the charts I post publicly on the site:

Feel free to let me know if there are additional questions or suggestions.
(I am not compensated in any way by StockCharts.com or TradeStation Securities in posting their charts or mentioning their companies.  All rights reserved).
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Projecting S&P Price Targets with a Breakout
September 12th, 2008 by Corey Rosenbloom

I mentioned in yesterday’s post that the market is trapped in a defined range, and that a break out of the range will produce a likely sustained move.  A reader asked me to highlight potential targets if a break-out move occurred, so I want to take a quick look at S&P potential price targets should we break above the August highs or July lows.
First, let’s look at the S&P 500 consolidation on the daily chart and then rise to the weekly and monthly:
S&P 500 Daily:

Here we see the consolidation clearly as being between then August highs at 1,313 and the July lows at just above 1,200.  Let’s attempt to step into the future and see what resistance levels would present themselves should price break upwards, and what support levels would present themselves should price break downwards and not try to make a prediction about which way price will ultimately break - let’s just be ready when it does.
On the upside, 1,350 continues to be a significant level to overcome.  Here there are at least five major pivots at this level:
The Daily 200 Simple Moving average currently exactly at 1,350
The 61.8% Fibonacci (”Fib”) retracement from the Aug. high to the July low at 1,349
The Weekly 50 Exponential Moving Average at 1,350 currently
The 38.2% Fibonacci retracement of the October High to the July Low at 1,350
The 20 period Exponential Moving Average on the Monthly chart at 1,355 (and declining)
I have drawn red hash marks to represent the Fibonacci levels on these charts off key price pivots.
Should price break 1,350, then the next logical zone of supply (resistance) will come from the May price highs at 1,440. Also, this area corresponds with the 61.8% Fibonacci retracement of the October 2007 high to the July 2008 low - a major pivot to watch.  There is only one other major chart point to watch at this level, which is the horizontal trendline (not drawn) at 1,425 which served as significant support in the past and resistance recently.
S&P 500 Weekly:

The Weekly chart shows the larger scale Fibonacci retracement (red hash marks) which should be observed carefully, and the 50 week EMA corresponds with the 38.2% retracement of the entire move (green arrow).
Also, again the May market high near 1,440 corresponds with the 61.8% Fibonacci retracement of the major market move.  It would be absolutely remarkable for buyers to push price beyond this level, so until we get indications that they might, I will offer no further upside projection targets.
Now, let’s look at the downside….
S&P 500 Monthly:

The first line of defense for the buyers - and zone of support - would come in at the 50% Fibonacci retracement of the major bull market move that began with the market bottom in 2002 to the October price high in 2007.  The 50% Fibonacci retracement rests at 1,171, which was almost tested in July once price broke the 38.2% retrcement at 1,266.  Price is now beneath that key level, which is supremely significant to the long-term structure.  This also corresponds with prior support in 2005.
There are other methods, including Elliott Wave, Gann, and Fibonacci price projections which I could use, but I want to keep this discussion simple and focus on key, highly watched areas.  The projections using these methods all project price to the downside because that is the direction of the primary trend and path of least resistance - in other words, there are far more zones of supply (resistance) than there are support zones.
The old adage goes, “In a Bear Market, there is no support.”  Be aware of this.
Summary:In summary, I project two targets to the upside if there is indeed a breakout up:
1,350 would be initial, significant resistance
1,440 would be secondary, significant resistance
If a breakout down occurs:
1,171 would be initial support
1,075 would be secondary support (via the 61.8% large scale retracement)
Keep a close eye on the big picture and major conflunces of price levels as we near them in either direction.
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The Daily Dow
September 11th, 2008 by Corey Rosenbloom

It sure would be nice to have a continuation move one way or the other, instead of this constant big up, big down choppy environment we’re experiencing - these conditions can’t last forever so hold tight while we’re in them.  Let’s look at the daily Dow Jones and today’s intraday chart (complete with gap fade) for more insights.
Dow Jones Daily:

There is an amazing amount of alternating red and white bars (up and down days) such that where the most cynical (and actually, effective) trading strategy would be “if today is a down day, buy tomorrow at the open for it will be an up day” and vice versa.  But alas, that’s too easy but also goes against the grain of experience, in terms of wanting to see a move (swing) continue in one direction.
Nevertheless, we take what we are given and make do the best we can.  Officially, price is in a confirmed and primary downtrend and is currently experiencing resistance at moving average dual boundaries.  It would be extremely bullish should price clear 11,700 (actually 11,800) and extremely bearish should price break 10,800 (the July lows).  Until one of these two things happens, recent experience shows us that it’s not really a fruitful exercise to try and predict which of the two scenarios will occur first.  Don’t feel bad if you’re holding back in this environment and guarding your capital to deploy once a move emerges from this difficult consolidation (balance) area.
Let’s pull the camera out and look at the Dow’s performance from the start of 2008.
Dow Jones year to date:

I’ve thrown in a few momentum divergences for you to see, all of which resulted in the expected move as a price swing terminated and a new one began.  There’s a negative reading in the oscillator currently, and under the theorem “momentum precedes price,” that would increase the odds for lower prices, but nothing is guaranteed.
To make analysis worse, price is directly between the 11,800 and 10,800 levels that would trigger further action.  Pull the chart back to the weekly or even monthly chart to get a little better perspective of what might be ahead and be sure to adjust risk accordingly.
Let me combine two posts in one and briefly show today’s intraday price action, including a successful gap-fill in the market indexes.
DIA 5-minute chart:

The morning started with an opening gap, but don’t feel ashamed at all if you traded against the gap and sold out at a partial fill when price found resistance at the 50 period EMA - this was how I traded this morning and although testing does tend to favor holding for a full fill, a doji at resistance after an impulse move down is a fair place to exit longs and even consider putting on a short-sell position.
Ultimately, price did fill the gap and then trended down in the direction of the gap before reversing suddenly and unexpectedly at the 1:30 period before forming a momentum impulse up, breaking above the intraday high (and yesterday’s close) and surging higher on news that Lehman Brothers (LEH) may have a buyer.
Expect further upside in the Financials and broader markets if this indeed is the case and becomes the top story of today’s trading day.
Stay on top of your positions and keep a close eye on your strategy and money management.  Capital preservation - in my opinion - is the main objective until we get a clearer picture on the indexes.
Consider joining the Market Club service as I always recommend their analytical tools, research, education and scanning.
Take time to research, study, and review your performance and perhaps learn new skills/set-ups until the picture becomes clearer.
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Looking at Lehman LEH
September 11th, 2008 by Corey Rosenbloom

Financial company Lehman Brothers (LEH) has been under intense media scrutiny due to the recent price plunge and charges of potential financial instability.  Let’s look at the chart structure from 2006 to today and see what clues may have been evident, or how you could have managed risk in this stock.
LEH Weekly:

The larger structure shows that early indications of an impending downtrend began in mid-2007 with price breaking the 20 and 50 week EMAs which had been support.  Also, price formed a lower high and then formed a lower low when price tested the rising 200 week moving average.  Remember that after an uptrend when price is ’shifting gears,’ price will fail to hold at the 50 period EMA which will then often set-up a test of the 200 period SMA - this was exactly the case in LEH.
While it seemed that the 200 week SMA would hold - and in fact it did so throughout the latter part of 2007, weakness was evident because price could not rise above the confluence of the 20 and 50 week EMAs just above.  With price consolidating into a rectangle formation, the odds of a downside break were higher than that of an upside one.
In fact, this happened in early 2008 (January) but price immediately rose up quickly to test the falling EMAs in a ‘last breath’ sign of desperation.  From this price near $65, LEH never looked back, and in fact plunged very rapidly to the downside before being crushed on the Bear Stearns announcement in March, which formed a massive recovery shortly after.
Still, despite this, price was only able to retrace to the falling 20 week EMA yet again, form a very clear doji reversal pattern at resistance (which was your highest probability signal on the chart), and then has yet again not looked back to the downside into the current price low at $4.00 per share.
From mid-2007 to present, the momentum oscillator has been registering lower lows and lower highs, confirming massive price weakness.
Let’s take a quick look at the daily chart for a closer view of the current action.
LEH Daily:

We see the March debacle a little clearer here.  Nevertheless, the 20 day EMA served as significant resistance, which also served as excellent short-selling entry points (or long liquidation points) into the prevailing and primary downtrend which was evident and confirmed on the higher time frame.
You could have position traded this stock by entering short virtually at any point, but I’ve highlighted the breakdown from consolidation at $40 per share as an optimum entry and then trailed a stop above the 50 day EMA for a profit or stop-loss.  Now might be a good time to exit immediately if you are using that strategy because you don’t want to see price potentially rocket up to $17 per share to stop you out - exit into capitulation or massive range expansion and move on.
Despite two positive momentum divergence (both of which gave decent upside percentage moves), these weren’t enough to turn the stock in any meaningful way.
Lehman will serve as an example that it’s quite unprofitable to attempt to catch a falling knife sometimes (where exactly was the bottom again?) and that it can be very profitable to trail a stop into a prevailing trend (short or with put options).
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Interesting Setup in Goldman Sachs GS
September 10th, 2008 by Corey Rosenbloom

I noticed a really interesting version of the “rounded reversal” pattern on the intraday charts of Goldman Sachs (GS) today.  Although I missed this trading opportunity, I wanted to share this as an example of a variation of the pattern and how it might have been traded successfully for a low-risk, high probability profit.
Let’s look.
Goldman Sachs (GS) 5-minute:

The pattern is represented by the green arrow, highlighting the gentle reversal pattern on the stock as it crests into the afternoon session.  Price gapped lower on the day and the 20 period EMA served as significant resistance - it’s almost uncanny how the 20 period EMA serves almost like a visual and automatic (curving) trendline the whole day until the rounded reversal develops and becomes the dominant pattern.
All throughout the session until 1:30, a positive momentum divergence had been developing and price formed an ultimate consolidation, almost like a bugle horn or cornucopia imagery.  It’s very rare to see such ideal consolidation into a classic apex before bursting higher into a strong impulse move.
The ideal entry came either at one of the dojis at resistance or for more conservative traders, when price broke cleanly above the 20 period EMA… or finally broke above the 50 period EMA.  However, a fast momentum market and ‘positive feedback’ burst occurred almost like a rocket as price cleared the 50 period average as short-sellers covered and new buyers emerged, quickly forcing prices remarkably higher - it would have been ideal to have been positioned ahead of this move and expecting its development due to the range contraction principle of price.
Ultimately, price reversed into the close, but for a quick day-trader, a profit of up to $4.00 could have been realized within an hour on a momentum move that barely gave any retracement.  In terms of “R-Values,” one could have achieved a multi-R value profit quickly.
Let’s take a step higher to see the structure on the 15-minute time frame and assess why the $161 per share level could have been an initial price expansion target or expected resistance.
Goldman Sachs (GS) 15-minute:

On the 15-minute chart, the falling 50 period EMA ultimately contained price from the rounded reversal pattern.  This level also corresponded with the confluence of the 20 and 200 period moving averages on the 30 minute chart, and the falling 20 period EMA on the hourly chart.  Moving averages on higher time frames can often serve as initial targets for trades entered on lower timeframes.
By closely annotating intraday charts, you will open yourself up to notating more price patterns, and the more patterns you internalize (examples you see), the better you’ll be able to act properly upon them in the heat of intraday trading.
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A Look at the Steel Index
September 10th, 2008 by Corey Rosenbloom

Not too long ago, a reader asked me to take a look and discuss the Steel Index for any insights.  Presented below is the current daily and weekly structure of the Dow Jones Steel Index.  One could look at X (US Steel) for a stock that is very similar to this broader index.
DJUSST Weekly:

The larger timeframe price structure shows a consolidation pattern for the majority of 2007 which broke to the upside in 2008 and achieved its target before forming resistance at 550, failing numerous tests of this level, and then plunging sharply to the downside throughout the more recent part of 2008.
Price failed first (quickly) at the rising 20 period EMA which set up a test of the rising 50 week EMA.  In an uptrend, these areas are expected to hold as initial support for price (and can set up low-risk trade entries).  Price did try to rally on a test of the 50 week EMA but found resistance at the (then) falling 20 EMA before reversing and falling sharply to test the rising 200 week SMA.
Generally, moving averages help assess the structure of price and can also be used to set up targets and entries.  Once a trend is in the process of reversing, it will retrace sharper to deeper (larger) moving average periods.  In the case of an uptrend, the 50 EMA is often the last line of defense, and if this area is broken, a high probability test of the rising 200 SMA is often due - it is a good place to enter a trade with a little bit of a higher target.  This pattern tends to repeat itself on multiple time frames.
So with the violation of the 50 EMA, a test of the 200 SMA was set-up which culminated quite rapidly.  Price is currently find support and could mount a reversal/retracement off this level.  If you just looked at the daily chart, you might think price reversed at a random price point - it didn’t.
DJUSST Daily:

In addition to the weekly 200 SMA, price found likely support at the 300 (round number) index level.  An eventual test of the falling 20 period EMA - or roughly index level 360 - is certainly not out of the question and might actually be the higher probability play.
Take a look at X (US Steel - not shown in this post).  It shows an almost identical pattern to the DJUSST index (and rightly so).  Though the stock recently peaked at $195 in June, price has given up half its value and now stands at $100 per share after hitting a low yesterday of $95 per share.  If you can’t wait to get long X, now might be a good entry if you’re aggressive.
Although I marked a failed swing divergence on the chart (the expectation was that price should reverse at the 380 level thanks to the positive divergence), if you compare the oscillator low in September to that of July, and then note that price is quite lower now than it was there, then you have a positive swing divergence on the daily chart in addition to a potential positive momentum (large scale) divergence on the weekly chart.  That could add some fuel to the bullish camp if buyers step in at these levels.
Continue to watch this to see if this development plays out as anticipated, or what the structure evolves into.
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Gold Makes Fresh 2008 Low
September 10th, 2008 by Corey Rosenbloom

Those following gold may take note today of a fresh new low formed for 2008 in Gold and the GLD ETF.  Such a development may have been unimaginable earlier in March or July but such a move has occurred.  Let’s take a quick look:
GLD (Gold Trust tracking ETF):

I’ve drawn this chart starting in 2008 and compressed it to fit in the small window.  The numerous ‘gaps’ are not actual gaps, but drawn by StockCharts due to how it records time of open and close - it’s better to follow the $GOLD symbol in StockCharts but I wanted to show this intraday development rather than waiting for the close ($GOLD is plotted on the close of the market day).
Today, GLD has fallen 2% to $75.00, which represents a fresh new low for the year.
I did also want to highlight prior momentum divergences in the ETF and ask the question, “Are we forming a positive momentum divergence currently?”
Price failed at the falling 20 period EMA on the recent retracement into August and is now making new lows as anticipated by the new momentum low and “Impulse Sell” trade set-up.
On the weekly chart (not shown), GLD had broken the moving average support provided by the 20 and 50 period EMAs.  The 200 day SMA rests at roughly $63.00 per share, which is a good distance away.  It might be surprising to trail all the way down to that level for a test of support.
With the recent strength in the US Dollar Index, commodities have clearly suffered.  Gold is no exception, but keep your eyes on this commodity for any sign of developing strength or possible reversal should this positive momentum divergence play out and affect the price structure.
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Foreign Currencies Plunge
September 9th, 2008 by Corey Rosenbloom

If you’ve focused entirely on the US Dollar Index, you may have missed the fact that - in general - for the Dollar Index to rise, foreign currencies must fall - and in some cases, that fall has been dramatic.  Let’s look at a few currency indexes (FOREX) to see the flip side of a strong US Dollar.  All charts are weekly charts.
First, the Euro Index:

The Euro rose in a strong uptrend throughout most of the last few years, supporting strongly on the rising 20 week EMA, but mid-2008, the support broke, the 50 week EMA couldn’t hold price either as expected, and we are now at new lows for 2008 and levels not seen since late 2007.  When looking at these charts, realize that the US Dollar ‘bottomed’ in March 2008 and formed a consolidation pattern before reversing.  It was difficult to imagine how far price could plunge until we see it here after the fact.
Next, let’s look at a currency related to the Euro, but one that has underperformed the Euro for most of 2008.
British Pound Sterling Index:

The British Pound enjoyed the same uptrend while the US Dollar suffered, but the Pound actually peaked in October 2007 similarly to the US Stock Market peak.  Price consolidated throughout most of 2008 before breaking the consolidation pattern and moving average support to reach new lows not seen since early 2006.
Let’s go to the other side of the globe and look at Japan.
Japanese Yen:

The Yen had a strong run into 2008, peaking in March and then falling sharply from that peak.  The Yen actually has held up stronger than most currencies over the last few weeks, which is a development on its own that is worth further analysis.  Price is roughly even from where it started the year.
Finally, let’s see the US Dollar Index which once was weak but now is strong.
The US Dollar Index:

It’s the strength in the US Dollar Index that has surprised many people and turned macro-trends upside down.  Commodities peaked when the Dollar formed its bottom, and the $CRB Index has fallen sharply from its earlier peaks when people once thought that index was invincible (and the Dollar was unsalvagable).
Intermarket analysis frequently begins with the US Dollar Index as a base to build the structure for cross-market trends, and the Dollar Index trend must be declared officially as “up” since forming higher lows, higher highs, and breaking above these levels and the weekly moving averages.  A positive moving average cross (which now looks inevitable) would be a further confirmation of a trend reversal underway.
Continue to watch currencies even if you’re not specifically a FOREX trader - you may pick up on insights you may have missed before!
Speaking of FOREX, Adam Hewison of the Market Club released a brief video on signals in the FOREX market entitled “FOREX in 90 seconds” which shows a brief overview of the Market Club strategies (using multiple time frames) and trading signals - it’s definately worth considering.
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Take a Look at Google GOOG DELL and Technology XLK
September 9th, 2008 by Corey Rosenbloom

What we may have missed recently is the weakness in technology related companies over the last week which was particularly punishing for most tech companies that started roughly at the same time DELL missed earnings and gapped lower.  Let’s look at the XLK Technology SPDR and Google for some insights.
XLK Technology Sector SPDR Daily:

The action in XLK almost mirrors that of the broader markets with the exception of outperformance in August and underperformance in September.  For the relative strength ratio, divide the XLK by the S&P 500, or type in XLK:$SPX in StockCharts.com.
We see a negative momentum divergence going into the May/June price highs that preceded the reversal which led to a positive momentum divergence and symmetrical triangle consolidation pattern throughout July with a breakout and strong momentum move into August.  That’s where the fun stops, however.
After failing a test of the 200 day moving average (it didn’t actually make it to that level), price fell back to moving average support, consolidated, and then burst downwards in a price expansion, making new lows not seen since March.
Notice this is a non-confirmation because the broader indexes (S&P 500) failed to make new price lows beneath their July 15th ‘bottom’.  It shows relative weakness in technology.  Possible support for the index comes in around $21.00, which is the March price lows - let’s see if that holds.
Google (GOOG) Daily:

Google (GOOG) is showing a lackluster stock performance here after a large-scale gap in late April - the gap is now officially filled (and then some).
Price formed a ’rounded reversal’ top and supported twice on the 50 day EMA prior to breaking down below this level, finding resistance there in July, and then rolling (gapping) sharply to the downside in July.  Price formed a mini-descending triangle consolidation pattern which resolved to the upside, found resistance at the same falling 50 day EMA before making the momentum move down into today’s price.
Just like the XLK, Google has potential support from the March lows around $400 to $410 per share.
Let’s look at the major culprit behind the recent action:  Dell Inc.
DELL Daily:

I used this chart to highlight two things.
First, notice the “Three Push” Pattern that preceded the price plunge to the downside.  This is tantamount to a negative momentum divergence as price scrapes its way to new highs.  After the third weak peak, a reversal is expected (though we never know how far it will go and certainly never could have predicted the magnitude of the downside action thanks to the earnings miss).
Astute traders may find this pattern similar to the “Elliott Wave” Theory pattern of a five-wave impulse move that terminates with the 5th wave.
Second, I wanted to show the relentless selling and punishment investors have given this stock following its earnings announcement.  Often, we see at least a partial retracement into an overnight gap, but this was clearly not the case in Dell.  This move was extremely hard for anyone to trade long or short because you ask “when will it reverse?” to get long and ask “is this a good entry/will it reverse?” as well to get short. Run-away momentum moves can be difficult for both sides of the market, especially for the side losing money on the position.
Stay focused on these stocks and others in the technology sector for clues about continued market strength or weakness.
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Fun Intraday Rounded Reversals and Smiles
September 8th, 2008 by Corey Rosenbloom

With Monday’s trading activity behind us, let’s look at what happened and see if the markets were smiling at us from their charts.
First, the Dow Jones (DIA) 5-minute chart:

I embellished the chart a bit by drawing two connecting curved trendlines to look like a smiling face (we all need a little levity at times).  Nevertheless, that was the pattern of the day - that of a “Rounded Reversal” which in this case did look like a smiling price chart.
Virtually everyone expected some sort of strongly positive open or market action today due to the Freddie/Fannie announcement this weekend and the market did not disappoint.  The Dow Jones index staged a 300 point rally, virtually erasing last Thursday’s downdraft in a single day - yes, the markets are that volatile (swinging 3% days in less than a week).
Back to the intraday chart.  The first play of the day is often some sort of ‘gap fade’ play, though odds of a complete gap-fill decrease as the size of the gap increases.  In this case, we got slightly more than a 50% (actually 60%) gap fill before a positive momentum divergence formed and price eched out a ’rounded reversal’ pattern.
Rounded Reversal patterns (or saucer patterns) occur when (in this case) supply carefully and gently shifts to demand (or selling pressure gently gives way to buying pressure).  The double bottom and positive momentum divergence (not shown) gave us clues to place any stops beneath the lows of the day, with the expectation of higher prices yet to come (around 2:30 - 3:00).  Intraday lows (and highs) are often formed with momentum divergences.
The NASDAQ QQQQ ETF chart shows the momentum oscillator and an interesting full gap fade pattern (technology stocks continue to show relative weakness).
NASDAQ (QQQQ) 5-minute intraday chart:

The early morning gap was immediately filled, and then a bounce off yesterday’s close was short-lived before price reversed and made new price and momentum lows on the day.  You can see that the price low of the day was formed on a positive momentum divergence at noon complete with a hammer candlestick.
Price retraced up to the falling 50 period EMA to form a doji and then reverse back to the downside to make a higher low and sharply higher (low) momentum reading at 2:00pm.  Price then had its own virtual ’rounded reversal’ before rallying into the close, though price found resistance at yesterday’s close and the 200 period moving average.
We’re certainly experiencing exciting and fascinating times, with both the buyers and sellers getting hurt on both sides of the market it seems.  One has to continue to be patient, trade a little more conservatively, and focus a little more on the risk side of the equation until things settle down a bit.
For videos, analysis, scanning, and trading signals, check out and join the Market Club to help you navigate these trying times.
Speaking of large intraday gaps…
Rob Hanna of Quantifiable Edges posted two studies today regarding large gap days.  Unfortunately, in his first study “Quick Stats on Massive Gap Opens,” he didn’t find an edge.
Rob stated, “Since 1998 there have been 16 times when the S&P 500 has gapped up 2.0% or more. Eight of those times it closed higher than the open, and eight it closed lower.”
He shares more research on the post and declares, “So far I’ve yet to identify a sizable edge for trading a gap this large on an intraday basis.”
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