Just to review, I proposed two possible setups for today's action. The "Long Setup" was based on the fact we are still in an uptrend, at the end of a local rally exhaustion phase, and a saw the possibility of an Adam and Eve reversal underway. That did not materialize. The "Short Setup" was based on my belief that the gravity of the gap centered at 1018 would pull price action down and complete a S-H-H-S pattern. Well that didn't happen either. Lets first look at a close up of the hourly chart:
As you can see - we moved sideways. The consolation prize is that we did test the levels that I identified in yesterdays posts. Specifically, we completed a retrace to the 1022.5 (short play support) line and saw a very brief penetration and then a strong pullback which popped at 1030 (long play resistance) but failed to break 1032.
Looking at the 1 minute intraday graph:
We see the whipsaws at both of these levels early in the day - and go on never to see them again. Instead, we progressed into a half-assed coil - building tension and creating carnage out of tight-stopped day traders all day long. And we ended the day unchanged. Bravo manipulators! Anyway, the chart shows the apex and what I would think is the break point. We may have an interesting open tomorrow.
OK, back to longer period technicals. What the heck is going on here? Are we about to collapse? Or, is this just a rest - a sideways consolidation - while the big boys tan? With September approaching, everyone is thinking correction. I'm thinking correction - but my thoughts don't count. The only thing that matters is what the charts say.
Let's step back again and look at the hourly over the past 20 sessions.
Focus on the fact that we have just completed a rally leg and there are technical indicators that suggest a rise to 1061. With these things in mind, we may be witnessing a bull flag. A bull flag is characterized by descending highs and descending lows that sink at the end of a rally leg. I have labeled the rally (flag pole) and the trend lines of the flag formation. One possible scenario is that the gap at 1018 is the gravity for this flag. It also happens to sit at a the 50% retracement level. If there is another rally leg left, it would likely ignite at 50% rather than 62%. So, the gap could be filled in the coming sessions as the price action sags in the flag, and then thrust upward for another 5 phased rally to 1061. Remember, if it is a bull flag, you can expect the price thrust to rise in an amount equal to the flag post. In this case, the flag post started at around 996 and rose to 1038 - 42 pts. If we pop off of the 1018 gap we can expect a rise to 1061.
Keep in mind, this analysis does not negate the short setup that I described in my prior posts. In fact, the protective long I described to be taken at the gap closure is critical. It is choppy out there so don't be surprised if you are bucked off the bull. Step up in your time frame - don't ride this action minute to minute after you take a position - I like the hourly for this setup.
I hope this makes sense to folks. It of course is only one possibility.
Happy trading!
4 comments:
Hi David. I see you have sorted the commenting problems so I can reply here. Good analysis as always, I agree with the flag setup, but I have become cautious of trading setups too aggressively until we are out of this August malaise, and have adjusted position sizes downwards for setup trades, where I feel based on the intraday momentum there is a scalping opportunity alongside a setup, I will load a position and remove at least half at the scalp target. I think what we are experiencing is largely retail traders jockeying for position and being run by MM's and GS's trading computers.
I will read back through your posts at the weekend, as I see like teddy you have been looking at the 1060 area, and I'm not sure where you guys are getting that, I have 1048 as a fib extension, but beyond that if we look back to early Oct, we can see there was a waterfall selloff from about 1100/1160 area down to the 1000 area, I expect that to have similar properties to a gap, in that now we are in it, any uptick in momentum, perhaps return of the funds after Labor Day will have us fill that, so beyond 1048, my target is 1100.
Also the US$ bears close watching here, it has been pronounced dead, the funeral has taken place, and it has been buried by so many people, sentiment is surely at a severe extreme, just the recipe for a very strong reversal.
hi david..
thanks again.. it paid to read it and understand your analysis last night in preparation for this morning.. it was as good as it could get riding it from 1018 to 1028.. i'm used to trading breakouts on fas/faz so i'm slowly getting the nuances of understanding key supports/resistance on when to make a move so this is where i'll be each night to prepare for the next day.. until tomorrow..
Thanks Filmon,
It did play as expected.
Exiting the day, my intuition and preliminary analysis suggests we are at the start of a new rally leg. I decided to cut my shorts today (ouch) and prepare for an upside move - moving in and out (profit) and back in the long side.
Now, I feel a sadness. I built a short base from 982 and cutting it today feels like weakness. But, again - I have to follow the charts.
I am backing away from the desk, news, and other stimulus for a few hours to clear my head and will return tonight fresh and objective.
I will analyze both bear and bull scenarios and try to identify the best possible setups for the coming sessions.
All the best!
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