For those who follow the futures market and the dollar index, you knew this mornings rally was going to pull back. The pre-market futures were basically flat and the dollar index was showing strength from the prior week. Once we broke the top trend line on the dollar index I knew we would have a substantially drop on the S&P. Also, the up volume on the S&P was very weak. I managed a very nice gain on two short positions taken on the ES. I was confident in the position because of the analysis last week.
Look at how the 20p MA crossed the 50p MA on Friday. That is a signal that we will see continued - usually sharp - selling. Notice how the first candlestick of the day failed to rise to top trend line in the down channel? This was also a tell. Then the second candle shortened up and showed a balanced wick on top and bottom. This showed market indecision. The volume on that candle stick (as measure on the futures contract and the SPY issue) confirmed that the rally lacked conviction. Then we had a sudden and very violent move down. If you were at the desk monitoring the ES, it was probably one of the quickest descents you have seen in some time. I was elated.
Several folks were calling for a bottom at the 1072 area. Rather than engage in that dialog, I silently disagreed. 1072 is well past the far side of the prior gap and there is only a small support shelf in this zone. The selloff happened early enough in the day that slowly this congestion would be cut. A more substantial shelf can be seen in the the September 28,29,30 time frame - which is around 1065 - corresponding to the last local high in the prior rally leg. That is what held this down trend from falling further today.
At this point, we are sliding down the back side of the last rally leg. We have cleared the 38% retracement and will test the 50% retracement at 1060. I am surprised that we did not see it today. I should say I am concerned we did not see it today. Corrections are usually more violent than what we are seeing today. I think the is a lack of confidence in the dollar index move. I do not think the up-trend is sustainable in the short term. Participants will not move their money to the dollar until they are confident in it's bottom. Too many folks are banking on a test of 72.
Looking at the weekly chart:
If this is a correction underway, we can hope for a retest of the 1017-018 level. This is the 38% retrace level on the weekly closing line chart. It is also the approximate full retrace of the last rally leg.
Now, this feels "very orderly" and if it continues in this "orderly" fashion, Expect continued price swings from bottom to top of the channel. This mirrors the up side of the rally as well. I prefer to see some very violent selling - this would validate the move for me.
7 comments:
very nice analysis Dave,
could you recommend a good way to study futures? Also, do you have an opinion about Scottrade. I believe you said previously that you use IA brokers?
Thank You very much
Appreciate your analysis, David. And I agree, the sharp dollar up move might not be sustainable yet in the near term...I covered half of my shorts for a decend profit before the closing today, will see
thanks!
ww
Hi David,
It seems possible that this is more of a trend change than a normal correction .
And the lane is wide 25 point or so, so we can stay in the lane and still be very choppy .
Sence closed at the botton line up action seems most likly , but a break of the line my bring the more violent correction .
Thanks again for Sharing your TA.
My best
Hello Dave..
Thanks for the work.. I think at one point you used to share your setup for the next day.. It would certainly be very helpful to know what you'd be looking for the following day for a day trade.. Thanks again..
Payline - perhaps this is an orderly trend change - I would welcome that as well!
Devon - Funny you should mention the daily setup, as I was thinking about the same thing. I stopped doing this during the topping process, primarily because I was/am focused on key levels rather than the daily action.
For now, I am looking for a very important test at the 1060-062 level. This will tell me if the current price action is truly a reversal of the uptrend or just a 50% pullback before the next move higher.
Once this is resolved, I will try to incorporate setups into my daily blog again.
Cheers!
David O-
I established a nice position short at the top of today's action with tight stop losses...per your TA. Worked beautifully. I'm diligently studying to become more facile with TA myself but in the meantime your thoughts have been helpful (and yes, I realize I have to think for myself and that no one is right all of the time).
Will continue to follow. Thanks!
David:
Your indepth TA is very interesting to me, and great stuff in that it is very accurate!!
As an aside, it seems an interesting coincident that DJIA, SPX, and MID all ended the day at the 25d SMA. What I have seen in the past is that if the intent was to push the price to the 50d SMA the move would have been cleenly throught the 25d SMA. Also, RUT/SML held the 50d SMA rather than a decisive move thru the moving average.
I am still 50% short so would prefer that the market would sell off but am suspicious that there may be another bounce(?)
I am like Devon, looking forward to you Daily Setups, all good stuff. Thanks for your help!
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