Controlled Turbulence

Inevitably when you fly you encounter turbulence . The plane lifts, drops, shifts, and shakes in a random manner. All the while, the pilot (we hope) has total control of the plane. That is what it felt like today. I thought yesterday was difficult because I was away from the desk most of last week - but I now realize my trip had nothing to do with it. The markets are shaking - just look at the action on the 1 minute today.



Could we get anymore price direction changes, MA crossings, and gaps than this? I'm not sure.

Anyway, as I looked at the charts I struggled to find convincing patterns. When I did find patterns, I struggled to believe them. Even following my long setup plans from last night felt wrong - despite having come true (note, not at the same price levels, however at the same points of technical convergence).

At best, I was able to find a consolidating triangle and one bull flag. Open this five minute chart to see:



The triangle turned out to be a continuation of the rise from the day's low. Note how the lower trend line of the triangle was broken, then found support on a higher scale trend, reversed to test the triangle bottom again, rejected, reversed again and shot right across the apex. This is an end around and has killed many a trader who acts to early. I stuck with my belief that we were going to break the upper trend line of the wedge I showed yesterday and was able to grab some of the up action once we broke the apex. (If you follow the HMS blog, I posted a comment that recognized we were hugging the upper trend line and that it was a bullish indicator.)

The quick vertical rise off the triangle formed the flag pole of our next pattern. As should be expected, the price action slowed at the 200p MA. This slowing of price action (between the broken top wedge line and yet to be reached top line of the down channel) formed the flag itself. In retrospect, I should have taken a long position during the flag formation - I simply did not trust what I was seeing. Naturally, the breakout did occur and a run for the top trend line of the channel did occur. I used a fib grid as it broke out to see where it might cap. When I saw that the wave would exhaust at about the top line of the down channel (on the 1 minute chart) I decided to take a short position and benefit from the pullback - which I did.

One final note, we are hitting some resistance at 1046 - stronger than I expected. If you look at the 5 minute charts for the past 5 days, you'll see an an Adam and Eve pattern that was formed from Monday's sharp high at 1052ish followed by Eve's rounded failure in around 1048. The center low between these two tops sits around the two highs of the day (046ish). This is our resistance.

On the whole, I am actually pleased that we broke from the wedge but remain contained by the down channel. Perhaps we'll see our downtrend continue? Perhaps we'll see a break of the upper trend line tomorrow and the start of the shoulder?

I really can't hazard a guess right now - the trading is simply too turbulent. For now, keep a watch on the upper trend line of the down channel.

Cheers.