I hope that those of you who were able to attend last week’s Day Trading Webinar found the information of How To Determine What the Big Boy’s are doing in the market helpful. If you were unable to attend not to worry. We recorded the session and will be posting it at the Members’ section of the website.
The concept that I showed in the webinar works great in Day Trading but I still haven’t been able to transfer that information into a position trading situation. I’m still working on it, but sometimes there are things unique to a particular trading environment that don’t transfer well and this might be one of them.
This week we’ve also got an issue of Rob Tovell’s Triggers and Trends to share with you. Rob’s an extraordinary analyst and a heckuva trader, and it is worth paying close attention to anything he chooses to share.
I’ve also got a big lesson for you this week on using Volume in your analysis. Volume’s an often overlooked indicator because it’s a little more difficult to interpret, but I show you a couple of things to look for which should help you make sense of it. It’s definitely a tool worth looking into and adding to your trading arsenal.
-Erich
Here’s an excerpt from Triggers and Trends. You can see the rest of it in the Big Weekend Edition posted in the members area.
Well… here we are, the moment of truth has finally arrived. Are we about to enter into a brand new bull market, or are we going to plummet from here and retest the lows? According to my weekly oscillator, the S&P500 turnedbearish during the week of July 23rd., 2007 and subsequently confirmed the bear market during the week of Oct. 8th., 2007.
See Fig. A: Historic Chart
The two things to really zoom in on with this chart are firstly, the divergence of price with the oscillator, and secondly, the statistical resistance of the green trigger line proved to be too strong for the market even as prices themselves were actually rising! (red square – down trend confirmed) Ok, that’s enough of a history lesson – let us move forward to the present.
Below is my current weekly chart for the S&P 500 cash index. (Fig. B)
As you can clearly see, my oscillator, for the first time in almost 2 years, has triggered a bullish warning by crossing the green trigger line. This tells me the probabilities are extremely high that the March lows will hold. Barring something catastrophic geopolitically or economically, I suspect the worst is over. This by no means we run out and start buying stocks, call options, etc. The chart is still bearish – prices remain below the moving average. We do however want to start looking for bullish opportunities in stocks and ETF’s – create a wish list so to speak of things we’d like to own so that when we get a bull market confirmation (usually 3 – 4 months after trigger) we’re ready to move. Of course, markets are unpredictable and confirmation may occur next week, or next year! We have to be patient and let the market tell us when it’s ready to move, not when we think it’s ready to move!
These are the four talking points that I feel are most important:
1) The Nov. lows. I’ve drawn a thick black line at this level. I call this the “must hold” line. When it was broken in March, there was zero in the way of follow through selling and prices very quickly rocketed higher.
2) The level where the selling began that drove prices to the March lows - the grey resistance line that has been holding prices down for the last 7 weeks. If the bears that sold there way back when, are still there resistance holds, if they have changed their tune, and are now unwilling to sell, then the market is free to move higher – it is that simple!
3) Short term support – that little red line. That is likely where the current stops are located. Those that have been buying this market lately started there and should that level break, everyone that bought during the last 2 weeks will be in a losing position and likely will punch out and take their lumps.
4) The moving average. Lot’s of people will start buying it if prices break through. It’s also nice that the ma corresponds with our grey resistance level – double the power. Below are the values of these key levels.
“Must Hold” support – black line: 741.00
Resistance – grey line: 944.00
Resistance – ma: 954.00
Recent Support – red line: 869.00!
Daily Chart:
That finally brings us to the daily chart? and it turned bullish this week! This is a very promising situation for the bulls, bad news for the bears. If we believe the weekly chart is now bullish (except for its ma) and now we are presented with this chart, we can’t help but believe prices are heading higher.
This is how I’m going to play this. I have no choice, I’m bullish Prices have managed to break through resistance and close above it. I’m above my moving average. My oscillator is bullish. The only worry, and it’s a small one, is Thursday’s high – the question mark. There was not a lot of interest in buying up there. That can change in a heartbeat if we see some nice earning next week.
So here is my plan. If I get a signal off the resistance line (fbwt, kb, twz, etc.) I’ll buy. If price drops back down through resistance but is supported at the moving average (projected forward as dotted blue line) I’ll buy any signal, but target only the resistance line. Should prices fall below the moving average, back on the side lines I go until either the daily chart moves back above its moving average and once again going back on trend with the weekly chart, or, hopefully not, prices really tank and drag the weekly chart back into bearish mode, in which case I become a bear and look to short.
I rarely express opinions when it comes to the markets or trading. I let the charts do the talking. But every once in awhile the charts scream at you and you must pipe up. I believe we are at the tipping point – the inflection point. If the markets fail to move higher during the next 3 to 4 months, I think we will find ourselves in very, very deep trouble. The assumptions about the economy improving will be by then evident. If indeed it is improving, then we will see higher equity prices, if not, the markets will be abandoned, selling resumed, and prices head lower to the “must hold” level.
I don’t even want to contemplate what may happen should that level break! But, from where I sit, my charts are bullish, so I’m betting on the “never give up optimism” of the human spirit.
