Tuesday, April 21, 2009

Ok what happened today?

Ok I made a special post that describes how I trade wedge breakouts. For today, we had a great way of seeing it in action just as I had described.

S&P500 60 min
ok lets review first what we had said today. First off we never made it to the 816 target and held our up trend trade channel. I will add more to that later, but just as mentioned before the day started we have strong support at 826-828. Low of the day ended up at 826.83.

Now lets take a look at FIBs. 23% to 38% range. You can see we rallied right into that range and remained in that range to attempt to make a decision.

"From here we should retrace either to 23% or 38%. If we break the 23% retracement and go higher switch your graph to 5-min. If you see spinners (long shadow, narrow body) it should finsih the retracement there and continue lower for the last wave down. However if you see that the market is trying to create a base and you see strong volume candles with some up and down moves between 23% and 38% it is very possible to continue a bit higher as indicated in the white. This would be a test of the breakout range."

I had posted that this morning. As you can see we rallied right towards the breakout range of the wedge trendline. Just as anticipated. Now I also mentioned the 5 min spinners. Lets take a look at 5 min SPY to make it easier to understand.

SPY 5 min
Ok this one seems a bit busy so lets look at each of the phases independently. First the yellow, we rallied nice and strong towards the 23% (84.15) range. The candles you see there have full bodies and good volume indicating bulls are in charge. We had a slight retracement on the first test and then broke through strong to make it nicely above the 23% retracement. This was enough to scare the bears. Here is where it got very interesting. I had mentioned to look for spinners on the 5min bars. Look at the blue circle. Each bar in there has a long shadow and a narrow body. Volume was dropping and we even went as far as creating another wedge here. Bears were scared due to the volume we had before in the yellow circle and did not step in until the last bar reaching the 38% (84.64).

Here is where the bears took charge and handled the rest. Normally on uptrends I draw a trendline with the same angle downwards to act as a guide. So the pink circle, we have our trendline and every one of the attempts to reach the top trend line was reversed to close on the lower end. Bears would not let it close in the upper ranges. Everything was setup perfectly - you see full bodied red bars and any greens were reversed within the 5 minute time frame. We closed this range with a strong bar making bears think they won the battle.

Last cycle, with the light yellow circles, bulls waited till the last second to take charge and came in strong. Each bar had a full body with good volume behind it. Take a look at the first light yellow circle, this was a clear change of direction sign, look at all other green bars before then. Clear difference and sign that we were going higher - not a bar I wanted to see as I had indicated in the blog comments.

Bulls won this one and continued along on their up trendline at the bottom.

S&P 500 60min
Ok sorry for all those lines and areas in there. I added all resistance and support points to make it easier to see when to expect bounce/sell off. Also I have 3 channels in the graph. One for the wedge, one for the 60min channel we have been in for a while AND a new channel attempt again. You can also see that very tilted head and shoulder there, of course you can always put a pattern into any graph but it was worth noting. You may also want to draw another downtrend line in parallel from the top at 874 so you have a full channel with the 50% in the middle.


  1. Wow, Today happened EXACTLY like you said this morning. I don't know why you suggested things had changed today in your comments and you needed to change your strategy.

    Today turned out just like your chart:

    I guess tomorrow we'll either see white or neon green :-)

  2. retesting of the breakout range is very very rare. Like a 10% chance that this will occur. That's why I had said it did not do what I thought it would. Yes I had described it but I did not trade against it.

    And when looking at the 5 min bars, it was setting up perfectly for a drop I had anticipated just to get put into a bear trap =)

  3. This is very good. thanks for spinners explanation. i will never forget. Are you in academia? Anyway, one more clarification Bear Trap -- i assume it means bulls setting up to trap bear and not otherwise. So bad for bears?

    I have been reading discussion on blogs about if it is rising wedge (good for bears) or diagonal (good for bull)but in either case we should see 780-790 at minimum. What do youm think? What is the worst case for bear here? Fib of 66%, which is what around 859-860?

    Is there unlikely scenario where bull could take it 940?

    Thanks again for your help.

  4. yeah 5 min spinners have helped me in a lot of my trades. Any day trade I do is validated by 5 min bars for tops and bottoms. Look at the bottom right off the open in the 5 min view - not gonna go lower when you have narrow bodies with long shadows.

    I have a full time job in technology. Based out of Miami but travel quite a bit. At the moment in the UK which makes trading very nice due to time zone difference. Hence you see most of my posts before 4:00AM in the morning. If you see me posting after 8:00AM I am in miami and will most likely not have time to post many comments during the day.

    Bear trap is what I got lured into, we broke below the 23% retracement making me think its all good and I can add more shorts (which I did not do). A lot of people will add shorts there, the bulls stepped in and bought in strong, and anyone who went short had to cover adding more fuel to the buying frenzy to ensure a clean break of the upper ranges. Today was a classic bear trap.

    Regarding where we will trade. Have to be honest, no idea, I am a bear so of course I feel its going lower but media is doing an amazing job at ensuring its not all that bad. At the same time, we have had huge down moves here, so a rally is totally normal. On top of the govt intervention and all. The SDS from last week is my first long term position I entered again. Even now I am not too sure about it. And any long position I take at this point, its very small, with very tight stop losses - something I really need to change to take advantage of those up moves.

    The market is still ignoring bad news and continues to take any piece of information and turns it into something positive.

  5. Thanks again. Yeh, I knwo what you mean. I got stopped out twice today. Only the broker made the money. But I am also glad that I cashed in my chips yesterday. And again I have folded too early in the past and misssed big moves. It goes both ways. have good evening.

  6. Thanks for the candle bar explanation, i will read it again tomorrow and try to digest all that youve said, thanks again.