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Watch Out for the Larger Time Frames

12 Apr

When we trade intraday or even daily setups we often forget about the larger time frames. When I do my analysis for the week I always begin on the monthly chart and work my way down to the smaller time frames.

Potential Inverted Head and Shoulders Forming

What out for a potential inverted head and shoulders in the markets over the next two weeks. These are usually defined with a hammer which can make for difficult intraday trading.

SPY Inverted Head and Shoulders

The Hammer Candlestick

29 Mar

SPY Daily 3-28-11

The hammer candlestick is a very common and reliable pattern for the reason that it has a defined failure levels. Those levels would be below the tail and about the high and these can signal a strong move to new highs or lows.

In the recent rally we have seen in the S&P500 we broke above the down trendline. What usually happens from here is a retest of this trendline, old resistance now acts as new support. We are anticipating a pullback to this trendline before a continued rally.

One thing to keep your eye out for is a hammer candlestick on the daily chart. Intraday this can look like a giant V and really cause some voilent moves intraday. Knowing where we are on the daily chart we are able to prepare and keep in the back of our minds that the hammer candlestick could be coming this week on the daily.

You can find more information on the hammer candlestick and other charting patterns in our price pattern articles and in the book Japanese Candlestick Charting Techniques by Steve Nison.

Look out Below!

17 Nov

With a hefty down day today where can we expect to take a breather? The 50MA of the S&P500 is approx. 1165 and that’s where we are targeting for a breif pause.

Understanding Fibonacci

24 Feb

Options Expiry

18 Feb

Options expiry (third Friday of every month), is this coming Friday. Here are some things to keep in mind.
  • About 2-3 days prior to expiration, time decay drastically decreases (for options you’ve bought), and works in your favor (for options you’ve sold).
  • The week of options expiry tends to be an up week followed by a down Monday.
  • If you’ve sold a naked put and the stock is In-the-Money (ITM), you will be required to purchase those shares come expiry.

Trend or Range Day?

5 Feb

How did we know that today was going to be a trending day, and for that matter, an extremely profitable day? We look at three things on the open.
1. Prior day’s close
Looking at the prior day’s close, we established (after Globex overnight trading) that today would be a gap down. Statistics show that approx. 80% of gaps fill, but the larger the gap, the less likely the gap is to fill and the more likely it is to begin a trend day.
2. Market breadth
Once the market opens the first thing we look to is the market breadth, that is, what percentages of stocks are advancing versus declining. We see that today the market opened extremely bearish (only 9% of the stocks we’re bullish).
3. Candle formation at the open
Once we have confirmation of the first two we look to the candle formation to signal our entry. We see that on a 15-min chart the first candle was a large body bearish candle. Looking at a 5-min chart we see that the market attempted to move higher to close the gap, but was immediately rejected initiating the selloff.
After looking at these three aspects, we have a confirmed short entry and, as the day progresses we continue monitoring the breadth and as long as it remains as bearish as our entry we continue to stay short resulting in a very profitable trade.

The Hanging Man Reversal

30 Dec

Monday’s SPY chart produced a candlestick pattern called the hanging man. This is a bearish pattern. To some, Monday’s candle may look like a hammer (a bullish signal), it is the positioning of the candle (at the top of the rally) that makes it a bearish pattern.

The hanging man alone does not initiate a sell or short signal. Tuesday’s price action, closing below the body of Monday does however confirm this bear signal (see the write-up on candlesticks).

While the past two weeks have produced light volume, we have a potential pullback to the prior resistance (now new support). If we are to make a new high this pattern would have failed, therefore our stop would be placed just above the highs for short positions.

Market Higher?

17 Dec

While we have been bouncing between roughly S&P 1085 and 1115, many would be looking to short this last move, however with such a powerhouse week of news this sideways movement seems quite bullish. The list of stocks making new 52-wk highs each day continues to be extensive. If we break $1116.25 on the S&P I would be anticipating a spike (at least intraday) in the markets.
This has been a very difficult intraday trading environment and the holidays it even more difficult to judge price action due to the lacking volume. We are however, looking towards a bullish 2009 close. If we break $1085 to the downside and continue falling with large body candles on the daily’s we will shift our bias.