Blog for Trading Success

Yesterday I said that Tuesday, July 8, had generated a buy signal. Let’s take a look at that analysis.

Figure 1 is the 12-period swing on a monthly chart (yearly trend).

FIGURE 1 12-M S&P (CASH)

We see an Upthrust Change in Trend from up to down. The sell signal triggered in June when we saw a directional bar down. June’s bar negated the buying extremes of April and May. If July closes below 1291, then we should see prices move down to the bottom of value at 1030. If the Upthrust is to fail, it will most likely fail at the 50% area 1160 to 1161. By fail I mean the market will turn at that zone and resume the uptrend.

Figure 2 shows the 13-period swing on a weekly chart (quarterly trend).

FIGURE 2 13-W S&P (CASH)

Figure 2 shows that:

• the 13-W as yet had not given a Whole Point Count (WPC). However since the 12 line has turned down, I expect the 13-w to provide the WPC in the next 2 weeks.
• You’ll note the price at 1458.87 - this is the price at which the 13-w will turn up this week. This price will continue to fall in the coming weeks. Should the 13-w line turn up, we can expect an 18-d trend change to be signaled.
• The 13-W is signaling a possible Negative Development Buy signal. It is not a Spring but the signal was not preceded by a downtrend. In this context, the buy signal would suggest a 13-W sideways market between 1404 and 1256.

Let’s turn to the 18-period swing on a Daily chart (Monthly Trend)

FIGURE 3 18-d S&P (CASH)

In Figure 3, the 18-d Barros Swings have been obscured by the 60-day Hart Swings (i.e. the quarterly trend is so strong it is dampening separate 18-day swings). The blue rectangles mark areas where we have seen strong responsive buying. This is a bullish sign because the 1255 to 1240 area are new lows in a 5-month period but the market has been unable to definitely break down.

A close above 1280 with buying conviction would provide a Negative Development Buy signal. Since this would mark a 13-W line turn as an 18-d trader, I’d take the trade. However, because the 12-M has just confirmed a sell signal and at best the buy would mark a 13-W , we’d be looking at stops below 1220 (i.e. below the maximum extension) but this is too wide a stop. Anther stop I’d try in this case is below 10% of the range 1280 to 1240 (current low) below 1240. This would give a stop around 1234: 46 points still too big.

Hence if I were to take the trade, I’d have to enter intra-day. Figure 4 shows the Market Profile on July 8.

FIGURE 4 S&P MARKET PROFILE

The blue rectangle shows the area I would have sought to enter my longs, around 1262 to 1265. This would represent around a 30 point risk (stop 1234), something just acceptable.

The rationale for the buy was this: The market auctioned down to the Primary Buy Zone of July 7 and found support. If the market was going to form a low, we could expect a 30 point range. An order on stop above July 8 ‘G’ period high could secure a buy late in the day extension.

The market accommodated the scenario. But note that the buy was not confirmed. On July 8 we had a strong day up on solid volume but had not closed above 1280. To confirm the trade, we needed to see continuation on July 9. We see in figure 4 that on July 9, the market opened and rotated in the early part of the day. This development would have caused me to raise my stops to just under the 50% area of the Profile of July 8 (area marked in red). When the market broke during the ‘K’ period, I’d have lost 1 to 4 points.

Note I have said ‘would have’ throughout the blog because my health prevented me from taking the trade.

What now?

Figure 5 shows the 80-minute S&P with 18-period swings (red lines). It also shows my preferred Ray Wave Count with a running correction at minor structure 4. (The filled numbers represent the minor structure). This is not an ideal running correction because of the strong corrective up waves (marked in red rectangles). But the price action of July 9 is characteristic of the end of the correction.

If the running correction scenario is correct, we can expect another down today. I’d expect to see either a directional bar down or a bear-bar (see Nature of Trends).

FIGURE 5 S&P 80-Minute

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