Thu 8 May 2008
The S&P for Thursday May 8 2008
Posted by ray under Written Plan
In “What Now for the S&P” (http://tradingsuccess.com/blog/what-now-for-the-sp-326.html), I wrote:
“The most recent leg of the rally since the 1258 has shown 22% lower average volume than the first leg (Figure 4). For this reason, I expect that the market will retest the breakout 1396 to 1404 but hold above 1384. I rate the probability of closing below 1384 at 25% i.e. the pullback is a buying opportunity for a run to 1470s”.
Tonight I want to review this assessment - given last night’s price action. All figures basis cash.
On May 1, 2008, we had an outside reversal day which took us above 1406 on a closing basis. Yesterday we had a down day that took out the lows of the preceding three days on a closing basis. Normally this is bearish.
Sentiment Trader (https://www.sentimentrader.com/) had this to say:
“If the S&P continues to sink today and close below yesterday’s low, then it will be the first time since January 2007 that it broke out to a new three-month (closing) high by gaining more than 0.5%, then completely erased the gains the next day. If the S&P continues to sink today and close below yesterday’s low, then it will be the first time since January 2007 that it broke out to a new three-month (closing) high by gaining more than 0.5%, then completely erased the gains the next day. …
Its average return over the next couple of sessions was -0.5% with an average maximum loss (-1.4%) that was more than twice as great as the average maximum gain (+0.7%). Given the lopsided returns, the % positive and the number of occurrences, I’d say that’s a fairly strong downside bias assuming we close below yesterday’s low”.
The key words in Sentiment Trader’s report are “assuming we close below yesterday’s low”.
Figure 1 shows that the average daily volume for the current swing down (60 minutes chart) is 14.5% less than the move up. Now when you consider that the move up (with greater volume than yesterday’s down move) had less volume than the prior up leg, you’d have good reasons for rating yesterday’s volume as a correction in the push to 1470’s.
For this reason, I’d be looking to buy around 1384 to 1396. That’s a wide range. Market Delta and Market Profile will help pinpoint the entry zone. A close below yesterday’s low and/or below 1384 would mean that the bear market has resumed.
FIGURE 1 Volume Comparison
May 9th, 2008 at 4:01 am
Ray
My observations for yesterday’s trade in ES:
1. Absence of convincing other-timeframe trader activity in a test day structure.
2. Test Day: A break above previous day’s high or below previous low will indicate direction for next 2 to 3 days.
3.However, on the 5 min chart, we see the potential of your (Ray’s) unique Forecasting Pattern, i.ee the Expanding Terminal. For this pattern to complete, we need to see
4.A new low in the 1387 to 1383 zone (cash), to be followed by a strong 5 minute up bar. If this occurs, we should see a change in line direction in the higher time frame, the 80 minutes chart. This would suggest a resumption of a move up to 1470.
5.A close below 1384 or acceptance below 1384 (Ray’s definition in Barros Swing lesson), would indicate the market has failed at 1420 to 1427 resistance zone (instead of the anticipated 1470).
6. A return to bear trend would commence.
Conclusions:
1. ES closed at 1398.25 at 1515 ET.
2. At time of writing, noontime Singapore, ES is down on the day at 1387.50 , by about 4.5 points.
Would be interesting to see how ES pan out when pit session opens at 9.30 ET.
May 9th, 2008 at 4:05 am
Ana, what can I say: Great minds think alike! (G)