Blog for Trading Success

Sometimes it is appropriate to take a step back just to see what the larger picture looks like. Certainly the last few days have been heady enough for most traders. I am sitting from the sidelines taking a spectator’s role. The volatility as measured by the Average True Range is still too large for my blood.

That however does not mean I am not preparing myself for a possible trade.

There are 3 chief factors influencing my thinking:

1. The seasonal pattern that shows lows in the 2nd to 3rd week of September and 2nd to 3rd week of October. Following the October low we see a strong directional tendency terminating end December to mid-January
2. The 12-month swing (yearly trend) has given a confirmed Upthrust Change in Trend Sell signal that projects a minimum target of 867 to 768 basis cash. (Figure 1).
3. The 13-week swing (quarterly trend) has probably met a time and price swing target. If so we should see a 13-w line turn. Minimum price for the line turn is 133.82 but this will change week-to-week in the coming weeks.

The shorter timeframes show 3 sideways markets:

• Figure 2 shows  two of the longer-term profiles of the sideways price action. Basis Dec, we have targets for the upmove at 1301 to 1313.
• Figure 3 shows the sideways market that began September 17. Acceptance above 1265 projects a target to at least 1303 basis December.

When I examine the charts, I see the immediate bullish factor as being the decrease in volume on Monday’s low when compared to the low on September 17; I see the immediate bearish factor as being the rally last night that progressed on declining volume (except for the last 60-minute rally) - suggesting all we saw was a short-covering rally.

Here’s my best guess on the structure:

1. We’ll be seeing choppy price action leading to higher prices AFTER a re-test of the 1106 lows (basis cash) as the 13-w endeavours to turn its line up. The target for this move basis December is 1300 to 1328. I expect to see a 12-m probe above 1290 but not see acceptance above it - certainly I would not expect to see monthly bar acceptance above 1328.
2. I expect to see these targets meet near the end of December 2008.
3. I expect volatility to shrink as the market heads north in December.
4. Acceptance below 1106 would suggest the seasonal tendencies are absent this year - such acceptance would paint a very bearish picture. I’d expect volatility to remain the same as the present one or increase on such acceptance.

Figure 1 12-M Swing S&P Cash

Figure 2 Market Profile Daily S&P Cash

Figure 3 Market Profile 30-minutes Sept 17 to Date

Bookmark to: