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 July 10,
2005 Commentary (weekend edition)-
Well, that
may have been the most incredible trading week I have ever seen, or at least
that I can remember. Just about everything I have been watching, from tick
charts to weekly charts, has been bouncing from setup to setup, one after
another. The mini trading in the Russell was the best I can recall, for four
consecutive days in a row. The market conditions have just been fantastic for
me, and for my methodology. I hope it stays this way.
I can't say I
was unhappy with conditions before, but they have just gotten so much better
this last week, I have trouble finding words to describe how harmonically the
market has been behaving. I must say that this is just my opinion, my
evaluation, and I'm not making any claims of any sort here. I'm simply
expressing my astonishment at what I have been seeing. All this, with program
trading hitting an all-time high of 76.3%! I remember when it was around 13%
and rising, and the talk was about banning it.
Before we look at today's topic,
which I will lift from the members' section this time,
let me discuss one item of business. I updated the What's New page, reflecting a
change in my preferences for the membership sign up. I no longer request that
people sign up near the end of the month for the recurring subscription, which
makes it easy for me to run everyone by the calendar month. I did this because
I thought it would be the easiest on me.
I decided to change this in favor
of customer convenience, since it turns out to not really make that much of a
difference for me. You can sign up at any time you want for the service, and
your month will just renew on whatever day you started. Instead of a calendar
month where everyone is the same, it will just be monthly based on the sign up
date.
Now, let's look at something I posted after the wild overnight
action in the futures after this week's big news. If you haven't seen this,
look at the overnight data. The S&P had dropped a massive 30 points before
they started to come in. It was well up from the bottom when the regular
session opened. This does not show up when one looks at regular session data,
or cash indices charts. I wanted to discuss this with the members, and went to
the daily ES chart, which showed the data from the overnight. Here's some of
what I put together:
"First, let me quote from the last commentary, as the
clarity of the market was really coming together for me: "As I write this the
futures are up, and they sure are 'acting' like they want to explode this thing
(the market as a whole) to the upside. We'll see. I just 'go with the flow',
off my setups." It was pretty obvious to me what was going on, and I just
flowed with it. This is why I like the way I have set up my methodology. Unlike
most pattern and Fib traders (and strict Elliot followers), I like
trends. I don't try to call the ends to them, I go with them. Many pattern
traders get hurt real bad in strong trends trying to endlessly call the 'big'
reversals.
Now, let's get to today's topic. I looked back at how I
worded something from the last commentary, and I'm not sure it was clear what I
was saying: "This ES chart is just unreal to me, and although it may not be
clear how to use this data, I feel it has some significance." I didn't mean I
didn't know how to use the data, I meant it may not be clear to the readers how
to use data that doesn't exist on a regular trading hours chart if you can't
see it, or how to even come up with a plan from a time standpoint, since adding
the after hours data would skew the time factor all over the place.
I decided to show some things on
this topic, since, as I said, this was too significant of a move to ignore. I
feel the data has to be considered, at the minimum on the longer-term charts,
where it is a little easier to have it show up on the chart. It is quite easy
to look at the daily chart, which includes all the data.
To show the
entire picture, let's regress back to the close on Wednesday, where I was
looking at some scenarios, as I always do. Be prepared to be blown away. At
least I was.
One basic potential scenario should jump
right out here. Look at the latter part of the chart and see what has shaped
up. The ES formed an ABCD pattern, and clearly triggered down on the lower
timeframe. Recall the position of the INDU over this same time period, with its
4-Point Continuation
Pattern. The same principal applies for me here. I was looking at this
as a possible down move into a bigger ABCD. A play here off this ABCD would
have the 'context' of playing a potential CD leg. This is something I often do,
and I have been told by many who have studied under me that they really like to
play potential CD legs.
I'll sketch this framework out, with some
numbers.
The ABCD was dead bang on a 1.000 price
projection. The potential initial AB leg of a bigger ABCD hit right on a .382
retracement of the move up (don't you just love this stuff?). I was looking for
a move along the arrow, to a larger ABCD.
I'll add a grouping onto the
chart.
Now, this wasn't my only grouping. I had
several, based on the various alternate ABCD's, as I always do, and as outlined
in the books. I will only show this one for clarity. If I had a lot more time
and space for charts I could show this with multiple groupings, and it would be
an interesting thing to see. I suggest the reader set up some higher groupings
and see what that showed.
Let me add one more very obvious thing in that I was
watching very closely.
I added on one of the most obvious trendlines
I could find. Recall that I was watching that INDU lower ML // if the ABCD
completed there. I was watching this analogous situation here. The line
implied, if anything, it would likely hit one of the upper groupings, and not
penetrate this far down.
I watch very closely where the groupings intersect with
the line in order to assess possible time factors. My mentor students,
especially in more recent times, can attest to the emphasis I put on this. In
order for this grouping to hit with the time factor it would take an
incredible, unimaginable plunge. I left it on, but I was mostly watching up
higher. Now I would wait and see if the markets worked their way down there,
and I would evaluate a potential trade if that happened. Meanwhile, as I
mentioned, I was working a short DIA play, among other things.
Let's see
what happened.
To describe my reaction to this let me go
back to decades ago for a saying that has long since been forgotten by most:
'Holy smokes'. That's just unreal. The ES completes the big ABCD on the news
plunge, and they come in right at the line and grouping. There was a slight
reaction above, but this was the spot. The line gave me the time factor, and
made me think the overnight move and reversal was very possibly 'it'.
It should be
clear why I was taking this move so seriously by the regular market opening
time. It was clear and already laid out for me what was transpiring, at least
as far as what my methodology showed me, and what I felt the probabilities
were. It's fascinating to me how this ramp started right at a key spot I was
watching. I wish it hadn't started to happen while I was asleep, but I am only
concerned with what the setups show me, not if I was awake to catch the
reversal. I took advantage as soon as I was up, and just went with the flow all
the way since then.
Given what I showed in the INDU I feel just about
everyone in here who is following and practicing larger timeframe setups should
have had the pattern, groupings, and area on their charts for this one. I don't
know about you, but don't you find it fascinating how after such a plunge this
thing turned within a tick of that grouping, and the ramp (be it central bank
stimulated or not) launched right off yet another obvious area for the
methodology? I know what I think about all this. Yep, I got to do it to you:
amazing."
If you have all the books and are very familiar with my methodology
you should do the workup on the INDU that I mentioned, from all the median
lines (including a sliding parallel), to the 4-Point Continuation Pattern, to
the larger ABCD. This one has just been going from setup to setup, pretty much
all posted in advance in the members' section. It is worth studying.
The next
commentary will be next weekend's edition, posted by Sunday evening, July 17,
2005.
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