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 February
12, 2006 Commentary (weekend edition)-
This market
is really trading nicely. The talking heads on television like to say 'it's
volatile', and they discuss all the reasons why this might be. Generally, when
the market is 'volatile' and doesn't come off my areas of interest I call it
'choppy'. When it's 'volatile' and does come off my areas, I call it great
trading. I am a trend trader without a doubt, but to me there are trends
everywhere, it's just a matter of timeframe. If something is 'chopping' on a
particular timeframe it may be trending smoothly on a lower timeframe, over and
over, between those 'chop points'. I work the timeframes to see where the
smooth trends are. That's one way I may play 'bounces' off areas on a timeframe
I show in here. It depends on my overall assessment of the 'context'.
Today will be
a big day, since I did eight charts. A real 'bonus day'. Except for the last
chart, this will be one single series. Please be warned in advance that there
is going to be a lot of lines, and some charts may look like confusing messes.
I could attempt to be funny and say "Welcome to my world". What I really
mean to say is that sometimes I do have a lot of lines, and they can get
confusing, even overwhelming.
When that happens I break the sets up onto
several charts. I've also gotten to the point where I can tolerate a lot on my
charts, and focus just on the area I am watching at the time. Another thing I
can do is delete of many of the lines that are not near the current area of
interest. I can then add them back on later if price action moves to that area.
I don't do that with the charts I show here, so they may appear quite a bit
more cluttered. With all that said, let's get to work.
I'll follow
the same pattern I have been. I'll start with last week's Jim's Chart of the
Week, showing the S&P.
Here's where I left off last weekend.
Basically I had a heavy congestion of lines coming together right in the area
of an ABCD pattern. I showed the 1.000 and 1.128 alternate ABCD areas here. I
watch more than that, as I explained in Kane Trading on: Trading ABCD
Patterns. If I show it all on one chart it can get too cluttered for
educational purposes. Keep in mind my working charts are much, much larger than
these small commentary charts, so what is cluttered here is not very cluttered
when I'm in my usual setup.
The second last arrow here shows the area of that
sliding parallel. I wanted to see what the S&P did with that first, and if
it took that out, I was next watching the much more significant ABCD setup(s)
below. Notice on this chart, too, how that key line was above the 1.000 ABCD
area. In reality I also watch the .886 ABCD (as well as others), and had that
on my charts. There were many lines, as we will see, that I was watching, so
the area was clear. It was going to be all about the price action if the area
was reached.
Let me add a key set on there. Don't be startled, it's a 'mess' of
lines.
I added on a set from way back. I think I
showed this set in here at one point. Just look at how well this set was 'seen'
and used by the S&P. I also added on that .886 alternate ABCD grouping, and
cleaned up the chart a bit by deleting off some things.
Notice how
the very significant median line lower parallel from this set hits right at
that warning line, close to the newly added grouping. That sliding parallel
produced a slight reaction, but the S&P just went right to the area of
interest. Not only that, it did it with a plunge that got all the talking heads
on television jumping ship in a panic, pushing women and children aside to get
to the lifeboats. This is something I like to see, as I have said before. It
will scare many potential longs away.
Let's zoom in a bit closer and look at
this.
I switched to candles to show the plunge bar.
You can see the two lines coming together right there, right in the area of the
upper grouping. The details of how I do all this is in the books. Notice the
small reaction at the sliding parallel in green there, as I mentioned. Now it
is about price action and entry techniques for me. I have to see what happens.
Before that, though, there was a lot more to my area and my assessment of
it.
Let's see what the S&P did from here before I show some
additional aspects to this area.
The S&P came right off the area strongly,
followed through the next day, and then went right down to 'test' the area
again. From there it bounced up aggressively. A few questions that may come to
mind are: what else did you see, line-wise, right there, were there any clues
that it may roll over where it did, and how did you know it wasn't going to go
to the lower areas instead? Let's look at those questions.
I'll drop
down to the 60-minute timeframe, and move to the ES.
I had to add a real lot of data on the chart
because I wanted to show where this set came from, as well as show what
happened recently. I only have so much chart space in here. I've had this set
for a long time, and it has been spectacular for me. Look at how many times the
ES has 'seen' this set. The arrow shows how that median line lower parallel was
right in the same area.
Even though it didn't hit it exactly, keep in mind this
is over a factor of six times lower in timeframe than the daily chart, and that
I am looking for areas, not exact spots. Notice where the ES went to
when it rolled over? Do you think I was watching there? And notice the drop was
right back to that median line, where it ramped up to that warning line. No,
this is not all I am using (obviously), but it sure is something I want to look
at, and add to the mix. There is no way I want to be ignoring a set this well
respected.
It continues to get better from here. I'll clean up the
daily chart, and add something onto that.
Here's a modified Schiff median line set for
the ABCD itself. The lower arrow shows where the price action was as this came
together. Can you see why I was watching very closely at this point? Sure, it
may go lower, but I was ready there.
Notice where the S&P bounced to, at the
second arrow? Recall what that 60-minute chart was showing me. Starting to see
what I am getting at? Sometimes the charts scream out at me. Now, notice that
lower parallel that it just about touched when it started to bounce right back
up. It's playing line ping-pong. If you put all these lines (and there are
actually some more I haven't shown) on one chart you will see a big-time
convergence of Fibs, lines, and a pattern. This is what I am looking
for.
Let's do a little with price action. I'll drop down to the
13-minute ES chart.
Many times I get asked 'But how do you know
which 'sub-area' will be the 'right' one?' My answer is that the price action
will tell me. I explain this in the books, but my Fib sub-groupings are more
for telling me the level of harmonicity than because I need or expect the price
action to reverse dead off one versus the another. Look at the price action
here. Look at the flow down, and then the switch to up.
Do not
look at the moving averages like they will tell you this, they are there to
guide your eye as you learn this. Kane Trading on: Entry Techniques
explains a lot of this, and how I look at the action. Look at the swings. They
are talking to me loud and clear here. This is just about as good of price
action as I could ask for. The price action clearly told me, for my
'Trading Plan', an entry had been triggered. It was time to take a
shot.
If it rolled back over, as some do, then I stop out, and look at
reentry. I explain this in detail in Kane Trading on: Trade Management.
The point is, once I am in my area of interest the price action and flow tell
me if it is time. I am not concerned which area will be 'the one', since they
are really 'sub-areas' as it is. It's all about the price action at this
point.
Let's finish with a follow up on that OJ play.
OJ is still rocking off that area. Notice the
small reaction at that .382 and median line upper parallel, and how it told me
the flow was clearly up once that went. I can't tell ahead of time if a play
may run like this one. That's why I have my management plan set to keep me in
when I do catch one. It also depends on what my initial trade premise for the
setup was. Reading the price action clues surely factors into the management
decisions I make, too. Now I see what OJ does with this recent high area, and I
watch that 1.272 external retracement overhead.
As I close, I want to point out
something from this upcoming week's Jim's Chart of the Week. This one was a lot
harder to show in one chart, unlabeled. There are lines everywhere, but you
have the charts here to look at. I chose one chart and showed the areas that I
am watching. In reality, I am distilling down everything that is on the charts
I just showed, plus more.
Try to take that into account when you look over the
chart, and see if you can figure out exactly what I am watching, and why, and
how I might read the price action in the areas. As I have said, not every area
of interest is a PTA. And think about the implications if this big ABCD gives
way to the downside. I wanted to make this latest chart a bit more challenging,
so you will be motivated to do more work for yourself to follow along.
The next
commentary will be next weekend's edition, posted by Sunday evening, February
12, 2006.
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