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December 4, 2003
Commentary- Today marks the fourth day that the ES and
the bonds have pretty much 'range traded'. This shows up best on the 60-minute
charts for both issues. Speaking of the bonds, I neglected to mention that the
active contract is the Mar '04, even though I showed the Dec '03 on the charts
this week. I frequently do that around rollover time because I feel
the data is purer on the old contract. So while I may be trading the newer
contract, I watch the numbers from the old, too. Personally, I dislike the
period around the rollover because of this glitch. And speaking
of the bonds, I want to point out that when I trade the bonds, I actually trade
the electronic version, the ZB, and not the pit contract, even though I chart
and do groupings on both. I show the US in this column because I'm not sure
that readers who aren't specifically trading the bonds will know what the ZB
is. With all that cleared up, let's move on to today's material. I'm
going to take a look at AMLN again, which I hope most of you remember we are
waiting on. I'll show the daily chart, with the groupings I built.
It looked like AMLN was going to just go up
and not get to the groupings, but then it rolled over nicely, and is really
heading down. (Was the turning point at a Fibonacci grouping? Was there a
pattern? Do a little investigation on this one.) There is no way to tell if it
will ever get to the groupings. All I know is that if it gets there,
does it without any behavior that I don't like, and gives me an entry trigger,
I'm looking to trade it. Maybe it never gets there, or gets there and plunges
right through the potential trade area. That doesn't bother me in the least. I
have a whole host of potential trades like this set up, and I just watch and
wait for everything to come together, and then I'll trade. I'm very patient,
and it makes no difference to me how many 'potential' setups never come
together. All I care about is that enough setups do come together so that I can
make a net profit. I noticed something on AMLN that I wanted to point out.
Just below the groupings is a pretty large gap that is unfilled. Let me
highlight this on the chart with two lines, one for the close of the previous
day, and one for the lowest point AMLN has traded since that gap.
Now, there are as many ways to define gaps, and what
constitutes closing them, as there are people to come up with the definitions.
What I focus on is the area where no trades have been posted since the close
before the gap. However you look at it, there is a big area that is acting like
a magnet. And the area is on the other side of our groupings. This is
going to be a very interesting one. If the groupings are solid, the gap will
remain unfilled. Imagine AMLN dropping almost 30% and not filling that gap. That's
almost inconceivable. On the other hand, if the groupings hold and the gap goes
unfilled, what does that say about the strength of the groupings in this case?
Maybe AMLN bounces strong off the groupings, and then rolls over and fills the
gap? Keep this in mind as you manage a potential trade that you may be in. I
can't wait to see how this plays out. Let's move on to something I saw as an
intraday trade in INTC. I was looking for a reversal and run up into the close.
I wasn't looking specifically at INTC for this. I saw a nice setup form in the
ES and NQ, but for the sake of mixing it up, I decided to show the play I saw
in INTC. I'll show two retracements of the last pullback on the downtrend, to
show how incredibly harmonic INTC was behaving. I'll also show the retracement
for the 'retest' of the low. The chart is a 3-minute.
I have a .382 and .618 retracement on the chart for the
last pullback, and they are overlapping just about exactly, and that's where
INTC turned back down. But I was expecting a possible turn up based on what I
was seeing elsewhere, so I put a retracement on the chart for this 'retest'. (I
never have understood why it would be called a 'retest'. It's a test. Where's
the first test if this is a retest?) At this very instant the ES was double
bottoming and the NQ was slightly exceeding the previous low. But INTC was at
the .786. So I looked for an entry trigger. There were several. Let's see what
INTC did.
INTC turned one cent from the .786 retracement, and gave plenty of
action for an intraday trade. Now I wasn't able to present everything that went
into my thinking and analysis that a reversal might occur in this area since
there is only so much space in this column, but I did want to show the salient
points in the potential trade area. I wanted to show how harmonic INTC was, and
how I use these points for my trading. If the last pullback has tightly
overlapping Fibonacci numbers, then I expect this type of behavior will
continue. I don't know that it will, but I make the assumption for my trading.
And when INTC turned within one cent of the .786 retracement (at the same time
that it was 'diverging' from the ES and NQ with a higher swing-low point), that
was enough for me. Remember that the next column will be the 'weekend'
column (even though I will date it with Friday's date), and I will try to post
it sometime Sunday.
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