Summer Trading

The market made an immediate reversal just after today’s opening, and declined for the next 30 minutes to the eventual low. Without any pauses there wasn’t much chance for a safe entry. And without any pullbacks there were no internal measurements to pinpoint the bottom.Summer Trading

So even though we turned at a 78% Fibonacci retracement level, by the end of the first hour I had found no tradable setups. That’s when I drew the magenta bars to mark off the first hour’s high and low, and although we broke out of that range there were still no clear entries.

Finally at the pivot marked with a circled “4″ there was a potential entry. As I said yesterday

where there are two pullbacks in a move, the first one will usually be large (most often 62%) and the second one small (38%.)

Of course the movement over the next hour was just sideways so I gave up on the trade. I should have remembered that we are now into the summer trading season where many of the moves seem to happen in slow motion.

During this season it’s often useful to pay more attention to (but not necessarily trade from) the longer term charts because many of the patterns are extended. Even a move from a three to a five minute chart can clarify moves, since you can include more of the previous day’s trading.

By including part of yesterday’s move on this five minute chart you can see the structure of an Elliott impulse wave. If you realize that Wave Four is often a long drawn-out affair, it might increase your patience in this type of a trade. Remember that I don’t actually trade Elliott Waves as such, but much of what I present on this site is derived from Elliott principles.

There’s another reason to illustrate an Elliott Wave today. Last night I received an e-mail from Elliott Wave International. When they found some of my Elliott comments on Trading What I See during a Google search, they asked me to become one of their associates.

Doing so allows me to put up some links (left sidebar) to free information they offer on their site, such as a very nice 10 lesson Elliott Wave tutorial. For those of you interested in Fibonacci and market structure I highly recommend it.

If you follow any of those links, you’ll have to sign up for Club EWI which puts you on their mailing list. Fortunately they don’t send out material excessively. But it’s a no-cost way to learn more about how the market works (at least some of the time.)

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Waiting for the Fourth of July

Today was an up day with minimal pullbacks, but it certainly looks like more consolidation on a longer term chart. Starting with a 45 minute time frame (today is only the last nine bars) we stalled at a downtrend line just as we reached a possible “C” top at 62% of the “A” move.Waiting for the Fourth - 45

That’s the normal turning point for a weak move, and notice the declining volume. Of course a breakout tomorrow morning would change this pattern, but it will be a shortened trading day followed by the holiday on Wednesday.

I have a tendency to distrust the setups around a holiday, but usually when I look back at them later they will often work just as well as during normal trading periods.Waiting for the Fourth

On the trading chart (3 minutes) there was a pullback after the gap opening, followed by an up to sideways day — profitable if you could figure out a safe entry. I don’t really see one unless you took the break above the first bar’s high. The external retracement of the lunchtime pullback turned at 162%, just as we hit the downtrend line on the longer chart.

Unless something surprising happens tomorrow I probably won’t post a commentary.

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Declining Volume

After a narrow range yesterday, the market made two tests of the top before turning down over the lunch hour. There was declining volume on the second test, but at that time it looked like the entire day would just move sideways.Declining Volume

As usual, when there is no setup during the first hour I’ll mark off the top and bottom of the range and wait for a breakout (magenta lines.) Of course when we broke down there was the obvious support of yesterday’s close and yesterday’s low, so I didn’t see that as a setup.

During the day there were three pullbacks, and each showed declining volume (all marked with yellow.) The earliest was inside the first hour’s range and didn’t threaten to break out. However the second was outside that range, and the low volume pullback turned at the 50% retracement level. That’s a potential setup with a short sale just after the yellow trendline break at the blue “B.”

Again there was a low volume pullback after yesterday’s pivot bottom was broken for another potential entry (yellow “B”.) I like the second entry much better, since by this time the moving averages are pointing down.

The eventual bottom came on a spike through the yellow A-B-C and turned at both the blue parallel and at the larger A-B-C where the “C” move equaled 162% of the “A” move. Not a great trading day, but still a good example of how declining volume on pullbacks is usually followed by continued moves in the trend direction.

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Waiting Game

For the third day in a row the first hour range has contained the market’s overall movement. In each case, lacking a good setup during this period I can find no compelling reason for taking a trade.Waiting Game

As you can see from the chart, the Fibonacci measurements are still working even if the market is not going anywhere. There were two A-B-C patterns, each turning at 62%, showing a lack of conviction in either direction.

Sometimes, during periods of indecision, the market will make an early move and then spend the rest of the day oscillating around the center point of that range (blue arrow.) As happened today, that’s where the market will often close.

Boring trading, but remember — when the market puts enough traders to sleep it can suddenly wake them up with a surprise move.

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More First Pullbacks

First Pullback measurements are always external retracements (see yesterday), but they are Fibonacci ratios that few seem to follow. You can mark the Fib levels for the next potential turn as soon a reversal pivot forms following the first significant pullback.More First Pullbacks

Today each of the major reversals turned at one of these levels (all shown with white lines and arrows.) The 7:30 bottom turned at 127% just as it reached the continuation of a trendline from one of yesterday’s pivots. It also had a Stochastic divergence, and lead to the best move of the day.

That mid-day rally also ended in the same manner, but this time at the 262% external retracement of the first major pullback. This is what I consider a “normal” move. Once again the turn also had confirmation from a trendline at the top of a channel.

After making the high of the day we had another move down. For the third time, the actual reversal near the close was a 262% external retracement of the first good pullback.

This doesn’t work every time, but that’s the case with all support and resistance or Fibonacci levels. They give you an area where turns are more likely to take place. It’s up to your trading plan to give you entries to take advantage of them.

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Fibs and Contract Rollover

Getting acceptable Fibonacci measurements at futures contract rollover can sometimes be problematic. For longer measurements, do you use the old contract or the new? There is always a gap at rollover, so the measurements won’t be the same.

Yesterday I had a nice 423% external retracement marked on the 15 minute chart for a potential reversal. Today, using the new contract, that measurement is off by about a point and a half. On the 32 point move that was being measured, that comes out to just under five percent.

My solution, for what it’s worth, is to try to base my new contract trading on very short term measurements until the weekend. You decide whether that potential reversal worked or not.Fibs and Contract Rollover

Today we started with a quick double fake-out — up, down, and then the rally. The move created a Spring entry combined with a 127% retracement of the quick upmove. After moving to what would later be labeled “A” there was a 50% pullback which eventually turned into a double bottom.

A trade at the first bottom probably would have been a loss (unless you left your stop below the pivot.) The second bottom (perhaps a re-entry) lead to a nice rally. Both the parallel trendline and the Measured Move pointed out the top at “C.”

Using the “First Pullback” measurement technique that I’ve illustrated several times this week (white lines), today’s top was at a 262% external retracement. The four external retracements I watch for are 127%, 162%, 262%, and 423%.

A fake-out reversal usually comes at 127%. A general reversal zone exists between 127% and 162%. When we pass 162% I watch for a normal move to 262% (as happened today.) And if there is a very strong move, there is often a reversal at 423% as shown yesterday.

Has this move topped? There wasn’t a divergence or a 127% move from the previous peak. But we did turn inside the reversal zone. And we have reached 262%. Not enough agreement to give me any type of bias. As usual, I’ll wait for Monday’s open and see what the charts say then.

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Save Your Trendlines

If you exclude the gap, there was not much range again today. I’ve seen some studies that tried to say almost all of the gain or loss in the indexes over a long period of time actually occurred overnight, and that for this reason you couldn’t make any money day trading. I guess the bounces that happen intraday don’t count.Save Your Trendlines

Actually today would have been pretty hard to trade, but at least there were some turning points that made sense. As I’ve mentioned often, leave your major trendlines on the charts as long as you can. After today’s large gap, the first move went right to the bottom trendline from yesterday.

We didn’t actually turn there, but the trendline was respected. The sideways movement eventually got to (and slightly through) a parallel, and also tried to form some small channels.

There’s really not much else to point out on this chart, and I’m going to have limited computer access until the end of next week, so some of the commentaries (like tonight) may be a little short. Good trading.

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