Measured Moves
The market moved upwards quickly after the open, and that was not quite what I had expected on Election Day. Between 6:45 and 7:00 I called a top three times. But over the years I have learned to wait for setups, and none of mine appeared. None, that is, until the market started retracing the early move.
First let’s look at why this didn’t turn into a TREND DAY. It could have, with that directional morning move, but let me quote something I said from an earlier trend day on September 12th.
… but look at the 30 minute TRIN readings from this morning: .69, .74, .62, .62, .68, .79, .95. That last 95 reading came during the lunchtime consolidation.
The equivalent readings for this morning are: .88, 1.24, 1.23, 1.21, 1.13, 1.06, 1.04. Remember that readings above 1.00 tend to be bearish. The market can go up with large TRIN readings, but it’s telling you that volume is not supporting the rise.
Once you decided that a trend day was unlikely, the movements after 8:00 made some sense. There was a pullback from the peak to point #1 and then a rally. The drop after point #2 matched the first drop, with a little extra push into point #3. Many call that a Measured Move — I call it a 100% Fibonacci extension. Either way, it means that a move in one direction is matched by the next move in the same direction.
When the market pulls away from point #3 you can draw the first trendline (#1 - #3), and the parallel from point #2. There is a short sale setup at point #4 when hitting the parallel line coincides with the Stochastic reaching overbought. Then we have another Measured Move — this time matching the #2 - #3 distance and ending right at point #5.
The next pullback at #6 doesn’t reach overbought or hit the top of the trend channel, so you either missed that nice trade or had to find another entry technique. But notice what happens when we get to 100% of the #4 - #5 distance. The market tries to stop.
As I mentioned a few days ago, when the second move in a series doesn’t stop at the 100% extension, watch for a move to 168%. And that’s where we reversed. At least temporarily.
Here’s another Fibonacci extension tip. I use extensions to judge the direction of a slightly longer trend that the one I am watching. Using just the 62%, 100%, and 162% measurements I look at each “2nd” move — for example the “b” to “c” move as shown at the right of today’s chart. If the move goes to 162% of the original move, I consider the next longer trend to be up, and will probably buy retracements. If it only matches the first move, then the next longer trend is probably now sideways.
But if the extension move only reaches 62%, I’ll assume the next longer trend is still down, with the potential for a further move lower. Move “c” only reached 62% of the first move off the bottom, and that lead to exceeding the previous intraday low.
