Trading What I See

Another pullback day with weak volume, adding about two points to last week’s close. I pointed out some rectangle trades Friday, and said that I would be very cautious even if the pattern continued.

Today’s chart covers two sessions, and I’ve drawn several patterns on it. The blue lines are last week’s rectangle, which broke to the upside about 11:15 this morning (Pacific time.) The magenta trendline used Friday’s pivot connected to another at 8:00 today. We bounced twice more from that line.

The yellow lines are a sloppy triangle, with a parallel trendline that stopped this afternoon’s rally. The breakout shows a small volume increase, but that increase disappears on any longer term chart. I can actually see two additional valid ways I could draw that triangle, but they all break out at the same time.

With all of these patterns you might think I would be pointing out many profitable trades, but from my perspective it is the complete opposite. I don’t think any of these trades provided safe entries.

When I find too many ways to interpret a day’s chart I begin looking at longer and longer time frames. And I keep coming back to the daily chart that shows the heavy distribution that started February 27th followed by the weak pullback from the pivot bottom.

This is a classic setup for additional downside action. As a daytrader I’ll be quick to change my mind if we get some good upside volume. But for right now, I’m really expecting a downside break to at least re-test last week’s lows.