The Profit-Friendly Method Of Trading
The
major indices reversed Wednesday’s retracement
with a trend up day into option
expiration. NYSE volume was 1.36 billion, volume ratio 85, and breadth +1510.
Technology led, with the NDX
(
$NDX.X |
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PowerRating) +2.7% and the SOX
(
$SOX.X |
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+4.6%. The SPX
(
$SPX.X |
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PowerRating) gained +1.6%, followed by the Dow
(
$INDU |
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PowerRating)
at +1.0%. The next two strongest sectors were the oil service at +3.3% and
biotechs at +2.9%.
Wednesday’s SPX decline
was simply a retracement after the rally from Friday’s 865.92 low to Wednesday’s
896.77 high. The retracement was to 877.92 on Wednesday’s 3:45 p.m. ET bar,
which became the number 1 point for an excellent 1,2,3 higher bottom, with entry
on Thursday’s 9:50 a.m. bar above 880.17. The 2 point was the 9:35 a.m. bar,
with an 882.77 high. This trade ran to the 893.58 close on Thursday. The .618
retracement to the 865.92 low from 896.77 is 877.70, so once that down trendline
from the 896.77 high to 877.92 was broken, you should have been looking for a
possible 1,2,3 setup. The early up on Thursday did the trick for you, forming
the 2 point while breaking the down trendline. Next the 3 point formed, and you
got entry for a good ride. See your five-day five-minute SPX chart for a full
picture of the 1,2,3 setup in conjunction with the .618 retracement to the
865.92 low. It doesn’t get any more defined than that.
Thursday’s up day with an
893.83 close also sets up a potential double .786 retracement top to the 904.89
current rally high from the previous Thursday’s 862.84 low. The .786 retracement
to the 904.89 rally high from 862.84 is 895.89. Wednesday’s high was 896.77. I
am always looking at all of the sequence relationships for the next potential
move. From my viewpoint, there is a higher probability of some lower prices
before any attempt is made to take out the 200-day EMA and 12-month EMA just
above for the SPX.
Going into today, the SPX
doesn’t get extended on the upper end of your 20-day 30-minute chart until about
910, and then 855 on the lower end. The median price line is about 883. On your
three-month regression channel chart, the upper level is around 925, which
coincided with the major inverse head-and-shoulder neckline, and the lower
boundary is down at 806. The three-month median price line is about 868. This is
a daily exercise for me for all of the major indices, sector HOLDRs and some of
the key big-cap stocks. It keeps me alert as to where there might be an edge
with trades that have a positive mathematical expectation. I’ll leave you with
the “earnings came in better than expected” method of trading, which is a fast
track to ruin, so don’t engage yourself in that drill. It’s not good for your
pocketbook. The buying/selling pressure recognition method, along with extended
levels that will probably revert to the mean is much more profit friendly.
Have a good trading day.
Five-minute chart of
Thursday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Thursday’s NYSE TICKS