The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at
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Saturday, November 28, 2009

POT setups

Something curious to see unfold over the next week will be the direction of POT.
While it seems to have broken down from a Head&Shoulders pattern on the 60-min timeframe, it also looks to have set up a bullish Wolfe Wave.
The Head & Shoulders breakdown gives a rough target of $104 to the downside. While the bullish Wolfe Wave scenario could challenge the $115 range.
Some matters of importance on this chart:
-The Wolfe Wave 1-3 line is also the neckline of the Head & Shoulders pattern (Wolfe Wave's just reflect the nature of price trying to recover from a trendline break)
- The 5-point occurred on a bullish momentum divergence, leading to a Slingshot in price, bringing us to were we are now. The bullish momentum divergence worked at the open on Friday, but momentum could still turn lower. It could of course turn higher, in which case the most recent session could be a bull flag (bringing us to the 1-4 target?). After all, price only retraced 38% of it's range.
- If the measured move does play itself out and we end up at $105, that's still only a 50% retracement in the run up from Nov. 3rd until the most recent highs, putting us right back to the breakout on 11/17, then what?
Based on the shorter time frame I would be leaning on a short bias going into Monday and watching to see how the Previous Day's Lows would be tested (or a test of the 78.6% retracement level from Firday's range).
The momentum push down on Friday was the largest we've seen in some time (on THIS time frame, still yet to be confirmed on the higher time frame), either it's not done correcting from that impulse and will want to test Friday's gap (H&S neckline) some more, OR it is done correcting from that impulse, and ready for another impulse push down (in which case we should look for a short-term buy divergence on the way down).
Here's how I'll look at it:

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