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
I am always open to questions, comments, or suggestions on how to improve this blog.

Saturday, March 6, 2010

now what

Where do we go from here? The bears were squeezed yet again, bringing price back to the January 21 selloff point. If only I had the courage of my convictions, I would have been a lot better off after this last month, remember this chart? and this one? Anyway, lesson learned. You have to be quick and play off of what you see, not what you think.
There was a day back in September of last year (see this post) that has haunted me ever since sitting through it. It was a stark reminder that anything can happen in these markets, regardless of what the news is, how the economy is performing, or how strong the dollar may be. It was also a lesson in watching stops get taken out while seeing fresh orders come in for fear of missing out.
There comes a time when price retraces after a momentum impulse where that retracement soon becomes something more than just counter trend behavior. So, when price sells off (like it did on a large scale in the fall of '08, and as it did in January of this year) you expect some form of profit taking by those that are short, usually in the 38% retracement level. If stops are close enough overhead (say at the 40% level) they get taken out and price starts to work higher. The higher prices begin to drift as a result of short covering, the faster things begin to move counter to the selloff, much like it did in that chart from September '09.
So, here we are, two markets (SPY & DIA) having retraced over 50% of their Oct.'08 momentum selloff, and another two markets (Q's & IWM) having retraced over 62% off those March lows. While the Russell certainly looked impressive this week, the Nasdaq is one of those charts where I'm left thinking, "could this thing go all the way!?" After all, it is a mere 15% off of it's 11/07 highs! And it doesn't seem to me like the "retail crowd" has been fully participating in this market for quite some time, so what happens if they start jumping aboard in fear of missing out? They are the last to arrive after all.
On all the charts below I have marked the following; (1) the gap range left from Sept. '08. (2) A Fibonacci Retracement, beginning at the swing high of '07 and down to the swing low of March '09. (3) A Fibonacci 3-point Price Extension (beginning at the March '09 lows, to the top of the first impulse move and projected off of that flags' low, where the next impulse move began.
While the Q's look very impressive, the other broad markets still have a lot to prove. The IWM, for instance, has an overhead gap above at the $70 level, but having made it through $65 seems as though it may want to spend some time back in this early 2008 consolidation level.
While the laggard DIA, and to a lesser extent the SPY have some hurdles to overcome.
The DIA at around $112 has the 61.8% retracement and a gap, with previous support directly above (Support becomes Resistance). Similar setup on SPY. The faster price makes a move for the $120 level, the more climactic things will become, and remember the adage; Trends always end in a climax.


Tony said...

Nice analysis. The sentiment seems awfully bullish for a low volume melt-up into massive resistance. Fib levels and previous highs are looming as resistance.

Add to that the overbought condition of all indices based on any metric you care to use (RSI, stoch, MACD) and next week looks like it's ripe for a pullback.... or at least a flat performance. But the risk reward from my standpoint is to go to cash and set short entries on previous 65-min bars--- stalk the top with tight stops.

Previously you have looked at Wolfe Waves, and I'm seeing bearish Wolfes all over the place on multiple time frames and multiple indices and sectors. I'm not sure of your statistical success with these, but anecdotally I've done well with them.

Yeah, a lot of people are perhaps kicking themselves for missing lows in Feb, or Oct or last July... but I'm being careful to not fight the last war. This market is overbought and time to be fearful and not greedy.

Nobody leaves the casino happy, but some leave it solvent. Thanks again for your great charts and insight.

todd said...

Thanks Tony. Let's see some of these bearish Wolfe Waves you're seeing on your blog, how 'bout it? :)

Tony said...

Sorry for the delay (I've been busy at my real job- lol), but here are my Wolfe waves: