Common setup

Two setups on the SPY today.  First was a long off the IB-low coinciding near the Open price on a reverse divergence.  Since the 'trend' is still up (for my timeframe) buying common support levels (trend line support, IB-low, Open price, previous day's high, 20-period MA were all there) was still a highly probable trade. 
The short entry was based on the 2b criteria setting up on the 15-min 3/10macd and the trigger was the 5-min setting up the 2d-to-2c continuation pattern (a.k.a. Bear flag).  Exit was at the 100% projection.  I took everything off at the one target out of an error in judgment. 

updates

Two quick updates to previous posts regarding the SPY.
First the obvious;  Price continues to squeeze higher but has yet to tag the Fib. projections that I drew out in this post. 

Meanwhile, the follow-up to this post regarding the higher time frame 3d setup that triggered on Aug. 23 came within 45-cents today of tagging the first target, the 50% Fib. projection.  Price seems to be struggling to move higher at this point and as such a pullback wouldn't be surprising. 

Reached the 50% projection of the intermediate seed wave:

confluence

Should price break to the upside next week the SPY has a confluence target overhead that includes the 50-day MA (first test of this Moving Average in over a month) as well as a 50% & 100% Fib. projection based on the two underlying seed waves present (A-B-C & C-D-E).  This area also happens to align with a measured move of the symmetrical triangle and an untested gap that was left at the close of that green hammer day.

4d

Following the 3/10 macd criteria this setup fits under the 2d-to-2c (or 4d-to-4c) continuation setup.
The slow line is trending down as the fast line is correcting into it (typical of a bear flag price pattern).
Typically I look to enter on the 5-min chart based on the first negative reading (3/10 macd fast line), but in this case that happened on a green hammer bar so I was looking for a pullback higher.  Fib. projections were based on the first seed wave that is highlighted on the 5-min chart.

 

similarities

What followed last year's flash-crash compared to the current market.  Looking very similar.
Notice we have yet to test the 20-day MA (shows how oversold things got).  So that would seem to be a possible resistance point, followed by the "W" apex, followed by the gap. 

Updated:
Rejected at the 20-day MA

3d setup....again.
 This time BAC & GS set up going into the close yesterday and followed through today.

trend day

Mentioned last night that the SPY was potentially setting up a 3d long criteria on the daily time frame.  This morning started off with a 3d setup on the 15-minute time frame.  Worked quite well.  When I first brought up this 3d criteria months ago I had mentioned that it's typical of a short-covering phenomenon; today was a perfect example where the daily was anticipated to set up this way and the intra-day time frame was aligned as well.

Here is an updated chart following last nights post.  Bear in mind that it is a higher time frame setup.  The anticipation here is to look for a gap fill, or attempted gap fill. 

Daily SPY

In a previous post (click here) I highlighted a short swing setup in the SPY.  The short entry trigger bar had a closing price of $115, today's closing price was $112.77.   There is still potential for price to hit the 200% projection from the 08/18 gap down which coincides with the 08/09 lows.
However, what may be setting up now is a 3d long entry on the daily.  So, a trigger on the faster time frame would be for the fast line to turn green.

seed waves

Setup this afternoon across many issues.  The importance is having reasonable targets in mind and knowing when you're wrong.
CLF - went long in a REALLY stupid entry ($68.85).  Sat through the adverse move with the opinion that if it held the 50% retrace I would wait it out, and so it did.  Exited the majority of the trade just above (got a lucky pop) the 50% projection ($69.36) for safety sake.  Stopped on the remaining 1/4 position just under $69.

A number of issues were setting up the same profile at the same time.  These 3d setups trigger on the 5-min chart with a fast line going positive.  But if a seed wave has yet to form then it's best to wait for that seed wave before just taking the trigger confirmation on the 3/10macd as you can likely get better Risk:Reward setup around the 50% retrace point (wait for green bar on 5-min at this 50% level).

AAPL

SPY - notice reverse divergence between previous day's low & today's afternoon low on 15-min chart

There were more, but you get the idea.

SPY monthly chart; only 3-times in the past 11-years that it set up a 2c short bias (there was another occurrence in 09/2004 which was faded).  Each occurrence carried with it a monthly candle range of greater than 10% and was just the beginning of a larger downside move.

Bear in mind, what followed these large range moves was at least two months of price testing the upper ranges of these candles
At the end of 2000 there was a 2-3 month test upwards to the 61.8% retracement

While in 2008 there was a 4-month period which saw a successful re-test of the low and a bounce beyond the 78% retrace, ultimately failing.

This has all happened before, it will all happen again.
There will be a time to position for long entries, but it will take some time (aside from intraday short covering rallies).
I use the 3/10macd indicator because it is closely derived from price and reacts quickly to price; all it does for me is help to take out some of the noise and subjectivity in viewing price.  The criteria I ascribe to the indicator's relationship of Fast Line to Slow Line is simply my way to quickly identify, and alert me to, higher lows or higher highs, trend continuation likelihood, range-bound markets, etc.
With that said, the 2b, 4c, or 4b criteria simply alerts me to a lower high or waning momentum.  In the chart below there's a 4c and 4b short setup highlighted:

or even this 4c criteria on the monthly S&P500 chart:

And more recently, this:

as an added bonus, the 2b criteria on the 3/10 macd isn't necessarily a lower high.  In the chart above the absolute high (prior to the shaded region) occurred while signaling a 2b setup (exhaustion of price/waning momentum).

Anyway, as we can see from the above chart, price confirmed a lower high and sold off.  At this point, the rallies will get sold and we will likely spend a number of weeks digesting the recent volatility to a point where a firm higher low can develop and begin a new intermediate trend up.  The question always remains; How low will we go?

To start with, take a look at this morning's opening gap down.  Price reached the 100% projection intra-day, while the 200% coincides with the August 9 lows.  Not to say price always achieves a 200% momentum projection, but the fact that it coincides with the lows is curious

Connect the Dots

S&P500 monthly chart
Lower Low, Lower High....yeah, yeah, there's the 1050 pivot....looks compelling though.  Time will tell.

Bonds acting up

 Thought I would move this post (originally posted 8/13) back up to the top as it is relevant today.

TLT over $100 is significant and when it's there it seems to stay above $100 for a number of weeks as investors let things work themselves out in the markets before committing back into riskier assets.  Dropping yields can be a gauge of fear in the market; taking a look at previous times (and duration of those occurrences) the TLT has been over $100 compared with the SPY price behavior and major market moves.

A similar view using the 30-year Treasury yield with the S&P500

The gray shaded band (between $38.50 - $48) is basically the 'normal' variation range the 30-yr has been in post-2008, so it makes it easier to see the outlier events.  The $34.50 level represents a larger than normal 'fear' mood and trading below that level may give one reason to fade higher price moves in the S&P if price were behaving in such a way. 
However, what seems to be a common theme is that these outlier moves occur within a bottoming process.  Perhaps the fact that bonds and equities have a closer correlation on this recent sell-off is something we can key in on, something that can give us a confirmation/non-confirmation guidepost.

Here's a daily chart of the 30-year yield and the SPY; the correlation is close, but not perfect

As an aside, the Five year yield has made a new low and the Ten-year is coming close to new lows:

And finally there's the U.S.Dollar Index which just continues to coil throughout these past two weeks during a strong market sell-off.  Something to keep an eye on, in my opinion, as it may very well have a directional pull on equities.
Here's a look at a comparison of the Dollar Index to the S&P500

and on it's own, coiling beyond its down trend line

In short, keep an eye on bonds, especially the 30-year yield which appears to be highly correlated and the U.S. Dollar as it looks to be coiling for a move.  And remember, bottoms are always a process over time.

A trade in GLD today that helped me get flat on the day after a perfectly retarded long trade in CVX
Something to look for with a strong trend in place (as was the case with GLD intraday) is known as a Slingshot setup, basically a reverse divergence (higher low in price with a lower momentum low).

Here's a 2b short entry that triggered today on a higher time frame in the SPY.  What's a 2b short entry?  You can refer to the 3/10macd criteria document or the 3d setup document (the 2b is very similar to the 3d)

Update to previous day's post regarding a potential turn lower triggering a 2b short entry.  Still no confirmation on the faster time frame as price sits within a range.  Could go either way.

50%

Posted the other day was a chart of the SPY Fib. projections off of the lows.  It took a while (not really a sign of strength) to tag the 50% projection where it turned sharply lower (also, obviously, not a sign of encouraging strength).

As you can gather from charts posted on this blog I use two time frames for trade considerations; one which determines a setup criteria and a faster one which triggers an entry.  Typically I use the 15- & 5-minute time frames, but I also like to gauge what higher time frames might be setting up for (see yesterday's post), especially the Daily chart.
So, here we have the SPY daily chart split with a 130 minute chart (there are 3 130-minute bars in a Daily bar, just as there are 3 5-minute bars in a 15-minute bar, preferences are your own).  The reasoning behind this is that the faster time frame can help me to enter in anticipation of what I am looking for the higher time frame to do.
For instance; in the chart below the daily (left) set up a 2b short entry back in July, but in order to anticipate this trigger you can look to the faster time frame where the histogram turning red triggered an early entry as it was hinting at price weakness (vertical red dash line on the 130-min chart).

 So, what we have in the current scenario is a pullback of the previous momentum.  Out of this pullback we typically look for (anticipate) a re-test of the lows (which can often form a momentum buy divergence).  We're essentially looking for the faster time frame to turn red, leading us into the triggered continuation move lower.
Keep in mind, this is OpEx week and just because a trade may trigger an entry doesn't mean you shouldn't be suspicious should price fail to move in your direction within a reasonable period of time.
Meanwhile, here are some that triggered at the close today, so we would be looking for a continuation move of some sort.
IYT - failed overhead gap fill looks weak, may look to re-test $79 area

SMH -trigger bar is a re-test of the bearish momentum bar that precedes it- possible move back to $28.25

XLF - Barely turned red but hasn't exactly caught a bid. 

Remember, these are triggers to setups, and anything can happen so manage your risk.  They are also based on a time frame which is more in line with holding times of longer than one day.

higher time frame

The SPY higher time frame set up the 3d criteria on the 10th & 11th of last week; here's how it played out (I use the 60- & 20-min just as I would the 15- & 5-min on the faster time frame.  Preferences are your own).

The fib. projections on the 60-min are based off of the hammer candle's low and the ensuing rally high.
The first entry was successful so long as you trailed your stops as late day selling shook out weak longs.
The second entry turned into a nice trend day; of course you would had to have sat through an hour and a half while the handle to the cup pattern traced itself out.  Here's a closer look:

$DXY

The U.S. Dollar Index weekly chart is triggering a 3d long signal, but price has yet to move.  In anticipation of the weekly triggering the 3d long we can watch the daily and look to enter on the fast line going green (which it did on Aug. 5th rendering your entry under water for the time being) or we can wait for more solid confirmation. 

Just because the signal "didn't work" right away doesn't mean there's not potential opportunity.  Often times a signal failure could be hinting at a potential roll-over in price, as it did back in Feb. 2008.
The chart below shows a "safer" way to enter by letting price prove itself rather than relying on the daily 3/10macd fast line for entry.  In such a case we would be looking for a break of the range which price is in, so we have a 3d long entry on the weekly but price isn't breaking out of its upper range, suspecting a roll-over we can look to get short as price approaches or goes through it's lower range.

Here's a look (chart below) at the second 3d setup of that year in July.  We had the weekly setting up a 3d long entry and the fast line turns green on the daily 'triggering' a long entry for that weekly signal.  Otherwise, you could wait for the breakout of the upper range as occurred at the beginning of August that year.

Back to the current setup.  Keep an eye on the upper/lower ranges.  Price is coiling and something has got to give, whether price rolls-over or breaks higher is less important than waiting for price to prove itself.

Just getting back to the charts.  Here's an updated chart of the SPY weekly with Andrews median line showing interesting results:

SPY seed wave, it's a big'un

that was quick