Approaching Support

A long running level of support in SUN is approaching, will we get another bounce?
Price has bounced from this level before, but the "pace" seems to be weakening.A breakdown below $25 could send price back to test $21

Also, keep a watch on FSLR as it approaches $104The $104 area may be a good place to buy for a bounce, with this buy divergence building at this point.

Also, AEM watch $52

Homing Pigeon

A bullish Homing Pigeon candle pattern has taken shape on the SPY today (likewise for the Q's, DIA, & IWM). Similar to a Harami reversal pattern, the Homing Pigeon merely calls for a close lower than the open on both candles. Confirmation of a bullish reversal is required, and one would be looking for at least a close above today's range.
To further strengthen the case for a bounce in price from here, there's a reverse divergence present (higher low in price, lower low in momentum), and price looks like it closed on top of a support level.

SPY PTT

Below is a 30-min chart of the SPY with the Inverted and Regular Cycles (as I wrote about last weekend). Here is the same chart, only this time including the PTT's (red line - Price and Time Targets) and the CTL (purple line - Cyclic Trend Line). Confused?Well, the hardest problem I have seen with Stevenson Price and Time Targets was determining when the Inverted Cycle ends and the Regular Cycle begins in real-time. According to Stevenson, this happens when price makes a close outside of the CTL.

As a refresher, the Cyclic Trend Line (CTL) is drawn by connecting the most recent swing low to high, this line is then moved outward so that it touches only a single price point.

However, when doing this in real-time you'll never know whether the previous high will be taken out (invalidating the end of the Inverted Cycle and confirming the continuation of the Regular Cycle in which you're in), so you'll have to continuously watch for strength or weakness at previous swing highs/lows (perhaps a very good habit to be in).

For example; If you're in the second half of an Inverted Cycle (price moving higher) you will be expecting a transition into the beginning of a Regular Cycle once price breaks the CTL). But once price breaks the CTL there is still just as much likelihood that price may continue making higher highs. Therefore, you should always be looking for a retest of the CTL, or some sort of price topping (or bottoming) pattern.
Referring back to the above overview chart (30-min) that includes CTL's (purple lines), I'll include the same CTL's on our trading chart (the 5-min).

This first chart shows the day of Jan. 20. where we're in the tail-end of a RC. Price closes outside of the CTL, but that's not an actionable signal. We wait for price to tell us whether we'll likely make a lower low (and continue the Regular Cycle), or whether we should look to get long in anticipation to ride the beginning of an Inverted Cycle up.
After a low was made, price rose and tested the previous support level, before selling off (market internals likely telling you to sell resistance?). Price then began to stabilize and base at that resistance level, before breaking out, much more of an actionable sequence.

Now lets move to the end of that day and the beginning of the following Thursday. We have a Cyclic Trend Line in place which price tests at the open. Right away we get a bear flag, Open range breakdown out of the CTL (beginning our Regular Cycle down).Once this CTL is broken we anticipate the beginning of an Inverted Cycle. We see a bottoming pattern develop in the form of an Inverse Head & Shoulders, we buy the breakout, but price gets sold. OK, so we get stopped out, but we learned a valuable piece of information. We learned that sellers are still prevalent in the market and price may want to go lower (at least to test the lows perhaps).

Finally, I'll include the last two days in the SPY with the CTL's in place. Notice we had closes outside of the CTL with some tradeable pullbacks to this line that coincided with technical patterns (i.e. a Head & Shoulders breakdown into the close of 1/21 and the open of 1/22, a lower high breakdown around 12:30 on the 22nd).
I hope this isn't too difficult to follow. If it is, I would love to hear from people who might have valuable input. Anyway, trade in the direction of the cycle!

same ol

Round and round she goes, where she stops nobody knows:

Toni Hansen videos

Check out this series of videos given by Toni Hansen; great stuff.


Also check out Part 4, Part 5, Part 6.

Quick Update

I showed this chart yesterday, and wanted to include an update.
Price hit the PTT early (a sign of strength) and the Inverse Cycle is still intact.

S&P cycles far and near

Again, off the heels of my previous post, here's a look at the S&P500 index as well as the SPY.
Using a weekly chart of the $INX, the cycles are blatant. Two big Regular Cycles, with an Inverted Cycle in between. Currently we're going through an Inverted Cycle.So what do we have?:
- The first Regular Cycle lasted for 409-bars and spent 276-bars (weeks) going up and 133-bars going down. I didn't actually plan this near perfect symmetry. I simply chose the bottom of the prior Inverted cycle that price experienced before going into our debt & leverage fueled price propulsion.
- The Inverted Cycle which followed lasted for 394-bars and spent 133-bars going down and 261-bars going up (amazing symmetry).
- Now, the Regular Cycle, which ended in May of 2008, had a span of 334-bars with 261 on the way up and a mere 73 on the way down.
- The Inverted Cycle we are now in contains 119-bars so far (slightly more than half of those bars going up following our last 73-bar down swing).
- The slope of our "trend" is definitely down.

Now, we know from my previous post, that a cycle is deemed complete when price closes outside of it's Cyclic Trend Line (CTL, refer to my previous post to understand how the CTL is measured and projected), like so:
To say the current Cycle we are in is a bit long in the tooth would be an understatement. Provided we don't melt up from here, a weekly close less than this weeks bar would put us under the CTL, thereby ending this Inverted Cycle and starting the next Regular Cycle (which has a PTT projection well under the March '08 lows (and should contain approximately 100-bars).

So, that's a little longer term perspective. Here's where the SPY sits as of Friday:
I'm using a 90-min chart so as to take away some of the noise that this market has been putting out over the past month.
Within this timeframe, price is in an Inverted Cycle and the PTT's are shown in red lines.
The slope of our trend is flat to slightly down (the past two Inverted & Regular Cycles have had highs and lows within a penny of each other). So, from here we would be looking for a test higher, while a close under a CTL would give us the start of our next Regular Cycle.

Charts with PTT

Following up on my previous post regarding Stevenson Price & Time Targets, here are a couple charts I've been looking at:
TLT
Recently finished a Regular Cycle (RC) down. The overhead red line marks the PTT and the purple lines mark the Cycle Trend Line (CTL). Within these larger cycles, there are also smaller cycles at play (though we should dial down too far, or risk falling down the rabbit hole. Notice that both cycles have approximately the same number of bars in them. The previous Regular Cycle ended when price closed outside the CTL (ended up retracing towards it before continuing). The Inverted Cycle's PTT was overshot, but arrived right on time (this is either showing us strength or short covering, or a combination of both being that price was right on top of long-running support.
From here we look for a close outside the CTL to determine the end of the current Inverted Cycle (though we should prefer to wait for a retracement back to this CTL to gauge whether price wants to continue higher, or fall lower). The PTT of the Inverted Cycle is the most current red line on the chart, there is strong support above it though, and the slope of this down trend is beginning to flatten.

FCX
This stock finished the week, printing a Dark-Cloud Cover pattern, after filling a long-term gap. The daily chart shows the most recent end to an Inverted Cycle that actually hit the PTT early. The current PTT is drawn in red while the CTL is purple. There are two clear possibilities; (1) Continued downside, where we could target the PTT, and perhaps look to buy a bounce, or (2) Price makes an attempt to tag the CTL above, in which case I would be looking to sell this move.

Stevenson PTT

I'll be adding more charts onto this post (and perhaps other content modifications) over the weekend, so check back if you're interested in this topic.

I recently read the manual Precision Trading with Stevenson Price and Time Targets, and found it interesting enough to want to summarize it here. The concepts presented deal with cycle analysis, which is often overlooked in technical trading, but is just as important next to price and volume. I'm going to try and make this as simple and straightforward as possible.
First of all, the concept of cycles is fractal, in that within large cycles there are smaller cycles, and within smaller cycles there are yet even smaller cycles. Fortunately for the purpose of trading we don't necessarily need to worry ourselves with the overly large or small cycles behaving within price. We don't want to get caught up in the minutia of the 1-minute price cycles (unless we're a manic scalping robot) and, unless you're an "investor" large dominant cycles aren't going to help you trade intra-day.
So, as presented in the book by John R. Stevenson, here's how he explains it:

There are two cycles; a Regular Cycle (RC) and an Inverted Cycle (IC).
Each of these two cycles can have three variations: a Regular Cycle is either in an Up, Down, or Sideways trend. The same goes for an Inverted Cycle (can be up, down, or flat), like this:
The characteristics of a RC are that it will have two swing lows with a swing high in between (think of a pyramid, bell-shape, or upside down "U").
While an IC will have two swing highs with a swing low in between (think of an upside down pyramid or a "U" shape), like this:
Some key concepts include:
- An Inverted Cycle always follows a Regular Cycle, a Regular Cycle always follows an Inverted Cycle, and because of this they can be examined in terms of "units" (see the illustrations that follow).
- The IC & RC are expected to be relatively the same length of bars.
- Stevenson mentions that the technique he introduces (I'm getting to it) can be used on cycles as small as 3-bars (5-min chart), but explains that a minimum of 8-10 bars produces better results.
- It is not important for swing highs/lows be in the exact middle of an RC/IC.

Being that an Inverted Cycle follows a Regular Cycle (and vice versa) they are considered a unit. Seen in the diagrams below, a RC (A-B-C) is followed by an IC (B-C-T) in their respective units, and an IC (B-C-D) is followed by it's paired RC (C-D-T).
So, there are two concepts J.R. Stevenson lays out in his manual for making, what he refers to as, Price and Time Targets (PTT).
Concept #1:
-If your observation tells you that you're in a Regular Cycle you will label the most recent swing low with a "C", the previous swing high a "B" and the swing low prior to that an "A".
- Once you have identified and labeled the RC, draw a line connecting points A and C, clone this line, then project off of A to arrive at a PTT. Like so:A couple of things to mention at this point. I'm not benefiting financially in any way for this blog post, so I'm not going to cherry-pick the examples. The example above did not meet the Price and Time Target, but it did come close, and there is information to be gained from price not reaching it's particular PTT.
Also, ALWAYS USE STOPS! This is not an all-inclusive trading strategy. It's simply a guide to help you be on the right side of a trade by going with the dominant cycle in the market. As such, you should rely on price patterns for entries based on your cycle analysis, not the other way around.
So, that's the basic premise behind making PTT's. You identify the cycle, draw a line between the swing lows (if it's a Regular Cycle) and project off the swing high (or low if working with an IC) to arrive at a target for price in time.

The second Concept in this manual is referred to as a Cyclic Trend Line (CTL). It is used to help identify when one cycle has ended and another has begun. In keeping with the above chart with a Regular Cycle as an example we produce a CTL as follows:
- Draw a line through the price bars of the B-C line, connecting the highs to the lows.
- Clone this parallel line and shift it outwards, so that it touches only one price bar point. This is your CTL! When price closes outside of this parallel line, the cycle is considered ended.
Here's the same chart as before, only this time adding the CTL:So, we can see that price closed outside of the CTL, ending the Regular Cycle. That wouldn't necessarily be a trigger for entry. We would want to look for a price pattern to emerge to take action. In this example we got a retest of the CTL with a steep (78.6%) retracement (or "Phoenix", whatever you want to call it), so we would look to buy a breakout from that retracement.
One word of advice regarding the CTL; though it can be used on small cycles, more accurate results can be obtained by using it on cycle lengths of 10-bars or more.
OK, now time for some charts.
I pulled up a daily chart of FCX and there was a really straightforward Inverted Cycle that jumped out at me right away. So, included in the chart below are an Inverted Cycle, followed by a Regular Cycle (which comprises an Inverted Cycle Unit). The red lines represent the Price Time Targets:Seems simple enough, right? Well, here's where my brain starts to itch. Following this move in FCX price begins an upward consolidation cycle throughout much of August. All of a sudden we have these small (3-6 bars) RC/IC's, which produce targets that, though mostly hit, aren't very profitable on this time frame. So, it may be best to avoid this stock for the time being, or drill down into a smaller time frame to time entries/exits.
Overlooking the smaller cycles on this Daily chart, we give the stock some time to for investors/traders to determine whether they like price higher or lower from here, and in so doing we allow the predominant cycle to work itself out. Here's what things look like:
One more thing worth mentioning, if I haven't already; Regular Cycles and their mirror opposite (Inverted Cycle) will have approximately the same number of bars, take a look:
Well, if you have stuck with me thus far, you would probably like to know just how the heck you might approach trading these Concepts. Well, thankfully J.R. Stevenson included some very simple strategies for trading both with the trend, and counter to the trend. Here's what he says:

For trading with the trend;

If an RC is up, Buy a CTL break
If an RC is down, sell the PTT
If an IC is up, Buy the PTT
If an IC is down, sell a CTL break

Got that? Good!

Now if you prefer to counter-trend trade the cycle, he suggests;

If an RC is up, Sell the PTT
If an RC is down, buy a CTL break
If an IC is up, sell CTL break
If an RC is down, buy the PTT

Simple right?

Just keep in mind that to determine the direction of the cycle's trend from the slope of the A -C line (if a Regular Cycle) or the slope of the B-D line (if in a IE).

OK, OK, I'll demonstrate:

So, these are three good examples that demonstrate relative accuracy, but also the important matter of discretion that should come into play with these strategies.
- The first trade worked, so long as you bought on the close outside of that CTL (after all it was a strong bullish candle).
- The second trade didn't quite reach the PTT, so if you were eager you might have gotten in and perhaps quickly stopped out. Or, you might have waited for a pattern to develop.
- The third trade I included two purple CTL lines. If you would have bought the close outside of the CTL you would have been profitable in two days, before price broke down (fakeout breakout). Price continued lower, so you would have re-drawn the CTL to include these two consecutive new lows. In which case you got a break of the new CTL, and if you were hesitant to get in at this point (because you're still not out of that price range!) you would have (hopefully) waited for the breakout day to enter. If that were the case you would be sitting through a tight flag pattern before extending the initial impulse move. bravo! This measured move brought you right into the PTT target!

Needless to say, I'll be looking for a breakdown within this current Regular Cycle we appear to be in at this point.

OK, so one more example and then I'm ending this dissertation.
Looking at GS on a 5-minute time frame over the last two days (Thursday, Friday).
Here's what I see:Going in a little closer, here's what I'm looking at:
- The first trade coming out of the Regular Cycle down was to sell the PTT (that was not happening with such a steep selloff, as the PTT was skewed). However, you might have bought the retracement off the lows after breaking consolidation and testing the most recent swing high.
- Next trade, going into a Inverted Cyle was to sell the CTL line break, which occurred on the retracement from the morning's sell-off. Target the lows of the day for at least half a position. Price doesn't make it to the PTT, instead double-bottoms at the Low of the day.
- Trade three: Buying a close outside of the CTL. Otherwise, look for a retracement back to this CTL to buy. We get a "Phoenix" setup and expand higher into our PTT!
- Trade four: Go short from the CTL break (and mini bear flag), target the PTT or lows of the day, which is what we got into the end of the day.

A word regarding failure:
These examples all look well and good, but taking action in real-time is another thing entirely. For one, your CTL is going to be changing with price. Say you have a close outside of the CTL, and you're thinking the cycle is over, well price may still continue lower/higher, in which case you may get stopped out. You will be readjusting the CTL accordingly, and it's best to rely on pullbacks, price patterns, and/or candlestick patterns to base your trading decisions rather than solely the CTL break.
Also, the PTT isn't going to be a hard and fast target. It would seem that price failing to make it to a PTT can be telling you a valuable lesson in what the pace of the market is doing, and perhaps that sentiment may be shifting.

So there ya have it! It's a fascinating study. I have enjoyed it very much and look forward to sharing what I find from here on out. I hope you stuck with me through, what I was hoping to be, a straightforward look into this concept. After all, it's really just a look into the wave structure of buying/selling that's generated across the tape, showing which has more weight to it, the buyers or the sellers. All a series of measured moves.

Here's another example using the past few days in SPY (5-min). What's worth noticing is that price arrived at the PTT early (Red line on lower right). Also, the CTL's (purple lines) are all retraced against sharply before price breaks down/out, providing an excellent low-risk entry.

curious

The first hour's Total NYSE volume today was quite large (over 500k). By looking at this first hour's reading we get a clue when higher time frame traders (institutions et al.) have entered the market. Here's what it looked like this morning:
Since the "bottom" of this market in March '09 there have been only 5 instances where the first hour's Total NYSE volume was larger. The most recent being in December where we got a dummy long trade setup (a dragonfly doji in an area where price snapped back twice before). Three other occasions marked intermediate term tops. Also curious, is the fact that we got a large move in Treasuries on Tuesday and Thursday. Are the "Jaws of Death" beginning to clamp down?

Congestion Breakout

I mentioned this pattern last week, and here it showed up on the 5-min. SPY today:
Price chopped along in a sideways box pattern. The final retracement off of the high of the consolidation range was shallow, and found bids quickly.

Price Pace

Traded HIG short today and it lends a good example to the concept of price "pace" and the waning interest of buyers in a market (as mentioned in the "Falling Dominoes" post).The two Fibonacci Extensions show a larger cycle projection (red) and a smaller time frame projection (yellow) for potential targets. When a confluence exists between two or more cycles you get good areas for support/resistance.
On the flip side there was FAZ today. I didn't trade it, as I was too late in seeing it. But here you can see the lack of selling interest, before price began to accelerate. In looking at it though, it may have been a tricky to trade in terms of a target, unless you just went for the HOD or previous support level at $17.50.

DE wolfe

A Wolfe Wave in DE today lends an example for not putting too much trust in your EPA line (Estimated Price at arrival) when volatility doesn't look as though it will cooperate with what seems like an extreme price projection. When the EPA line is too steep, but the technical pattern is working in your favor, I would prefer to look for other technical levels to shoot for, while watching for signs of failure or exhaustion.

falling dominoes

A descending triangle in PXD today provides a good example in watching the "pace" develop in buying versus selling. Price bounced three times at the previous day's close (corresponding with the previous day's highs) before failing. The first two times price had a strong bounce off of this level, while the third test displayed weak buying, leading to a failure. By trans-secting the low-to-high price points you can see how the buying interest waned at the third test, looking similar to falling dominoes. Price achieved a measured move out of the triangle to a base, while it measured another move out of the base (measuring from the failure point to the base). PCX had a similar setup (didn't trade this one). This was a good example showing off the mini bear flag that set up right at the failure point, also the absence of buying when price returned to the $20.75 base for the third time.

Mid-Day pattern

Friday I was able to short SLB on a pattern that can be worth looking out for in the mid-day session. Similar to a "Spike & Ledge" or a failed double top, or even a Head & Shoulders pattern with a more prominent right shoulder, here's a basic idea of what it looks like:It's not necessarily a very high probability pattern on it's own, though it can offer a good risk/reward entry. I think the higher time frame can give a stronger indication of a potential short trade, while the faster chart can show you the pace of buying interest (or lack of). So, here was the trade in SLB, the arrow indicating entry with a Fibonacci extension drawn to give a measured move target.
The volume in this trade is tricky. You see a lot of volume coming in at the top (position covering) with a final volume spike coming in at the ledge. Following the volume spike, price begins to climb, leading one to think this issue may push higher (in which case you should look for a bull flag to enter or a base break). However, what followed the move higher was a lack of follow-through and a bear flag!
On the fast time frame it's nice to see these little flags for entry:The Fibonacci extension was used for a primary target, but it was backed up by a few other technical levels (15-min chart 20-EMA, and the daily charts previous resistance level), I held on a little beyond my target until I saw some convincing volume and "bottoming" consolidation on the faster chart.
Here's the daily to show where previous resistance was, but also showing this same pattern presented itself in mid-November (time-frames are irrelevant in chartology, a measured move is a measured move).Now, here's an example in SPLS where this setup didn't work out so well (though still gave a measured move).
It didn't work as well as the previous example, but still gave you opportunity AND warning signs. If your short entry was before, during, or slightly after the gap down in price, you had a number of opportunities to get out at break-even or for a slight loss when you began to see price test that gap level numerous times before breaking out to new highs.

jaws of death?

I learned after watching a Larry Williams seminar to watch for inverse correlations between the bonds and equity markets. Particularly to pay attention when bonds are trending down at the same time the equity markets are trending up (referred to as the "Jaws of Death", as the bond markets will end up snapping down the equity markets). In this example I'm using the TLT and DIA ETF's as a proxy for the bonds and Dow Jones Industrial Average respectively. As you can see the two have been trending in opposite directions, most dramatically since the beginning of December, forming the "Jaws of Death".Though this isn't something that has precise predictive signals, it is worth taking note of, especially when one of the instruments is at an important technical level, as TLT is currently.Watch the bond market for bottoming and volume tells. If the TLT breaks $89 we may get that volume somewhere below $89 and above $82 to support price. Remember, trends end in a climax!

congestion

PCX demonstrated a setup over these last few months that I first learned about within Toni Hansen's material. Price was in a recognizable consolidation range after an initial impulse push. After testing the highs for the second time price again sold off, but this time found buyers about half way into the existing range before breaking out and fulfilling a measured move up.
Keep an eye out for this pattern on all time frames and look to buy/short the first solid bar after the shallower retracement within the range, or just wait for the breakout/down.

Happy 2010!

Wishing everyone a Happy, Healthy, and Successful 2010.
Stay warm!