Thurs. 03_08

Two examples of higher time frame setups that I have had my eye on for the past 2-3 days.  First an explanation:
As a matter of personal preference I like to set up my two time frames so that my "trigger chart" is 3-times faster than the "setup chart".  Most of the chart examples shown on this blog for instance are of a 15-minute paired with a 5-minute chart.  Beyond a 15-minute chart (which contains 26 15-minute bars) I also like to use a 39-minute (10 39-minute bars per day), 65-minute (6-bars/day), and 130-minute (3-bars/day).  The way I trade I essentially use the faster time frame and it's 3/10-macd as a timing mechanism for entering the higher time frame setup.  So, with that said, here are two higher time frame setups I was stalking the past few days which set up today.

LNKD -  The daily was showing a 2c-2d setup which boils down to a trending issue that registers a momentum reverse divergence.  I then look for a 3d setup on the faster time frame, in this case the 130-minute chart on the right:

So the 130-min had the 3d criteria going into the close yesterday, but so did the 15-minute chart (left chart in the set below) so I was looking to buy a pullback in the 5-minute fast line which presented itself in the form of a pennant or ascending wedge breakout at around 9:30 

KSS - My attention was drawn to this issue based on the 3d criteria on the 65-min chart.  When I see a 3d setup I look for the level of resistance which I feel needs to be taken out for a follow-through move higher to occur.    A helpful way of identifying this resistance is by looking to the 3a criteria which preceded the 3d.  In the chart below the 3a criteria showed resistance to be at the $48.55 level (thick blue line).

So this 3d setup was triggered before the close yesterday but today came the $48.55 test which was taken out 20-minutes into the day.  The 50% and 100% projection targets weren't large winners, but the important lesson for me is to be consistent with familiar setups.

$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.

failed

I've been stalking AAPL on the long side for the most of the week.  While I've been stalking AAPL this week, I noticed how "easy" the short side has been.  "Easy" in the sense that resistance levels were sold without much re-testing, resistance levels held and prices went lower.  However, I was looking for long entries.  My premise being that the higher time frame was setting up a 3-push 3d crtieria setup, as seen in the chart below.

So, in the charts above;  The 65m chart (left) I was looking at the 3-push price pattern with the 3d criteria.  On the right is the past 3, 15m intraday sessions, with entry points I was watching (though one of which is not indicated, the 3rd up arrow on the 15m 3/10macd isn't indicated on the price chart; user error).  The 2 down arrows were potential short entries based on the 65m 3/10macd "failing" the 3d criteria setup (essentially price rolling over and not squeezing higher the way I was anticipating).

I've written throughout this blog about the 3d criteria setup.  I'm looking for a 3-push price pattern or something similar to an inverse Head & Shoulders.  The faster time frame entry is an "a" criteria (3a or 1a) on the 3/10macd.
I've also mentioned that if this setup "fails" there may exist opportunity to turn around and short the market.  This is where I "failed" by not taking the short side of this trade, even though I was witnessing signs of selling in the tape all week.

The chart below is the 15m/5m from Thursday where I was looking to buy into this higher time frame setup.  I took the first up-arrow entry on the 5m (other 2 were equally likely entries).  I exited with a gain.

 The chart below is the 15m/5m from today where I was looking to buy into this, still valid, higher time frame setup.

I entered long and exited with a small loss.  And then I failed.  I failed to take advantage of the short opportunities that presented themselves as well as failing to take advantage of the heavy selling I witnessed all week on the tape.   It is what it is.

missed it

Screwed up this 3d long entry on the SPY today.
The setup was more apparent on the 30-min time frame

I went long too early and didn't get back in when I should have :/

Should have gotten back in as indicated below, though it was difficult to chase a long in such a bearish market, especially without much of a pullback.  You never know when a move like this is going to happen.  The biggest disappointment was that I was actually anticipating a 3d setup for half the afternoon, then only to screw it up in the end is incredibly frustrating.

Anyway, the SPY daily left us with what appears to be a bear trap on a bullish divergence.  7% higher and I wouldn't be surprised to see new highs by the end of December :/

Oh yeah, and the SPY weekly is possibly setting up this 3d criteria as well (looking for green fast line and/or a seed wave on the Daily as trigger to entry).

The ES ALMOST made a tweezer low today.  This could rally over 80-points and STILL be bearish.

The NQ still hasn't broken its low, has a similar 3d setup on the weekly (looks better actually) and can rally 130-points and STILL be bearish!

meh

Exited a short trade in CVX this afternoon, while getting lunch, rather than just keeping my stop in place.  Entered later on 4c pullack criteria for 50-cents:

The SPY demonstrated the same setup.  All I'm using the 3/10 macd for is to help me pick out price behavior; in this case a bear flag after downward momentum.

Below is a 3d setup (triggered end of day Friday) I was looking for this morning, but didn't enter.  I've mentioned before that the 3d criteria personifies a short-squeeze reaction.  This chart is a good example as price opened near resistance, filled the gap and moved beyond the sensible stop placement resistance level and continuing up to the breakdown point of the previous day:

I went long VLO on the 3d entry today (chart below) but it turned into a scratch trade.  Notice the resistance level price needed to break to induce a squeeze reaction (blue horizontal line on the 15-min chart).  Price failed to hold above the Open let alone get beyond the likely short entry stops.  When 3d setups fail it's usually a good idea to turn the other way and go short!

morning setups

A couple 3d setups coming into the morning.  As I have said before, the 3d setup is typical of a short-covering/stop-triggering behavior.  So, know where strong/weak resistance levels might be located and plan accordingly.
AMZN set up the 3d going into the close of Friday.  The second 5-min bar triggered an entry, while overhead was $189 resistance

On the smaller timeframe it is easier to determine where "minor" resistance levels may be; I think about in terms of "where would shorts sellers have break-even cover orders placed?" (especially those shorts which may be late to the game).  It's these orders that I'm anticipating a possible short squeeze to bring price up to a major resistance level/target. 

CSX was another 3d setup going into Friday's close. 

Again, where would possible break-even levels be that could trigger a short-covering pop, and likewise, where might a major resistance level be that higher time frames may be entering in the direction of prevailing momentum?

Fri. 3_30

GOOG had a nice bearish trend day to it on Friday.  Momentum on the open, pullback in the later morning, momentum continuation in the afternoon.

If one were considering the 10am momentum to be a 3d criteria setup (as it was a buy divergence) you could have gotten long (and price did get as much as a 100% projection off of its flag/seed wave).  There were two main things to remember in such a case; 1). With a 3d setup there is always a resistance zone to trade into and/or overcome, 2). You should trade through or above the 20- &/or 50-MA's;  Notice how the 20-period Moving Average contained any further price movement higher, thereby retaining the trend.

On the topic of the 3d setup, GS had what I often consider a 3d, but in criteria-speak is technically a 1d though the result and mentality behind it are the same (3-pushes to a low, inverse H&S, OR bear trap).

AAPL

For 3 years beginning in 2009 AAPL trended within a buying channel, until price broke out in 2012 and started going somewhat parabolic.  Parabolic moves, where price goes too far too fast, tend to get back-filled, a test to gauge buying interest.  The ensuing correction initially found support at the upper channel but eventually broke through the other end and is now in a throwback to the lower channel line.

It would make sense to incorporate a higher time frame perspective with an equity that has been in a bull market really since 2004.  So, looking at a monthly (log) chart we can put the most recent corrective phase into perspective.

So, though AAPL is in a long-term bull market, it is also (still) in a corrective phase on a faster time frame, and a market can correct longer than most can remain solvent trying to catch the bottom.

Using multiple time frames:

Below is a monthly chart on the left paired with a weekly chart on the right.
 Monthly showing bullish trend still intact while the 3/10macd is showing 2c criteria.  With the slow line still very much positive we eventually anticipate the fast line to start ticking up (2d criteria).  Whether or not price will continue with its bullish trend is too soon to tell.
  The setup I like to look for with the 2c-2d criteria is the 3d criteria on the faster time frame.  So in this case we're looking for the weekly slow line to start turning up while both the fast and slow lines start progressing towards the zero-line (still at least a few weeks off)

Below is an example of the 2c-2d criteria back in 2008.  However, the weekly time frame never did set up the 3d criteria, rather we saw 3a criteria with very eager buyers (very little pullback).  Eventually price rolled over and it was in 2009 we saw the weekly 3d set up with a much more constructive bottoming process (3-push price pattern)

Back to the current environment.  We can expect the monthly 3/10macd fast line to start ticking Up when the faster time frame (weekly) begins to heal (where the fast and slow line start ticking up 3d, 3a criteria).
We can anticipate the healing of the weekly macd by looking at what the daily is doing.
Below, right is the daily, showing the obvious bear trend still intact (though many seem to be very anxious to call a bottom).  Price is pulling into the down-trending 20-MA (criteria 3a).  The slow line is still very negative and quite far from the zero line which means it will take either a decent amount of time or momentum to pull this slow line higher.  Even if we were to see strong momentum which would help pull the slow line closer to zero it would still be more prudent to wait for a higher low pullback.
(I threw in a modified pitchfork because it framed the daily price behavior pretty well.)

If I were looking to buy the anticipation of the weekly macd turning up, then I would be waiting for the daily 3/10macd to pull back THEN tick Up, ideally looking something like this:

To summarize:
   The higher time frame monthly is still bullish, but in a corrective phase.  It's 3/10macd fast line looks as though it may begin ticking up, but this is a monthly chart and a bullish continuation wouldn't be validated until we saw criteria 1a (or, more than likely 2a, the "a" is what is important, which is just saying that the fast line is back to positive) on this time frame, which would take a few MONTHS.
  We can anticipate this by looking to the weekly where we would like to see bullish development in the 3/10macd (i.e. more GREEN).  A slow line trending UP and eventually going positive and a fast line that goes, and remains, positive.  Judging by the looks of the current weekly 3/10macd this may take at least a few of weeks
  So, while the twittOsphere is a-buzz with those hunting for a bottom in AAPL the faster (daily) time frame still remains in a downward trending trajectory and (in my opinion) a buyable opportunity has yet to present itself.  Things may begin to heal once this Daily 3/10macd begins to  build a bullish bias, which will in turn improve the weekly 3/10 macd, which in turn will give us an idea if the monthly will remain in a bullish trend.

The only thing I can think of to compare it to would be the price structure of Gold, which has also been in a bull market for nearly 10-years now and shows similar 3/10macd characteristics (AAPL on the left, Gold on the right below)

Here is how the 2c-2d criteria on the monthly time frame set up on the weekly.  Currently things look they can go either way from here.  A breakout of the overhead trend line could end up turning the monthly 3/10macd fast line higher.  While a failure of support could bring momentum in to the downside and turn into a much larger correction.

chopped

Not much trading done on my part today.  Stopped-out on two positions, one of which being SPY which was fine as I was just trading what I saw:
My anticipation was for a re-test of the lows (3b-to-3c-to-3d in terms of 3/10 macd criteria, which was likely my main mistake as 1's & 3's are long setups; refer to the spreadsheet if lost by this point). 

For posterity:
  Noticed two setups this morning ("noticed" as in didn't trade) based on the 3d criteria.  In AAPL below, the Slow Line turned magenta briefly (4c) but that shouldn't negate the setup (it turned 3d on the next bar) as we're looking for a strong Slow Line trend with a mild Fast Line correction into it.  I mentioned yesterday that 3d criteria fits a short squeeze or lifting of stops phenomena, so we need to be aware of the levels which would likely give us the dynamic price movement once cleared:

 Also there was NFLX.  Gaped strongly down on the open with buying that closed the first 15-min candle just above previous resistance.  Following that move was a $1 move to the next resistance level and a further $2 move to the previous day's breakdown point.

Tues. 4_17

Many issues set up the 3d criteria into the close yesterday and followed through today.
SPY - though this is not the 3d criteria, it is very similar in character (technically a 1d and first cross entry), the best of these 3d setups on the open are those that gap above the previous resistance zone.

While here is one which succeeded in overcoming the first boundary of resistance, but couldn't get past the second level.

AMZN - got stopped out on this one for a loss, though it did what I was anticipating (went higher)

AAPL - was a great example of the 3d, which is the bear trap short squeeze.

Dollar index 3d

3d criteria setting up on the U.S.Dollar Index daily chart.
3a which precedes the 3d is the main resistance which price needs to overcome, in this case being around $80.15.

wednesday

A 3d long entry I missed today in the GLD

Long entry in CVX.  Exited the majority of the position at the close of the bar at the down arrow, held a small position as a swing trade based on the higher time frame.

I went long FAZ based on the 3d criteria, but taken in perspective with the broad market after getting stopped-out (lost $0.60/share) I went short (there were actually shares to borrow!).  I mentioned the other day that when a 3d long setup fails, it is usually profitable to reverse the trade.  Exited the majority of the position at the 200% projection ($4/share) and held a small position overnight. 

 

Fri. 12_14

Today's Trade:

A key for the above chart to define the horizontal lines and dots.  For further explanation, see this link:  

In the chart above:
First entry long in anticipation of 3d criteria setup.  The following trade (short) was the premise that the 3d "failed" and price would/could roll over. Then entered long after failure to breakdown from IB_low thinking, "from failed moves come fast moves."  Then I just gave up throughout the remaining chop, the final short was entered at the bar previous to the one with the down-arrow.

It's looking a little tricky on the higher time frame.
The daily 3/10macd looks to be rolling over.  The 130-min has the potential for the 2c-2d criteria setup to play out

 if that's the case I usually like to see a 3d criteria on a faster time frame, which the 30-min chart has the potential for setting up (the chart on the left below).  So, into Monday we're looking for strength above $142.50-ish for this pattern to play out

What seems pretty bearish to me at this point is the weekly chart below.
Price was rejected under $143.  To anticipate the weekly 3/10macd to roll over and have it's bear flag play out (where the fast line would turn red, back to criteria 2c or 4c) we're looking for the daily 3/10macd fast line to turn red

back with more weekly charts later.