Sunday, April 18, 2010

Weekend Analysis

Well I finally have a few minutes to put together my thoughts on the price action from the previous week. To start out I'd like to say that the price action so far has all the makings of the start of something bearish; however, we have yet to have a confirmed weekly reversal. So, the first thing I'll be looking for on Monday is a confirmation of the price action potential that started last week.

The news that GS is getting fined $1B certainly rattled the markets, but this is another good time to say that the market is going where it is going regardless of the news. If the market is truly ready to sell, then we'll see price confirmation tomorrow. If it isn't, then the news will be shrugged off, and the market will make new highs. Price action is the most reliable indicator of the market's 'mood', and like all good scientists, good traders need to see confirmation of their hypothesis.

Now, first piece of evidence is the 10 day ATR signal flashed a strong sell at the end of Friday as seen in the above chart. Last time this gave us a sell signal, the market quickly reversed and went back to buy. I'll be watching for continued volatility tomorrow and at least above average for the whole week.

The second piece of evidence was a daily reversal signal that occurred Friday and triggered my initial short position when the market touched 1196. My current stop is Friday's high, but as soon as we get below 1190 on the cash index, I'll move my stop to the previous hourly high. That is currently 1197 should the market open below 1190 tomorrow.

Now, what I want now is a weekly reversal signal. That won't occur until the market touches 1175 (I increased it by a point as the 15 SMA on the weekly ATR(10) chart is now at ~33, so that gives me an 11 pt move from last week's low (1186) to confirm a weekly reversal. If all goes well, that will occur tomorrow with tomorrow's high being the high for week. Once we get below 1190, I'll be looking at adding another 1/4 to my short position with the rest coming should we touch 1175.

After studying the daily chart, I've modified my intraday charts to fit the best label on the daily chart as I always believe that the larger time frames trump all other counts, so it is best to see how the intraday charts can be labeled to support the daily charts, etc. So here they are: 15 min, 60 min, and daily.

Have a great week!
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