Saturday, August 25, 2012

Nemo's Findings (or whatever Vad is calling it now)

(Course on chart pattern recognition is available now:

The week that was:

  • So whereas I expected a gap and go last Monday, we got it on Tuesday, which ended up being the highs for the week.
  • Notice how IWM just about touched the Weekly R1 (82.75 would have been the daily R4)
  • Notice how SPY just went through the Weekly R1 (143.26 was daily R4)
  • Funny coincidence, huh?
  • Notice how the price action interacted with the designated longer-term pivot levels
  • Funny how spy basically closed on the weekly pivot.
  • The daily pivot levels embedded in the graph are for Friday only
  • Notice how Friday morning IWM bottomed basically at S1 on the daily pivots
  • Notice how Friday morning SPY bottomed in the vicinity of S1 on the daily pivots, a 38.2 fib retracement and a turquoise colored line.  I use that color to denote price levels of multiple confluence.
    • The confluence this time was:  1) a fib retracement,  2) price support on the daily, 3) a daily Pivot support level (S1).  
    • Now this pivot support only comes in play this day, so the question becomes, is it the daily pivot level to which it reacted, the fib, or the price support?
  • That's not really the point.  What's important is that it is an area of confluence for 3 different methods of technical analysis, that means 3 different types of traders (or algos) will be looking at the same level.  The more forms of analysis that identify the same levels, the greater the likelihood that level becomes significant. Which should raise the probability of that level being a point of inflection, especially when one takes into account that IWM hit S1 on the daily pivot at the same time.  (Folks...this ain't rocket science)
  • Both IWM and SPY basically closed their gaps from the Thursday downdraft with Friday's action
  • IMO if on Monday we open above the last swing high on Wednesday and then are able to hold above the gaps, we test those last Tuesday highs perhaps on Monday. 
  • Worth noting, if financials (represented by FAS) are not going up, more than likely equities won't be either
  • And of course, usually, if people are buying bonds (TLT) they ain't buying equities.
  • O.K. now this week is going to be slow....real slow volume-wise.  Not that the indexes or stocks won't move, but the Germans are finishing up their month long vacations on the Costa Brava and Mikonos probably for the last time (because the Spanish and the Greeks are gonna' hate them as the Fall progresses).  The traders and computers are off to the Hamptons.
  • Unless you are like a couple of traders I know (their names rhyme with Cipher and Dino) you likely don't have that esp that tells you stocks are gonna' suddenly move in the direction you want them to.  Only THE best setups this week and smaller size with a little bigger stop. (Now, if I can only take my own advice)

The week that is:

  • SPY: Actually have a fair amount of long-term resistance still between 143-143.30 or so.  Break through that no confluence resistance to 147.25.  Rising 50 SMA at 137.25 near WS3 will likely be the floor...imho
  • IWM: No heavy resistance until the 84.50 area with the 200SMA and 50 SMA between 78.25 and 79.00 and rising.
  • QQQ: 69.60 area strong resistance no real multi-time frame support confluence until the 64ish level with the 50 SMA at 64.90.  MPP and QPP between 64.00-64.25
It's the last week of the month, will we see some window dressing?  Another month until the end of the quarter, but it might be worth doing a scan on best performing equities the last coupla' months, they might be in play this week...still think the direction is up, given the trend, as I said, not rocket science.