Thursday, August 23, 2012

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Market Trading: A Second Example Of Bull Bias Shift From Failed Retracement

August 23rd, 2012
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Corey Rosenbloom: Following up from my educational update on August 20th, the very same situation unfolded on August 22 with an even more powerful outcome.
Let’s take a moment to see what happened and what we can learn from this similar situation:

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Please reference the prior “Example of Playing Popped Stops from a Failed Retracement” update from August 20th for the full description of this set-up, logic, and what it means for the remainder of the trading day.
The main idea here is that a similar “Bear Flag” retracement triggered as price traded back to the falling 20/50 EMA confluence in the @ES (S&P 500) futures which allowed for an aggressive entry at 1,407.50 or else a trigger-breakdown (under the rising trendline) near 1,406.50.
Like the other examples of the two successful bear flag trades in the morning session, the target was a sell-swing back to the session low, or preferably just under the session low (exiting on the break above a reversal candle high off the lower Bollinger Band).
There’s one caveat with the two examples:
While the trade lesson from August 20th contained a new TICK and Momentum low, the third flag example above developed off a dual-positive TICK/Momentum Divergence.
Divergences reduce the probabilities of a successful retracement (and indeed this retracement failed).
The lesson is not to show you that retracement trades fail, but rather to reveal the shift in bias (bull/bear) after a retracement trade fails which often signals an intraday trend reversal.
Quite simply, after a high-probability retracement trade FAILS, stop trading in the trend direction. Instead, look for bullish trades that may develop in the new direction.
Here’s a “Color-Coded” chart of the full day which reflects the “Hard Shift” in bias after the failed retracement and breakthrough above the falling 50 EMA:

We’ll look at the good trade set-up that developed after the reversal, but for now, the chart above reminds us that there is often a bias (usually based on the prevailing trend) that suggests what types of trades (bull/bear) to take.
The morning session favored the Bearish/Sell side as was evidenced by two successful “flag” retracement trades.
When the third opportunity failed at 1:00pm CST, it revealed a hard shift in bias, initially to the neutral side but then immediately to the Bullish Side due to the power/strength of the impulse.
Yes, the impulse was related to the release of the Federal Reserve Minutes, but the idea is the same:
A failed retracement which leads to a break above the falling 50 EMA often signals an official shift/reversal in trend structure which changes the bias to the Bullish Side for the remainder of the session.
Though it was impossible in this instance to play the “Popped Stops” from the sudden, news-driven breakout, it was possible to get ready to trade the first retracement or first breakout that occurs in the context of a new bullish bias.
The Green Arrow reveals the initial Flag trade which triggered from 1,408 to 1,409:

Once again, the main idea is that a bullish bias – and eventual intraday trend reversal – developed from the FAILURE of the 1:00pm CST Flag to achieve its downward target.
The green highlight reflects the sudden shift at 1:00pm while the green arrow suggests the initial or “first retracement” flag set-up that triggered at 1:40pm CST.
If you missed the quick retracement/flag trade, then a Breakout trade (not labeled) triggered on the push above 1,411/1,412 which took price to a new session high.
Personally, I prefer retracement trades to breakout trades, but both set-ups triggered in the context of the new intraday bullish bias.
Failed trades don’t have to turn into disasters; instead, hear the message signaled by price and shift/adapt to the new direction accordingly.
Related: S&P 500 (INDEXSP:.INX), Dow Jones Industrial Average (INDEXDJX:.DJI), and Nasdaq 100 (INDEXNASDAQ:.IXIC).
Written By Corey Rosenbloom, CMT From Afraid To Trade
My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.
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3 Indexes To Watch As We Head Into The Fall (AAPL, GOOG, INDEXRUSSELL:RUT, INDEXDJX:DJT)

August 21st, 2012
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Mike Larson: Has this been one roller-coaster summer or what? Back in April and May, it looked like the economy was falling apart, the euro was going to come unglued, and stocks were going to plunge. Sentiment was extremely bearish and volatility was jumping.
Now in August, you can’t find a bear anywhere on Wall Street! According to the new party line, the economy is back on track, the European debt crisis has been deftly handled by a couple of ECB and EU policymakers, and stocks are set to soar to infinity and beyond! A key measure of investor fear and market volatility — the VIX — just sank to the lowest level in five years!
Me? I continue to be worried about the likelihood of a sharp market decline this fall for several reasons, reasons I will share with you now.

The Euro’s Demise Has Been Set in Motion: Are you protected?


"Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors."

CLICK HERE to get your Free E-Book, “Why It’s Curtains for the Euro”

Market divergences, metals slump, freight index drop all flashing yellow!
If all you own is Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG) shares, you would be pretty happy right now. These mega-capitalization technology stocks, and a handful of other big caps, are performing fairly well.
But have you checked out the activity in the Dow Jones Transportation Average (INDEXDJX:DJT)? The average tracks the performance of “real economy” stocks like truckers, shippers, railroads, and more. You can see in the chart below that it topped out in March and has made a series of lower highs ever since then.
Dow Jones Transportation
If you’re a bull, that’s not what you want to see. You want to see the Transports “confirm” any high in the Dow Industrials. So far? It’s not happening.
Or how about the Russell 2000 Index (INDEXRUSSELL:RUT)? It’s a benchmark for smaller capitalization, more domestically focused stocks. I keep hearing about how the U.S. economy is supposedly doing better, especially in the wake of this week’s slightly stronger than expected July retail sales report.
But if that’s the case, why is the Russell lagging the advance in the Dow Industrials or the S&P 500? Why isn’t it rocking and rolling? That’s another divergence that calls into question the recent rally.
Russell 2000 Index
Then there are other indicators of global economic activity I follow, like charts of key industrial metals such as copper, zinc, and aluminum. These metals were barely able to pick themselves off the mat in June and July. And now their charts are rolling over again.
Ditto for the Baltic Dry Index, a benchmark for global freight shipping rates. It tends to rise and fall with economic expansions and contractions. As you can see, after a brief rise in the spring, the index is rolling over again. It’s closing in on February’s low, which itself was the worst reading since the 2008 depths of the Great Recession!
Baltic Dry Index
My Prescription for Action!
I’m a flexible guy. You have to be in this kind of market environment. If the latest actions by the Europeans and the U.S. Fed do somehow manage to re-inflate equities, commodities, and the like, I’ll play along for a while with investments to ride that rally.
I’ve even identified select companies that should be able to prosper no matter WHAT the broader market is doing. I just added a bargain-basement name to Safe Money Report, for instance. And if you’re interested in the details of these kinds of picks, you can click here.
But I have to tell you, many, many market signals I follow — including those I told you about last week and the ones I’m highlighting here — suggest this move isn’t all it’s cracked up to be. If anything, it’s at increasing risk of falling apart in the coming weeks.
Until next time,
Written By Mike Larson From Money And Markets
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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