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Wednesday, July 06, 2011

The "Triple O" Gang reverts to the "mean"...

I last posted an update on the travels of the "Triple O" gang on June 25:

Since then, the gang did find support and reversed their short-short walk from below the regression channel "mean" on the Weekly line charts of YM, ES, NQ & TF as shown below:

Price has now returned to or very near to the "mean" of the channel once again. As of today, there has not been an usual spike in volumes which could mean either a lack of buying with
conviction from market participants, or that short-sellers have not yet entered in force. It may be that any short-sellers are waiting for new highs to be reached this year and more in line with where price has closed in the past at levels sufficiently high enough above the "mean" to provide a decent downside target to the "mean" of the channel. I would add that this channel is in a strong uptrend and has not yet been broken.

Should such a bullish scenario play out, potential upside targets are in the vicinity of (and shown as green horizontal lines):
YM = 13200 (+600 pts.)
ES = 1420 (+80 pts.)
NQ = 2550 (+150 pts.)
TF = 900 (+55 pts.)

However, should major short-sellers enter the market at current levels, potential downside targets are in the vicinity of, firstly, their recent reversal levels, and secondly, the -1 deviation levels of their regression channels (and shown as blue horizontal lines):
YM = 11200 (-1400 pts.)
ES = 1200 (-140 pts.)
NQ = 2075 (-325 pts.)
TF = 725 (-120 pts.)

There is almost double the reward from current price levels down to the -1 deviation levels with half of the risk. However, we may simply see more stair-stepping on the long side on the 60min timeframe until the above noted upside targets are reached. As a general rule, I'm using the 60 min 50sma as an approximate uptrend line in this respect. This tells me that the bulls are firmly in control until the 50sma is broken and a new downtrend is firmly established (with volume confirmation). As a daytrader, I'll be watching intraday price action, volume and momentum on shorter timeframes, as well as market internals for further clues on short-term direction which would either support such a continued stair-stepping action, or which would signal a possible reversal.