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Thursday, August 11, 2011

Building "Ledges" For A Trek Back Up?

Navigating a counter-trend move on the TF can be tricky at the best of times....navigating a counter-trend move of a rather steep drop can be even more tricky, especially with volatility running at extremely high levels and moment-to-moment total bid & ask sizes at about 1/3 of their normal size (on the TF). As one who only daytrades the TF, I've found that it helps to have a "big picture" view of what's happening, not just on the TF, but also on the YM, ES & NQ, as well as a number of other instruments...and, then, to drill down to lower timeframes to see what's going on at certain levels of that big picture.

The following 4 chartgrids depict the YM, ES, NQ & TF on a variety of timeframes.

Grid #1 shows (on Monthly charts) that all 4 e-minis are trading just above the "mean" of their regression channels (which begin in late 2007) after dipping below. The channels for the YM & ES are still downtrending, and the channels for the NQ & TF are uptrending due to their new highs reached this year. After reaching the +1 deviation levels earlier this year, they could be headed back down towards the -1 deviation level on this timeframe.

Grid #2 (shows (on Weekly charts) that the YM, ES & TF are currently trading just below the -1 deviation level of their uptrending regression channels (which begin in March 2009), while the NQ is trading just above, after they all dipped down towards the -2 deviation level (and, in the case of the ES & TF, almost touching it). They could be headed down towards the -2 deviation level on this timeframe.

Grid #3 shows (on Daily charts) that price has declined sharply since late July and that the YM, ES, NQ & TF have been building a "ledge" for the past 3 days since Monday's drop this week. At the moment, the TF is trading just above the -2 deviation level of its regression channel (which begins in 2011) after breaking below...the YM & ES have bounced up further than the TF and are currently trading in between the -1 and -2 deviation levels...the NQ's channel is much steeper because it made a later higher close than the other 3 -minis for the year, and the NQ is currently trading in between the +1 deviation level and the "mean."

Grid #4 shows (on 4-hour charts) that price dipped below the -2 deviation level of their downtrending regression channels (which begin on May 2 of this year) and have started a new, shorter uptrending channel since making their lowest close this year on Monday this week. Currently, price is trading just above the -2 deviation level of the longer downtrending channel on the YM & ES and just above the "mean" of the shorter uptrending channel...price is trading in between the -2 and -1 deviation levels of the longer downtrending channel on the NQ and on the "mean" of the shorter uptrending channel...price is currently trading at the -2 deviation of the longer downtrending channel on the TF and just above the "mean" of the shorter rising channel. In the near-term, it will be important for the 4 e-minis to hold above the -2 deviation levels of their shorter uptrending channels in order to build a solid "ledge" from which to launch a meaningful reversal of the drops from May as shown on the larger timeframes...to that end, it will be necessary for them to return back up to the -2 deviation level of the longer channel, if they fall below, and carry on upwards.

Below are 2 chartgrids of Gold, US$, EUR/USD, Oil, XLF, GS, CRX, VIX, TNX & TYX.

The Weekly charts show the inverse relationship of Gold & VIX to Oil, XLF, GS, CRX, TNX & TYX...the US$ & EUR/USD have been basing at their inverse levels for the last half of this year.

The Daily charts show the same "ledge"-building that has started this week on Gold & VIX at their highs, and on XLF, GS, CRX, TNX & TYX at their lows...Oil has had a more dramatic bounce...the US$ & EUR/USD are basing in an ever-tightening triangle.

In conclusion, whether the "ledge"-building that has begun on the Daily timeframe is just the beginnings of a further fall in equities, commodities and bond yields, or whether they have reached a bottom and are forming a base from which to form a reversal remains to be seen...a breakout with conviction (and a retest for confirmation) would be something I'd look for as a guide...especially in the Financials sector...(and I'd drill down to lower timeframes and apply the same principles for daytrading).