Pre-Market Analysis (ER2) 8/22

Performance of Major Indices

Possible market-moving factors (for Aug 21)

1. Financials (Lehman’s rating raised to “buy”)
2. Oil (went up, helping DOW but hurting small caps)
3. Low trading volume amplifying price moves

Factors that will potentially move the market today:

1. OIL
2. Financials
3. Everything and anything else goes (refer to my earlier post)

Economic Data to be released today: NIL

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Russell 2000 (E-Mini)

ER2 today

Price has been down for 5 days in a row now, open interest has dropped slightly yesterday, and volume has gone down a fair bit too (down about 20% from the day before, and the lowest in more than 2 weeks).

ER2 is now sitting just 3 points above Fib 38.2 retracement level, which might just provide the support it needs for a rebound. With volume and open interest dropping as price is coming down, it does seem possible that ER2 could go back up today.

ER2 Daily

A Scary Episode

D and I finally found something that's more horrifying than losing 10% of our account in one trade: a flying cockroach!!!

We were going to step out for a breather, and as D opened the main door, something flew past him in lightning speed. In less than a second, both Alberto and Keisha were dashing towards it and had it cornered in the common restroom. D took a peek inside the restroom and turned pale.

I had a really bad feeling about it and D confirmed my fear. What D did next was puzzling. He started to close all the windows in the kitchen, which was adjacent to the common restroom (before that, we've shut the restroom door, leaving Al and Keisha inside to play with their newfound toy). Then he explained that it was to prevent the disgusting creature from flying back in via those windows (the restroom window is right next to the row of kitchen windows).

After that we just looked at each other and wondered if we were going to let Al and Keisha take the fella out. That was when we saw it hanging right at the edge of the restroom window. I asked if we should just shut the restroom window. D said it's a good idea but he was too freaked out to get anywhere near it.

Perhaps it was just the kind of excitement I needed in the sluggish trading session (lunch time), or maybe there's really a man in me. I went right in, after asking D to keep an eye on the ugly thing to make sure it didn't fly right back into the restroom as I was shutting it.

And we did it. D saw the creature took a free fall down. 27 floors to the ground. Yikes!!! I hope it had opened its wings. Or do I really?

No way!

After this brief episode, we found it tremendously difficult to focus on trading anymore.

And Al and Keisha are now listless. They've had nothing to play with for the longest time. Back at our old place, we had strange creatures that found their way into our home because we were living on the 9th floor. Now that we are 27 floors high, almost nothing can get up unless i guess if they take the elevator....

Poor Al and Keisha will just have to settle for each other...for now...Al's getting tougher with Keisha these days and Keisha's getting more "manly". They are at least on level playing field now.

:-D

ER2 8/21 - Bear Flag

On a day that I totally ignore news, my chart speaks to me.

Today's chart is breathtakingly beautiful!

A bear flag that formed earlier:


Failed bear flag that followed, and now we're seeing something that's going to turn into a double-bottom:

Shows how important it is to WAIT for a breakout before trading a pattern. One could easily find himself on the wrong side of the market if he doesn't wait for a confirmation.

Personally, I like to see at least 2 closes with volume below support /above resistance.

Some days I just don't get my 2 closes, which tells me that those are not the days to trade. Not for me at least...

D, on the other hand, does very well in choppy markets. His guerrilla trading style is one of a kind, and one that's been working perfect for him so far. :-)

So, as far as trading is concern, there's really no one-style-fits-all method or system.

We learn the ways, and then find our own way.

ER2 - Finding Support & Resistance And Using 1-min Chart For Entry

I'm still trading 5 contracts after US market opens. Hence when I'm shorting, I won't want to go in just when price is moving up in the lower time-frame.

So, I keep my 1-min chart (see below) on. For my 1-min chart, EMA 14 and 21 and MA 15 are used instead (For EMA and MA periods to use for 5min chart, refer to my earlier post).

For support and resistance, I look for them on my daily chart and the previous days' 5min chart. So far so good.

By about 10am, I'll use fib whenever there's a clear trend.

ER2 - Range Per Move

The average number of points per move has been about 3 (used to be about 4, but I like to be conservative these days).

So I'll usually get out after price has moved about 3 points, and wait to see if support or resistance holds.

Supports/resistances that are not tested before, especially those that are 3 points away from ER2's previous move, I respect them.

As I write, ER2 is now consolidating above support at 722.57 (see below)

(Click on chart to enlarge)

ER2 Trades 8/21 - Pre-Market Trades

It's been a while now that I've based my entries and exits on price actions, news, and DOW's movements.

I've been finding it very challenging to trade in the first part of the trading session. ER2 has been diverging from DOW and S&P, and unaffected by oil and other news.

It usually took the later part of the day for patterns that I could recognize to form. So it's been awfully frustrating for me, coz all I could do from 0930 to 1400 had been to just sit back and watch ER2 the rebel clowning away.

Whenever I made a move in that "forbidden" time zone, I usually got clobbered and would need the later part of the day to recover my losses.

Yesterday, I decided to put my indicators back in to trade the first part of the day.

Combining the 2 seems to be working fine so far.

If I start getting overly dependent on indicators, that's when I'll throw them out again.

What am I going to get rid of for now?

NEWS!!

Pre-Market Analysis (ER2) 8/21

Performance of Major Indices

Possible market-moving factors (for Aug 20)

1. Financials (short covering of financial stocks causing price to go up....*&%^*#*??&%#*??!!)
2. Oil (price fluctuated throughout the day, and in fact rose on announcement of a much higher than expected crude inventories! *&%^*#*??&%#*....)
3. USD .....*&%^*#*??&%#*....
4. Trading volume.....*^...well, never mind.....
   

Factors that will potentially move the market today:

1. OIL (but since it’s behaving like a maniac, and ER2 is behaving like another, I’m going to have to give up keeping track on oil before I go crazy)
2. Financials (after short-covering, what now? More selling? More short covering? More bailing out policies?)
3. Econ data (yawn...)
4. Everything and anything goes. Who gives a damn anyway? JUST TRADE THE CHARTS! Which are, by the way, rather eccentric these days too. Volume’s low – lunch time is the worst – which explains the choppiness. D was saying the other day that if you go long when you really meant to go short, and go short when you really meant to go long, you might just make a killing.....food for thoughts??….

Economic Data to be released today

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Russell 2000 (E-Mini)

ER2 today

Price has been down for 4 days in a row now, but both volume and open interest have started to go up. That spells trouble for ER2. For now at least, it looks like it’s going to continue to go south.

From chart below, I see a bullish flag forming, and ER2 is currently trading within the channel that forms the flag. Fib 38.2 retracement level is not too far below, and it’s possible for price to hit it if selling interest continues to rise.

ER2 Daily

Pre-Market Analysis (ER2) 8/20

(Click on charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 19)

1. Inflation concern
2. Housing
3. Financials
4. Oil
5. Tightening of lending requirement hurting consumers and businesses
6. Low trading volume amplifying price moves

Factors that will potentially move the market today:

1. Financials
2. Oil
3. Economic data report

Economic Data to be released today

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Russell 2000 (E-Mini)

ER2 today

Price has been on a downtrend for 2 consecutive days since it reached its high on Aug 15. Open interest and volume have picked up a fair bit yesterday, after dropping for 3 days in a row. This tells me that there are now more short selling, and it’s possible for ER2 to continue to go down today.

ER2 Daily

D's ER2 Trades 8/19

D's trades using 1-minute candles

Net: + 2.3 Points

Pre-Market Analysis (ER2) 8/19

(Click on charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 18)

1. Financials (Fannie Mae and Freddie Mac plunged; general weakness across the financial sector)
2. Housing
3. Low trading volume amplifying price moves

Factors that will potentially move the market today:

1. Financials
2. Oil
3. Economic data report

Economic Data to be released today

________________________________________________________________

Russell 2000 (E-Mini)

ER2 today

1. An evening star has formed on ER2’s daily chart, although I wouldn’t be too concerned.

Of all the candlestick patterns, it seems that the ones that are consistently more reliable than the rest are the hammers, the shooting stars, the haramis, the engulfing patterns, 3 white soldiers (this is more complicated though and depending on where it is, and whether the bodies are getting bigger or smaller, it can be a reversal signal or a trend continuation signal) and the belt-holds.

Of course they have to be at the right place to be an established pattern. For instance, a hammer is a hammer only when it’s at the bottom of a downtrend.

2. I am really wondering: will ER2 attempt to fade up today?

3. Open interest and volume (volume for Friday should have been 100 over thousand but I took the number off a daily chart which told me it was 500 over thousand. An error apparently, which completely threw me off. One more reason to not know more than what one needs to know to trade. But people don’t change. That’s why I’m still writing) have both been going down

4. When price goes down with a drop in volume and open interest as well, it should be a sign of strength. Coz as soon as the weak players sold all they have to sell, market will be ready to pick up again.

5. What I noticed is that ER2 has been trading in a range for 5 days now. Without an increase in open interest and volume, it’s not likely to break up or down.

6. I think ER2 is going to continue to inch its way up to the high of 765, with increasing open interest and volume. I think we will see a small bullish candle today that opens and closes within yesterday’s range.

7. After a series of upward move in price to the top, a drop in open interest again would signal that a reversal to the downside is imminent.

A recap on what I said about ER2 in the short-term (posted yesterday in premarket analysis 8/18):

ER2’s rally since mid July seems to be losing momentum and we are starting to see some sideway moves. A surge in volume on Friday that is accompanied by a drop in open interest tells me that the high of 754.70 reached is probably a result of SHORT COVERING.

Weekly chart shows that it’s possible that we could move up further, but declining open interest is telling of the topping of a trend.

If open interest were to drop drastically from this point on, and price of ER2 were to go down with it, it would mean that those who are in long positions are offsetting them, and ER2 will reverse to its previous downward move. Any chance of ER2 continuing on its current upward trend will depend on open interest stabilizing at the current level of around 570,000.

ER2 Daily

An Article a Day for D:

The Morning Gap (Part 1)

The Morning Gap (Part 2)

The Morning Gap (Part 3)

What's With the Market?

ER2 has gapped down on daily chart, and it doesn't look like it wants to fade up.

No play on any of 3, 5 or 10 min time frames. Extremely erratic price movements. Gaps and candles with long shadows and bodies everywhere. It's basically a market gone nuts. With ER2 at where it is now, it seems like if I go long, I'm euphoric, and if I short the darn thing, I'm an idiot.

I blame OIL!!!

Pre-Market Analysis (ER2) 8/18

(Click on charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 15)

1. Oil fell to $111
2. Retail (better than expected earnings in the sector)
3. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market today:

1. Oil (now at 114.70, up from Fri’s 111)
2. Financials
3. Friday’s intraday move

Economic Data to be released today: Nil

________________________________________________________________

Russell 2000 (E-Mini)

Like I said before, August is traditionally a bad month for the bulls. This is in part a result of market players going on summer holidays, and partly due to net selling of shares and funds to support seasonal expenses (travels, tuition fees, etc).

Looking at the charts of DOW, S&P and COMPQ however, it looks like Aug isn’t going to be so bad after all. That said, fundamentals will determine the extent to which these patterns develope as I think they will. Price of oil, the health of the global economy, and the perceived duration of the prevailing financial crisis and housing slump remain the foreground issues - in an atmosphere of uncertainty, any news that imply a deviation from the expected will cause the market to over-react and price to swing wildly.

RUT

The past 2 weeks have seen the Russell 2000 diverging positively from DOW and S&P on several occasions. The small caps are clearing showing resilience in the disorderly market and economy. For the week of Aug 18-22, RUT has reaped the highest gain among the major indices, when DOW lost 0.6% for the week.

As far as this week is concerned, RUT could finish in the positive territory again.

ER2 in the short-term

ER2’s rally since mid July seems to be losing momentum and we are starting to see some sideway moves. A surge in volume on Friday that is accompanied by a drop in open interest tells me that the high of 754.70 reached is probably a result of SHORT COVERING.

Weekly chart (below) shows that it’s possible that we could move up further, but declining open interest is telling of the topping of a trend.

If open interest were to drop drastically from this point on, and price of ER2 were to go down with it, it would mean that those who are in long positions are offsetting them, and ER2 will reverse to its previous downward move. Any chance of ER2 continuing on its current upward trend will depend on open interest stabilizing at the current level of around 570,000.

ER2 today

There’s a bearish divergence for Aug 14 – 15, so there’s a possibility we won’t see a high that’s higher than Fri’s high of 764.61. I’m thinking that we’re likely to trade in the range of 744 to 758 today.

ER2 Weekly

ER2 Daily

An Article a Day for D: Simpler is Simply Better

Pre-Market Analysis Weekly 8/18 - 8/22

(Click on charts to enlarge)

Dow Weekly (refer to Technical Analysis: Dow Monthly & Weekly)

S&P Weekly and COMPQ Weekly

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Performance of Major for the week (Aug 11 – 15)

Possible market-moving factors (for Aug 11 - 15)

1. Oil (fluctuations in oil prices were partly the reason for some of the wild intraday price movements)
2. Financials and housing
3. Retail sector went up by 4.8% (surprisingly, amidst concerns over inflation and the gloomy economy)
4. Airlines (notable gains, which is not surprising given oil’s decline through the week)
5. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market this week:

1. Oil
2. Financials and Housing (foreclosures and declining demand for loans are the foreground)
3. Global economy (Europe, China and other parts of Asia are seeing slower growth, if any and this affects demand for resources. Central banks are not likely to tighten their monetary polices in the face of weak growth. USD will have an advantage for now)
4. Economic reports

Economic Data to be released for this week:

Technical Analysis: DOW Monthly & Weekly

DOW MONTHLY

Looking at the monthly chart, one thing stands out clearly to me: I can see whatever that I want to see.

If I want to see a head and shoulder pattern, it’s there.

If I want to see a bullish flag, it’s there too.

Head and shoulder (HS)

I’m going to expore the HS pattern first.

June and July has closed below the neckline (in green), and that is one of the criteria of a successful formation of a HS.

However, July is a hammer.

Although the rally from May to July is accompanied by increasing volume, which is otherwise indicative of a continuation of the downward move, the last of the 3 candles moving down turns out to be a hammer.

That tells me that the sellers have sold all they want to sell to buyers looking for a bargain. Not a very bullish sign, but there’s a clear support preventing price from plummeting further.

I’m going to go backwards to Jan to take a look at the sentiment when volume'a at the year’s high.

Jan candle is the 3rd from DOW’s record high.

What stands out about Jan is the volume and the length of the lower shadow. By this time, price has come down on 2 consecutive months from DOW's highest point, and the size of the body of the first bearish candle is not very comforting. What’s more, the doji before it suggests short covering (when bears see that price is not continuing to go down, evident from the doji/hanging man on Aug 07) , NOT more euphoric buying.

(So you now have a market that’s at least not optimistic anymore. And if one were to look back at history, he’ll see only small bearish candles at minor pullbacks. The size of Nov 07’s candle suggests anything but a minor correction ahead)

The month that follows (Feb) shows a market that’s undecided: even the bears are not very sure that market has topped. Although price has opened below Jan’s close, the range has dropped substantially. When I look at this candle, then compare it with Feb’s candle, and then check the volume, I see that Jan is where the real fight between bears and bulls happens. By Feb, it seems players are pausing to assess where the market is going.

The 4 months spanning Feb - May seems to be a period of short covering and profit taking (when bears see that price is not going down further). There's clearly no renewed buying interest.

In June, selling picks up again.

In July, I see some buying interest.

When I put everything together, I see a market that wants to continue to go up. Price has at this time retraced to Fib level 61.8.

A hammer at Fib 61.8…hmmm….I have to say, it’s going to take a lot more for people to give up on the market. The set-up is simply not for a reversal YET. Not to below 10,000, and definitely not to 7250 (YIKES!!!).

So, here’s my take: though traditionally a bearish month, what I think we’ll see for Aug is going to be a bullish candle; my conviction further supported by the appearance of a bullish hidden divergence (see my earlier post for more on hidden and classic divergence) for period Mar 07 to July 08.

The divergence suggests that there’s still strength in DOW’s primary trend, which is UP.

Hence, what I’m seeing here is a HS that’s going to fail, which should send DOW up.

Bull Flag

The uptrend is even more pronounced if I were to build my hypothesis on the premise of a bullish flag.

Granted that DOW is currently caught in the downward channel of the flag, volume is declining as the channel develops.

Setting aside the issue of a breakout above the channel for the time being, there’s currently at least still room within the channel for price to move up.

Supported by a hammer, what I see for Aug is clearly a month that’s going to end up in the positive territory.

DOW WEEKLY

What I see is a failed head and shoulder (price break above resistance formed by neckline in green), and the forming of a bearish wedge.

Judging from the volume, what I can say is that the rally is not supported, but it doesn’t tell me that price will not continue to inch up with even lower volume for the week ahead.

I can’t tell from my weekly chart if we’re going to end up with a gain or a loss for the week.

Now, let’s see: I’m bullish for the month, we have 2 more weeks to go, and we are still in bullish region. If this week turns out to be bearish, we could end up with a loss for Aug since we can’t pin our hope on the last week of Aug (generally DOWN).

So, the week of Aug 18 will have to see a gain for a bullish Aug to happen.

But without more information (eg. news), I'm just going to say for now that I'm expecting DOW to trade within the range of 11,500 to 11,900 for Aug 18 - 22.

Rachit

It's been almost a year and a half now since I graduated from the Patterns of Excellence (POE) program run by Adam and his team.

This is THE program that I blame for my transformation.

I used to be cold as ice - and I took a lot of pride in that.

After the program, I became human.

Yikes!!!

So, what triggered this whole walking down the memory lane episode?

My favorite POE coach, Rachit, is the culprit.

Rachit (I like to call him Rush-it, coz I think that's how his name should be pronounced. But Rachit calls himself "Racheat"...) sent out a request for a character reference, and in the process of putting up one for him, memories came flooding back...

Anyway, here you go, Rachit (I'm sorry it's longer than 8 lines...you can't be described in 8 lines, honey. "TRY" 8 volumes of Rachit-the-Rat comics...):

Rachit is a little rascal and a rat.

Yes he is.

He made me cry.

I remember the first day at POE, when everyone was going around hugging and getting to know the others, I managed to hold my stay-away-from-my-intimate-5meter radius- zone stance for a good 2 days, and getting me to put my all into the activities posed a challenge to the coaches. It took Rachit and his wit and charm to open me up. If not for him, I would not have received the full benefit the program had to offer me.

The crying part did a lot of good for me.

I would warn anyone against doing what Rachit did to break my defenses though, unless you're as perceptive, eloquent and compassionate as he is.

Youth can sometimes be a disadvantage; but in Rachit's case, his age would be the last thing you would focus on when you're interacting with him (In any case, Rachit is way too matured for his age. I don't know what made him grow up so fast - life experiences probably had a lot to do with it - and I don't dwell on it too much).

What I will always remember about Rachit is that he was one of the rare few who was not intimidated by my hostility nor discouraged by my apathy. He did what he was there to do: empowering others to find themselves.

And I'm giving him a score of 11 out of 10 for having done an amazing job.

Amare Per Amore

Love.

A verb. A noun. A concept

As a verb and noun, it's nonplussing; as a concept, it's simply crap.

All I know for certain about love as a concept is that it sells - everyone at one point in his/her life buys it.

A friend sent me a beautiful real-life love story about a couple in China who were forced to live in the mountains because their union was not accepted by their community. When they first met, the man was 19, and the woman was 29 and widowed. 50 years on, the man died, leaving behind his love, and the stone steps up the mountains that he had spent decades hand-carving for her. For the 50 years that they were together, they've never been apart, not even for a day. Many were so moved by the story they visited the cave that this couple had spent almost their entire life in.

It's difficult for me to overlook the one point that stands out so sorely in the story that explains why they stuck with each other: they were, literally, STUCK WITH EACH OTHER.

But before I go into that, the other thing that baffles me are the 6000 stairs that the man had painstakingly built for his love, who had never needed them in the first place - she never came down the mountains.

What I know is that it definitely is a demonstration of love. Whether it's done out of love, I know that I'll never find out.

I got to thinking about this: when it comes to love, is it a must to act?

Can we just love, and not take any action until such time that it's needed?

I know that I love someone when I respond immediately to the person's call for help. If I can drop everything without hesitation to attend to someone, I know that I must love this person.

Coming back to the story of the couple.

I told D that circumstance was what had been bounding them together. They were technically on the run - in the eyes of their society at least, their being together was more than a taboo.

So here we have a man and a woman, confined to their cave, and have only each other for company...

Had the same couple been placed in our society - let's say, the woman to work for a certain MNC, and the man to work for another...

How would that change their story?

Would their live still be simple and uneventful?

Would their bonding still be as strong?

Would the man not cast a lustful glance at his attractive female colleagues? Would the lady not fall for the suave executives in her department?

Would they not start sharing dreams and hopes and secrets with other people rather than with each other?

Would they not be tempted at some point to ponder on whether they've gotten the best deal? Would they not start to feel like they deserve someone better, someone who actually understands and cares for them, someone who doesn't pick on everything that they do and say and think?

Simply put, when not isolated, or more aptly, insulated, from the real world, would they still be able to love each other forever?

I have never wanted to believe that love is something you FALL INTO. To say that you've fallen in love is to say you've no idea what you've done. That effectively remove the word "responsibility" and "commitment" from the picture.

To me, love is something you have to consciously and willingly, and perhaps even rationally, give to a candidate of your own choice. And once you've taken your pick, you stick with him through thick and thin, and you go wherever he goes. If you ever have to live apart because of work, and if ambition gets in the way, then do whatever it takes to remind yourself who the priority in your life is. Not what, but WHO.

Because love is not an ideology.

Love is a living human being.

If you can't commit, DON'T ever love.

"The journey to Truth and Light must first cross the ocean within." Something that Ai Mei sent me days ago that has kept me dwelling on what"crossing the ocean within" means.

It's beginning to dawn on me that it means fighting the devil within me.

To love someone, a vow to stick around is not enough. On top of that, you have to stop expecting.

That, I suppose, is what love is about ie. to be with someone without expecting to get anything - happiness, in particular - back in return.

If you really love someone, you'll find happiness within, no matter what.

Anyway, it's quite impossible to know you're miserable when your focus is directed away from yourself.

:-D

No Trading Tonight

No trading for me tonight.

D can use a nice, long massage session.

He needs cheering up :-D

And I need to step away from my workstation.

ER2's lifelessness is driving me crazy.

Pre-Market Analysis (ER2) 8/15

(Click charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices:

Possible market-moving factors (for Aug 14)

1. Oil
2. Financials (investors scooping up what they perceived as bargains)
3. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market today:

1. Oil, OIL, OIL!!! (It’s still falling)
2. Financials
3. Yesterday’s market rebound
4. Anything else under the sun that behaves abnormally (for instance, I COULD – if I choose to - think it’s ominous if price of oil were to plunge to $99 a barrel…)

Economic Data to be released today:

_______________________________________________________________

Russell 2000 (E-Mini)

ER2 has been on an uptrend since mid July, and price is now nearing Jun 5’s close of $764.

Open interest has been moderate though…when compared to what was seen before mid July, open interest has definitely been lower throughout the current rally.

This is indicative of a weak market. But weak or not, price is going up, and that’s the fact. So, unless there’s any sign of market topping, I’m going to stay on the side of the bulls.

That said, for someone who’s more comfortable shorting than longing (pun TOTALLY INTENDED!), I’m definitely waiting for volume and open interest to spike,and priceER2 to drop from its top.

And I think it’s going to happen sooner than later (vulnerable market with price crawling and inching its way up…really reminds me of yesterday’s painfully sluggish session).

When that happens, it should send ER2 plunging.

When are the summer vacationers coming home to play??

ER2 Daily and ER2 5min

At 0615 EST

An Article a Day for D: Price Analysis – A Top-Down Approach

My Trading Journal & D II

D likes the new format for my pre-market analysis; I don't.

So, I'm going to continue to do my monthly and weekly analysis this way, while my daily analysis will stay the way that's more suited to D's taste.