Technical Picture - Bullish

The SPX chart above shows that since the new year started, we've broken out of the mean reverting pattern we were in over the past few months. The two fib patterns show two ambush setups. The second smaller ambush reached its 23.6% Fib extension target, and now we are moving towards the larger target - 1344.

The 15 minute SPY chart below, shows three ambush setups. The first two were traditional low to high Fib setups which involved some gap filling. The second Fib ambush blew past the 23.6% target, so now the third fib (red) is an extension from previous high to high. The ambush traded on Friday. If we blow past the 23.6 FE, we'll have to draw new Fibs from Friday's high to the next high, if not, we'll use the same anchor and stretch the Fibs and wait for the next ambush.

In the event that the Fib. extensions fail, we'll have a much deeper pullback, probably all the way, half way back from the base of the blue Fib. pattern on the SPX daily chart.

NR7 - Market Test Your Scan with OddsMaker

We've been in a mean reverting market for almost a year and long breakouts are few and far between. Long setups that worked well in 2009 and 2010 had little chance of success last year. If that sounds familiar, you need to refine your trade setups to the reality of the current market environment.

One of my favorite setups is the 15 minute NR7 which reflects price/volume contraction ahead of expansion. I like to trade NR7 with stocks showing intraday momentum. NR7 is a great trading strategy to deploy during earnings season. Earnings gaps offer good trading opportunities but we don't want to chase. Wait for NR7 and catch the next leg with low risk.

Using Trade-Ideas Pro Scanner 3.1 in conjunction with OddsMaker, I am able to market test under current conditions and refine my NR7 scan to generate a winning strategy.

As depicted below, my scan generates a 27.7% win ratio. That may not sound like a lot, but since I use a tight stop, losses are small and winners generate good income over a short period of time. The OddsMaker quickly market tests my NR7 scan and provides summary and detailed results of the strategy over the selected number of days of back testing. In this sample, I used 500 share size for all trades and after 15 days it generated $4,000.00. Even if we reduce the maximum number of trades possible on any given day, the results are still impressive, given that my testing assumes that all trades are closed after a $1.00 profit is attained.



My NR7 scan starts with a preview of stocks gapping up in pre-market and then alerts me of NR7 stocks that meet the criteria in real time as depicted below. If you want the exact configuration of this scan click here.

A couple of sample NR7 trades are CROX on Jan. 11 and SINA on Jan. 12.




Identify a trading strategy that works well under current market conditions and then let OddsMaker back test and crunch the numbers. All you have to do is refine the scan and trading rules to enhance the results and make the strategy manageable.

For more info check out the Trade-Ideas blog.

Technical Picture - Failed Breakout

The S&P had its worst day since the Oct. 4th reversal, but still managed the best October performance in 20 years. Confidence in the euro was lost as it appears to be making a U-turn at the top of the ambush zone as depicted in the chart above. The euro dove more than 2% against the greenback. The yen was an even worse as it tumbled more than 3% after Japan's officials intervened in the currency in an effort to curb its strength after it had set a post-WWII record high last week.

ES futures have extended losses after hours. FOMC minutes on Wednesday afternoon and jobs data on Friday will set the stage for November.

Gap Momentum with NR7 - FEIC

High volume gapping stocks offer good trading opps if you can sit on your hands until a good setup presents itself.

There were two trading opps for FEIC on Friday.

1. Fib retracement long - red fib lines where you should target the 23.6% FE. I missed it. After coming within 10 cents of the FE, price consolidated in an increasingly narrow range, which we identify as coiling ahead of the next leg up.
2. Within the coil, we spot the NR7 bar and place a long entry, using a few cents below the low of the NR7 as the stop.

Related post - NR7

Technical Picture - Ambush Fails, Bulls Own It

News of the EU debt resolution sparked a huge rally as depicted on the ES emini chart above. The ambush zone was broken and we expect this rally to continue to through to the end of the year.

On the SPY weekly chart below we are targeting the $148-149 level which represents an extension of 23.6%. All future fib pullbacks will be measured from highs to highs where August high is the base, until the pattern fails.



We saw some profit taking into the close on Thursday. Buyers stepped in half way back of the US trading hours price levels. Then we traded all the way half way back short, and held within that range overnight Thursday and all day Friday. Short-term, we don't expect wide price expansion ahead of Friday's jobs data, notwithstanding a catalyst. In the meantime our trading is guided by the 15 min. Fib. levels.

Friday's daily bar is narrow, in the upper range of Thursday's WRB which is bullish. A few more upper inside bars would lead to a coil.

Technical Picture - Ambush

As depicted on the daily ES emini futures chart above, the bears ambushed the bulls at the cusp of the ambush zone ( 50-61.8% Fib. retracement) and carved out a reversal bar.

On the 15 minute chart below, we see that in pre-market, price printed new highs, but failed to hold, leading to failed BO and swoon back to former resistance just as the US markets opened. The first test of support was a buy and we traded half way back to the 15 min. ambush zone. This is where the algos a programmed to short once a trend is broken. This level was tested twice and the algos defended both times.

Basically, we carved out a symmetrical continuation triangle and support gave way into the close.

The short squeeze off of the Oct. 4th lows was getting long in the tooth. We were overbought and needed to correct. If the bears can push prices below last week's congestion area, we will likely trade half way back to the October lows.

Technical Picture - Short Squeeze

Yesterday's the bears ambushed, controlling the entire session and carved out a bearish reversal bar. Today, the bulls countered and completely offset yesterday's action. It's clear that most of yesterday's participants were squeezed out of the their short positions today. The only curious thing today, was that the ES came within 1 point (4 ticks) of yesterday's high and stalled. The bulls couldn't finish the job and close above range highs (white line segment in chart above).

We are at a critical level. If we retest highs tomorrow, watch for confirmation of all major markets. For example, if ES breaks out, but isn't confirmed by NQ, YM, and TF, it will be suspect and the bears will jump back in.