I just finished the slides for today’s webinar on Tops & Bottoms. There are 60 slides covering how to read a top and how to read a bottom. I think you will like them. We will have a thorough discussion on market tops and bottoms, including the all important structural characteristics, how markets behave in these locations, entries, use of the Weis Wave, bar-by-bar reading of tops and bottoms, recent major tops and bottoms, and much more.
Join us tonight at 5:00 Eastern time (New York time zone). We will run about two hours, maybe a little more. Everything will be recorded. Come learn how to read the next top or bottom by clicking on this link: Tops & Bottoms
Trading losses are tough to handle for many traders. Not only do many try hard to avoid them, we may even try hard to avoid thinking about them! In my article published on TraderPlanet.com, I explain why not thinking about our losses is a poor psychological play. You can read the article at the link that follows. Below the article there is a section where you can make comments and add to the discussion. Here’s the link:
Accept Your Losses and Be A Better Trader
Yesterday, resistance was identified in the area of 1965 — 1970. Today, the market stopped it’s upward movement at 1968.25.
Today–marked A on the chart–was an up day. Although it was up, it also traded inside the range of the previous day. We had good volume, but the market remained largely range-bound. We could be seeing the market accumulating around support as we have seen on several previous swift dips down. That is entirely possible. We could also be seeing the start of a larger pullback. Frankly, it is difficult to tell. There certainly has been some weakness, but we are also sitting on top of support, holding that support, and in an overall strong uptrend.
The key level to me is the 1970–1975 area. I’ve highlighted this area with a small red rectangle. For tomorrow, I would expect continued follow through to the upside from today’s action. Nonetheless, the area around 1970–75 is likely to be difficult for the market to overcome. Watch this area carefully, especially if price reaches this level early tomorrow morning (US session) assuming the market goes up there. Pushing through this area will indicate the buyers remain in control. Failure at this point will indicate sellers want to try for another push down.
Should the market pull back overnight (Asian & European sessions) or during the US session, pay attention to the 1965 to 1960 area. We can see intraday support develop in here. Pushing below this level indicates selling has resumed. Holding this area (again, if it comes down to here) suggests buyers are acting on their convictions and higher prices are likely.
I showed Daily Chart 1 of the S&P e-mini futures in a free webinar held by TradeGuider yesterday (Monday) morning. You can see that Monday’s bar C was still in progress. We noted that we were likely creating a top and could expect at least a modest pullback. Here was the rationale:
The daily chart had reached the Weekly Supply Line (red trend line) on Thursday last week (B). We noted that the volume had lessened considerably at B indicating lack of buying on the highs and that this was the last day preceding the Fourth of July holiday, which is typically a bullish week. Earlier on Tuesday at A, the market broke above the 1960 resistance level on good volume, but the close and the sustained volume gave the telltale sign of selling into the rally. This added to the story of a potential pullback. At the time of the webinar, we discussed a move down towards 1964, if the market could push below 1971.75.
Later that night in a make-up session for the weekly Deep Practice group, we discussed the S&Ps and the next likely move in Daily Chart 2. I added a little more detail.
We noted that supply clearly came into the market as seen by the poor close and increased downside volume at C. We discussed how the next day or two would likely see a run down into the 1960 to 1954 area. This is highlighted by the large rectangle. Because of the close under the top of A on Monday, the odds of much of a rally the next day (today) were low, and the small rectangle highlighted the area where we would look for any rally up to die out. The short term daily trend channel was also added, giving us an initial target for the reaction.
You can see the result in today’s (D) price action.
Although today stopped at the anticipated support level, some damage has been done to this market. Any rally up tomorrow is likely to have difficulty between 1965 and 1970. If the market shows some unexpected resilience and is able to get above that level, stiff resistance will be met around 1975. Because we have had two days down in a row and today had heavy selling, support is likely to come in a little lower, around the 1950 level. Should the market want to sell off again tomorrow, and push through 1950 decisively, it could easily slide down to the 1940–35 area.
Understanding tops like this (and bottoms, too) is the subject of a new webinar we will be holding on July 22nd. Learn how to read tops & bottoms and dramatically improve your trading. You can learn more about the webinar—including the current discount offer—by clicking on the Trading Tops & Bottoms button at the upper left of the website or here:
Trade Tops & Bottoms
Happy Fourth of July everyone!
Helen and I wish everyone a wonderful and safe holiday weekend.
For readers who may not know, the Fourth is our national holiday celebrating our adoption of the Declaration of Independence from Great Britain. This occurred in 1776. We actually severed ties from England two days earlier, on July 2, 1776. On the 4th, our government adopted the Declaration of Independence, which explains why we separated. The Declaration is one of my country’s most important and meaningful documents, next to the Constitution. It was the actions behind the Declaration that created this country and all of its ideals.
Today, the Fourth of July also marks the beginning of summer in the US. Many families take off for he beach or mountains, enjoy picnics, hot dogs, etc. Lots of fun and a nice way to celebrate our country’s founding. Have a great Fourth!
I was interviewed recently by Kira Brecht on the topic of Brain Freeze. Kira was acting as a free-lance journalist for this article, but is also the Editor of TraderPlanet.com and a very good writer.
“Brain Freeze” isn’t a technical term, and it’s not what kids get when eating ice cream too fast–it’s what some describe as becoming immobilized by fear. It’s actually a part of our genetic coding and forms a portion of the fight-flight response. (Scientists view the full response as the fight-flight-freeze response.) The freeze is easily seen in prey animals who have been captured by a predator (say a gazelle and a lion), who freeze and appear dead causing the predator to lose interest and walk away. Moments later the gazelle stands up, shakes herself off, and runs away. It’s a last-ditch effort at survival used when fleeing or fighting have failed. Think of playing dead if confronted by a bear.
Traders mean something different than an adaptable survival response when they refer to brain freeze. Perhaps the best example is a trader deeply underwater as the market swiftly falls. Rather than being able to close the position, the person freezes, unable to act–not very adaptive. This is discussed in the article and at the end, I give a few suggestions on how to release oneself from being frozen.
The article is in TD Ameritrade’s Ticker Tape Monthly and can be read here:
Fed Day trading almost always involves contraction of volatility in the morning session and expansion of volatility right around the announcement. Often, like today, the pick-up in volatility will trigger an afternoon trend.
In yesterday’s post, I highlighted my take on key resistance and support for today’s trading. These are outlined in boxes on the 3,000 tick chart. We see volatility contract through the Asian and European sessions, and shortly after the US open a small upthrust triggered in the resistance area. This brought price below yesterday’s high and signaled a down morning session. Later, at the Fed announcement, we get a nice spring off the morning low where support was anticipated. This propelled the market into new highs.
Yesterday, we looked at the three major markets (SPY, QQQ, DIA). They were helpful today during the Fed announcement. Note that only the Qs–identified as relatively weak yesterday–was the only market to fall below yesterday’s lows. The S&Ps and Dow held higher. This indicated that the spring was a good one and odds favored an up afternoon.
The market is clearly bullish. Weakness seen the rally of the last few days has been erased by today’s action. Any dip down tomorrow morning into the 1940 area would likely set up a buy opportunity.
When we look across the three major US stock market indices, the best we can say is, So far, it’s been a pretty weak rally.
Last Monday (June 9), all three markets made new highs. As the week progressed, the Nasdaq (as represented by the QQQ ETF) tried to hold onto the newly gotten gains, but the Dow (DIA) and the S&Ps (SPY) gave them up. You can see this at the area marked A. The Qs had relative strength.
On Thursday (June 12), all three markets saw selling come in. The Naz remained relatively strong, however, as the S&Ps and Dow had larger moves down. Bigger cap stocks got hit.
Now we see — thus far — a pretty weak rally. Notice the Naz. It is now weaker than the other two markets, closing under Monday’s high. Both the S&P and Dow managed to close above yesterday’s high. Although the markets may suddenly gain life and rally higher, usually when a relative strength leader turns weak it isn’t a good sign.
Tomorrow, for the S&P futures (ES), watch the 1935–40 area to present weakness. Inability to hold today’s high (1935.75 — N.B.: this isn’t quite in as the futures haven’t shifted to the next day yet, but this should be close) tomorrow will indicate a down morning (US morning session). In other words, watch for an upthrust of yesterday’s high tomorrow. Support is likely to manifest around 1927–30, which could be a good buy area, with stronger support a little lower down around 1920–15.
In yesterday’s post, I noted that there was less volume and less range on Friday, indicating that buyers were becoming tired and to be aware of a potential intraday reversal. Support was identified in the 1940–45 area and resistance could see the market lose steam around 1955–60.
Lows were made first today when the market pulled back on low volume into 1946. Minutes before the US Open, the market had a spring (A) at anticipated support that propelled a nice rally to the day’s high of 1954.75 (B). It was at that point where intraday resistance coincided with higher time frame resistance causing the market to reverse and retrace all it’s gains for the day. Not bad for a Monday.
I was asked whether Fibonacci projections were used to estimate support and resistance. There are no Fib, pivot point or other calculations used in my analysis. Support and resistance are based on market structure, nothing else. Market structure is taught in Chart Reading Mastery.
Summer Sale of Video Tutorials
Helen has extended the 20% discount on all our video tutorials. We will put up a separate post about this later in the week, but you can get a head start by using the code May20 at checkout for the 20% discount on any of the video tutorials, including Chart Reading Mastery.
The market–as represented by the S&P e-mini futures–has certainly been bullish. We have had a run of several up days or near up days in a row. The market structure has been conducive to a bull run and the run has been impressive. At some point, however, the current rally will end and we will see a pullback of some degree.
What Will Turn This Market
While I don’t try to pick tops, I do pay attention to the condition of the supply and demand in the market and note the areas within the structure where the market may turn. If and when the market reaches those area, I am alert to the market changing its recent behavior. I am also alert to the market not being willing to change its behavior at these points–that is important information, too.
The last two days have been very bullish, but we saw less volume and less range on Friday, potentially indicating that the buyers are tiring. Longer term supply lines on the weekly exist just overhead. We may see the market lose steam up here. For Monday, watch the 1955 to 1960 level as potential resistance. Any pullback is likely to find support coming in around the 1945 — 1940 level.
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All of our video tutorials are discounted by 20%. You can save a nice amount by using the code: May20 at checkout.