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Patience, Earnings Season Begins- Oct 12, 2021


MARKET OUTLOOK
MIXED POTENTIAL SIDEWAYS FORMATION CONTINUES with traders testing support and resistance of consequence for several days. Earnings releases begin. Most indices are still in a gap -retracing an area of downward motion from Oct 6. Being in a wide sideways formation means that we will have moves up that run sharply and moves down that run sharply- both reversing back into the slog. Follow the trend RELATIVE TO YOUR DESIRED TIME FRAME.

  • Charts are above the 5sma daily candles and below monthly and weekly candles in this recovery bounce into resistance
  • ES_F Support hold steady so far at 4260, with higher support now at 4355 (broken last night and recovering now)
  • ES_F Resistance levels above are 4421-4464
  • Traders are mixed in terms of strength with the Nasdaq giving us a dip lower (not an inside week like the SPX, ES, YM and the RTY. This is foreboding for tech in the near term
  • Week before last gave us an outside candle formation – last week , an inside candle -result => wait state
  • As resistance holds and support continues to be broken, keep your stops tight on the edges while trading the ranges

TRADING NOTES –

*START WITH BIG TIME FRAMES TO FIND THE LEVELS THAT GIVE YOU AN EDGE (our levels)

*GO TO SMALL TIME FRAMES TO FIND STABILITY IN PRICE – use the counting approach with the candles, or the breach and retest of recovery levels

*LET THE PRICE TELL YOU THAT IT IS NOT GOING LOWER IF YOU WANT TO TAKE A LONG TRADE OR LET THE CHART TELL YOU IT IS NOT HEADING HIGHER IF YOU WANT TO TAKE A SHORT TRADE

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Econoday’s Week Ahead

Observations

  • Monetary policy, fiscal uncertainty – debt ceiling patchwork until December, 2021
  • Dollar holding 94
  • JPM shows the highest short treasuries on their books since 2016 (not sure this is a good bet in the near term but perhaps the far term- which might be a piece that is missing – we do not know the term they are short)
  • Energy markets faded into initial breakout levels
  • Supply chain issues creating the bottlenecks and driving inflation still
  • Copper bounces between 3.90 to 4.36 but looking like a breakout today
  • Soft commodities mixed – support tests across the board but holding the latest region of support
  • Gold now holding 1750 but every bounce is still being sold – losing this edge show likely moves from 1725, 1707, and 1684
  • Bitcoin in huge bounce over 50K and continues to run hot into its old high- likely running on the debt ceiling thoughts and thoughts of the eventual breakdown of the dollar in the face of the debt ceiling limit being raised

KEEP WATCH __When we see news about the bond markets, we need to keep on high alert. And there is quite a bit of news here in the current news cycles, and traders are very mixed in what they think is ahead in the macro landscape. Remember that credit rules the world; however, the media shapes the narrative of what is happening, so pay attention to price action first- not what the media is painting.

THE POWER OF THE OODA LOOP AND ASKING QUESTIONS ABOUT THE ENVIRONMENT BEFORE WE ENGAGE

If you are newer, read The OODA loop. If used properly, it will confirm you are seeing things the right way. It is far better to be out of a trade you wish you were in than being in a trade you wish you were not. Stay present and in the near term and pay attention to the players before you decide on a plan. BE PATIENT AND WAIT FOR YOUR PRICES to give you the edge. Intraday formations are the ones governing the charts – so use them.

Remember your OODA loop – OBSERVE, ORIENT, DECIDE, ACT

  • What do you see?
    • This means -is my trend in continuation or do I see signs of a reversal motion?
  • Where were the buyers last engaged if they were value buyers?
    • This means -is my price action far from the last region that value buyers engaged or it is in that congestion?
  • Where were the sellers last engaged if they were value sellers?
    • This means -is my price action far from the last region that value sellers engaged or it is in that congestion?
  • Who won the last strategic price battle- buyers or sellers? This answers the big question of trend
  • Have we tested significant levels of support or resistance? This answers the question of whether we are near a critical pivot
  • What is the relative trend?
    • This means – relative to the day at hand, who is forcing the most pressure on price? Look at your moving averages to tell you this
  • Have you established risk relative to-
    • 1) the last battle won and
    • 2) the relative trend? This answers the question of how far you are away from strong support or strong resistance

PAY ATTENTION TO YOUR STOPS.

Let the VWAP help you with the strength of pressure. The loss of the VWAP will force some selling action, and the breach above the VWAP that holds will bring buyers to attempt stronger positioning.

INTRADAY -Keep an eye on the daily resistance and support that we discussed and expect battles at these regions as buyers have a lot to prove to maintain bullish price flow on monthly formations- technical damage is present but likely to be repaired on this larger timeframe. BIG time frames will help you position with the wind at your back.

Deep dips remain staging grounds for buyers- quick strikes to support and back to resistance appear to be the highest probability for success today- dips could certainly get deeper and spikes could get higher as price action shifts.

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********If you feel you need some help understanding how price moves, remember you have the COACH’S CORNER for video review.

Here are the TOS links for the charts

ES_F , NQ_F , YM_F , CL_F , GC_F

LINK FOR THE TRADING DATA EXCEL SPREADSHEET

Video to describe how to read the spreadsheet

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TRADING LEVELS

If you find yourself being chopped up, widen your time frame or take time away from your screens. This is a time when less is more.

TRADING VIEW & ACTION PLAN
Pullbacks can be deep-once support lines get lost – the lines will shift. Buyers have resumed some dominance.

Intraday LONG trading from support edges noted on our charts or watching the combination of closes above your tight moving averages and your favored momentum indicator shifts positive – this will give you the least risk event for engaging – removing your trade at resistance will allow you to participate in level-to-level trading – understanding that countertrend bounces can be swift and sharp but will likely fail under the broken structure of the market.

Intraday SHORT trading from resistance edges noted on our charts or watching the combination of closes below your favorite tight moving averages and your favored momentum indicator shifts negative. This will give you the least risk event for engaging. Follow the candle trend until candles stop breaking lower. Removing your trade at visible support levels will allow you to participate in level-to-level trading – understanding that countertrend bounces can be swift and sharp but will likely fail under the broken structure of the market. This means that your trades in the opposite direction of trade flow will need to be quick

Here’s a link to the METASTOCK software– you can have your own copy of Metastock to run these tests and setups using Target Rich Trades.

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