What’s the Right Trade
In our first What’s the Right Trade, we had a large number of responses. That’s terrific. Many traders had good rationale for making their trading decision, as they saw it, and several wrote in afterwards saying that they learned from the exercise. Traders asked that we keep doing What’s the Right Trade, so we will.
Here is this week’s What’s the Right Trade? This time, we are looking at the intraday S&P eminis–my favorite trading market. Decide whether you want to be a buyer, seller or need more information at the decision point in the video. Be sure to say why this is your decision. Have fun with this, and we’ll post the answer in a few days.
Hi Gary
From what I’m seeing, we have had a break down through the demand line of the longer term uptrend on increased wave volume. This has also put us in an oversold position of the shorter term down trend made by connecting the high and lower high. We also see shortening of the thrust little progress to the downside on the recent downdraft despite the large wave volume. The last bar has now come up against support/resistance taken across from the preceding low. Personally I would be waiting now to see if that resistance is taken out and what kind of volume comes if we get a rally, This may present a shorting opportunity if the rally is weak and we get a low volume test of the previous lower high or near the demand line of the broken longer term channel. I can’t see a long position here unless price broke above 1975 and then came back to test it. I’d want to see higher highs and higher lows before I went long again.
Peter,
I like the process you are using to read the market. Good work. Something all readers can learn from is your last few statements. Not only are you developing a scenario or story about what the market is doing, you also have analyzed where you would be wrong and what the market will be doing to show you your initial analysis is incorrect. Nice work!
Thanks Gary, this is a great idea putting these up and I’ll be sure to share the links to them on my blog and face book as well.
Regards
Peter
Thanks, Peter. I appreciate it.
Hi,
I will prefer to wait for further information before initiating a short trade. Following are the reasons:
Background
1) price was in uptrend. there was an uptrend channel drawn by taking low around 1950 the lowest point on the chart and new higher low around 1953 and intervening higher high around 1955-56.
2) wave volume was increasing on up waves and decreasing on down waves (barring between 11:15 to 11:45 approx) where down wave volume suddenly increased but on such high down wave volume price didn’t move down much indicating buying happened on down wave during tht time).
3) around 12:10-15 price got OB with highest up wave volume. after this price kept grinding in the OB zone and not able to reach to demand line of an uptrend channel.Also there was shorting of thrust. Another imp point for me is wave volume is not increasing on an up wave as price hitting new highs. the sum total of these indicates distribution may be happening in the grinding (between 12:22 to 13:15 approx).
4) from the over bought zone around 1975 price came down to demand line of uptrend channel. on each successive down waves, down wave volume was decreasing (2-3-4 down waves from left to right). This indicating supply is decreasing and as price hit the demand line there was a spring indicating an up move may happen (lets call it an A).
B) immediate background
1) price moved up from A but weak bars were there closing in the middle and near its low indicating weakness.
2) there was a “shall hunter tragedy” around 1975. With weakness in the back ground and no strong move after spring and “shall hunter tragedy”, price looking very weak on the upside.
3) 6th bar from left to right broke down the demand line of an uptrend channel thus change in behavior. It was a wide spread down bar closing near its low, sign of weakness.
4) 5th bar broke below the last higher low (spring at A) more weakness.
C) Present
1) As price hit 1965 down wave volume is the highest as compare to any other down wave volume. this indicates serious weakness with change in trend on the down side.
2) 3rd bar from left to right is a test like a bar with price being oversold indicating sideways or reaction.
3) we can draw down trend channel by taking the highest high around 1977 and next lower high around 1975 and point A lower low. Price is also oversold in down trend channel.
D) Line of action
With trend being down and price currently in oversold zone wait for either a lateral move or a reaction/low volume up wave. Look for short with upthrust/no demand at resistance either at demand line of previous uptrend channel or at point A (support becoming resistance) or at supply line of an uptrend channel Best would be confluence of these resistance zones when price reach them.
Regards,
Nitin
Good analysis, Nitin. Nice observation on the volume between 11:00 and 11:50 or so. Heavy down volume with not much progress would indicate buyers are buying into the selling and holding the market up. Distribution may or may not have been happening as the market rose to 1978, but there certainly was no demand, even though it was the noon hour. What about horizontal trend lines?
11:00 high of 1965 is a point from which horizontal trend line can be drawn and price has just penetrated it a little bit. bounce may happen from here.But with trend down there is high probability tht it will resisted around one of the trend line or confluence of them.
Thank you Dr Dayton, this one really got me thinking!! I really enjoy this new blog.
We were in an uptrend, making HH & HL. We have a demand line that has been respected, and now its broken, therefore in an oversold condtion. Along with this break we have taken a out minor support. As we break the demand line, price bars expand in spread, volume increases, closing on the low, this makes a LL, or a NML. As momentum precedes price we would expect futher prices to the downside
We have support from a previous resistance line at 1965 area (could be an axis line, its been well respected, alot of activity has taken place at this level) along with support at 1965 from a demand line (drawn from the 13.36 low to the current low), this is therefore a confuence area, the market did respond to this as its stopped the last downmove.
In wave terms (my own drawn) the last three waves from the high of the chart show a potential change in behaviour. The last 2 downwaves are both larger than the last upwave, this is the first time this has occurred in this uptrend.
We have now put in a LH and a LL (from the last downwave) First time this has occured in the uptrend , another potential COB. We do appear to be rounding over, little progress being made another SOW, SOT.
Also worth mentioning is the upwave from 12.22 -1254 area, although it makes progress, its very lackluster (noted it is lunchtime)
Looking at the nature of the pullbacks throughout this trend they have usually ended as a 2/bar reversal this shows strength, however in the last downwave, the bars at the bottom, appear to be struggling.
The last downwave does have the largest volume, but is it a case of effort vs result? It doesnt appear climatic, for sure there is stopping volume, buying is occurring here, but we would expect that due to the confluence area.
I am not 100%, but I have 3 trades for the following scenarios
a) The LH put in at 1975, if price were to rally here on low volume, print an upthrust, I would short, alternatively, if it rallied strong broke 1975, and had a low volume pullback to the demand line I would long
b) A weak rally to ice or demand line, perhaps print an upthrust (for an added SOW) or no demand. Then/or a break of the 1965 level. I would short a close under this level. This would be my preferred course of action, risk reward is better than A.
Will,
Glad this got you thinking. Oversold conditions typically occur when the lower trend line in a downtrend is broken. Think a little more about the low volume followed by high volume.
Yes of course, thanks for acknowledging my oversold conditions 🙂
Trying hard to think about the low volume , followed by high volume.
I can only think of these potential volume discrepancies
a) the two down waves (either side of 11:22), compare these to the two up waves (either side of 12.00), it appears the up waves show ease of movement, as they have made more gains with less volume. This would indicate that buying maybe present during the down waves.
b) the lunchtime grind up on low volume, there were 16 bars that closed firmly, and 7 that closed on the lows. It definitely shows a no demand rally, is that due to the lack of supply rather than buying? I’m not sure
c) the up wave at 2;03, is the largest since noon, it gains 5 points which shows ease of movement, compared to that of the largest wave on the chart, (downwave) declined 10 points with 2.5x the amount of volume. This could be due to absorbtion. If that were the case I would like to see the strength of the next up wave.
Regarding b): We wouldn’t be sure until we see the price and especially volume action after the noon hour. This is where supply is entering and confirms the no demand. Typically, no demand or no supply during the noon hour in the S&Ps is normal. Everyone is out to lunch, so volume and volatility contract. We would expect to see the morning trend then continue once traders come back from lunch. This doesn’t happen here, which gives us important information about what the market’s likely next move will be going into the US afternoon session.
Thank you for the feedback.
I have just read Dean’s analysis, which is very good and insightful, its pointed out another great feature of this blog, you can view the market from different perspectives.
Dean noticed the minor pullback (last bar on the chart), the weakness of the close and lack of volume, I think this is a vital component for the story, which I missed. The feather tipping the scales and all that 🙂
This is a chart to short
Yes. I agree. One of the distinct values of doing this What’s the Right Trade is to see how others approach the market and learn from them. Dean has been in Deep Practice for some time and has developed excellent skills. No one is always right all the time, of course, but his analysis is one to read.
Love what you are doing here Dr Gary
What I see is it had broken the uptrend channel, has fallen through the ice on heavy wave volume and has made a LlH and LL.
So I would wait for it to back up to the creek at the around the 1970 range where I see an axis line and short on a SOW
George,
Glad you like this. Nice analysis.
Hi Gary,
The uptrend weakened at the top of the trend as price rolled over. There is shortening of the thrust in price bars and waves, with demand volume dropping off during the noon session.
Supply dominates the last quarter of the chart. The down waves are more dominant over the upwaves and down bars are larger in spread (EOM) and close weak. Upbars close off the highs and are smaller spreads. Flow has changed and is now bearish.
The last down wave broke ice at 1970 on volume and with EOM, forms a down trend with a LL. The LH in this down trend couldn’t get up to the day’s high showing demand is now weak.
The last bar flips the weiss wave with very low volume, and closes poor. I think price will move lower with a test of ice but may not even get up there so I’d be ready to short on a reversal bar or trail a sell stop on the lows of the prior bar.
First target is 1959 and I’d look to hold thru this level by noting price bar action and volume.
Dean.
Excellent, Dean. Your thinking is spot on.
Hi, Gary
My reasons to take the long trade are:
1. Time of day is afternoon, afternoon reversal are low probability.
2 Trend is up,
3 there is a clear ABC corrective wave pattern
4 There is spring set up
5 Market is testing the Morning high
6 Last down wave in a climactic form
7 If Market takes the last bar high ,I will be long and put my stop 2 point below the 1965
Murat Mogulkoc
Hi Murat,
Good to see you! You are right, reversals typically occur in the morning, not in the afternoon. This volume is less likely to be climactic. Usually, there will be a bar or two of higher volume in a corrective A-B-C, indicating a minor climax, but this wave volume is pretty large and it occurs after no demand. Also, we have resistance overhead. Any long taken on a break of the last high has to drive up above resistance decisively; otherwise, it’s a signal to exit.
Hi Dr Gary,
I thinks the odds favour the market going down. My stop would be above the ice-line and enter now.
Why?
1) The top of the uptrend line was broken after price hugged it during very choppy action and without much upward gains.
2) Then price pulled back to just below 1970 which is approximately half way between the last major low and the high at 1978. From there you would expect price to move up and break the high (if normal pullback) but it made a LH on much smaller volume than has occurred in the past.
3) The demand line of the uptrend was then broken by a big candle closing on the low, and the support line below (below 1970) was broken by a similar candle. This showed ease of movement and resulted in there now been a LL and LH.
4) The volume on this down move was the highest volume on a down move visible on the chart (sellers in control).
5) I drew a reverse trend line on the down move which had price stopping nicely at the oversold line. Price then closed approximately in the same area for 3 candles maybe as stops were hit (buyers had to sell) and new buyers bought (? ABC pattern).
6) On the last candle, price then retraced up to test the break down level. It closed in the middle again on what appears to be very low volume. This probably shows there was little demand and supply easily overcame it?
Hence price is most likely to go down from here or maybe have another try at testing the resistance level before dropping.
Good work, Richard. I like how you are applying some of the concepts you learned in Point & Figure Charting to this bar chart. Nice work!
The first thing I notice is the uptrend line has been broken in much higher down volume than has occurred anywhere in the previous uptrend, The closes on the down bars are initially at the bottom of the ranges with decent spreads. We have also put in a lower high and probably a lower low depending on how you look at it. The last bar we see a poor close on an up move with no real effort to move up. I think I would anticipate going short on the next upthrust below the recent high if one occurs.
Craig,
Anytime the market breaks a trend line and follows this with significant volume in the opposite direction it’s time to sit up and take notice. A good trade is usually not far off.
Hi Gary,
the situation is bearish to me: break of reverse trend line and sign of weakness, also the market is already making lower highs and lower lows. However, I would wait for a couple more bars before going short just to be sure that it is a “no demand” pullback.
Rodion,
Good analysis. Patience is a virtue in trading. Even if the market does not quite unfold the way you anticipate, you will very likely get another opportunity.
Hi Gary
I would be looking for the current up wave to get to 1970 / 1972 level on low volume and take a short with a protective stop around 1977.
1. The S&P has been in an uptrend making higher highs and higher lows until approx. 14:00. The uptrend support line was respected on two occasions (11:45 &13:45)
2. There has been shortening of upward thrust as can been seen by the relative diminished progress of the S&P to the high of the dominant waves (11:10, 12:08 and 13:10)
3. The first main up wave from 1950 (10:35) to 1968 (11:10) was on increasing demand.
4. The reaction from 1968 to 1959 was with largest selling volume (larger than the proceeding up wave) but made only a 50% retracement signifying big effort vs reward.
5. The second main up wave from 1959 (11:40) to 1972 (12:10) was on comparable volume to the first main up wave for a diminished wave progress and also a small net price gain compared to the previous high. This is a possible first sign of an uptrend tiring.
6. Next there is a small down wave which tests successfully the high of the first main up wave.
7. The third main up wave from 1969 (12:15) to 1977 (13:10) is very choppy. The price action resembles laboured progress on no demand. Again we have made small progress compared to the high of the second main up wave. We are close to the oversold line of the uptrend too and we have shortening of the thrust.
8. The next main wave is a down on moderate supply. The down wave has come to a stop at the support line of the uptrend channel. This level also corresponds to the previous support/resistance line of 1969 of the first main up wave high. At this point the price action is at a critical point in the trend. The next wave needs to clear the high of 1977 or we have seen the first sign of supply.
9. The next up wave from 1969 to 1974 fails to make a new high and marks the first lower high in the current up trends, it’s also on comparably diminished demand.
10. The next down wave from 1974 to 1965 is a straight down affair on the highest supply seen on the chart for a down wave. Price bars show wide spreads with weak closes. We now have the first lower low and a confirmation of a down trend (lower high and lower low). The support line of the up channel has been broken with wide spread down bars and the previous support/resistance line of 1969 has also been broken.
In summery we have the following signs of weakness.
Shortening of the upward thrust.
Reduction of demand (no demand price action) on the last main up wave.
Increase of supply e after we have seen shortening of the upward thrust
Lower high made on low demand.
Lower low. Clear change of behaviour, with the down wave on very high supply.
Confirmation of change in trend (lower high & lower low)
The support line of the uptrend channel has been broken and the support/resistance line has also been penetrated.
What I would need to see next to confirm a short is a wave up to the 1970 to 1972 level on low volume.
Once again Gary thanks for the exercise, keep them coming.
Adrian
Excellent, Adrian.
This is an interesting one – here’s what I see;
– an uptrend that starts off quite strong with good demand and some decent EOM up and some E/R on the down wave
– the uptrend runs out of demand at the highs with some SOT in the waves
– the down move draws out supply and a down wave roughly equal to the earlier one
– a lack of demand on the last up wave produces a LH
– the last down wave is on very heavy volume.
The question is – does this represent further supply and therefore weakness as part of a bearish COB? That was my initial take – but when I analyse it more closely and avoid jumping to conclusions – it’s not so cut and dried.
What I see is 2 bars within the down wave that make good progress down, followed by 3 bars that go nowhere while the volume continues to build. This represents some E/R on the downside and the presence of buying. I note that this is occurring in an area of previous strong demand and at or just below previous resistance, it’s at an O/S position in the down trend channel, and it may well represent part of an ABC corrective wave in the overall context of the uptrend. I could certainly see the possibility for an aggressive LONG trade at this location based on the above context.looking for a push to at least the top of the down trend channel.
All of that supply on both down waves combined with the lack of demand at the highs however makes this a little too unclear for my liking regarding such a LONG (although I am tempted). Therefore my preference in this instance is to be a little more conservative and STAND ASIDE at this point until the truth behind the peanut butter volume becomes clear and the market tips its hand. I’ll look to judge the character of whatever rally is likely to occur next. If it shows strength then a weak pullback for a LONG is the play, otherwise a further lack of demand in the price and volume – would offer a SHORT setup. in the 1970 to 1975 area.
I would have gone for a long cx i can see lack of activity bearish volume down bars
I would have waited for a successful test bar and boom long on it sl below 10 pips of a narrow spread test bar 🙂