Wednesday, February 24, 2010

Midday Briefing for February 24th: Watching Patterns Across Time Frames

We can see from the last several days of market action that we have been forming important support in the 1090-1092 area of the ES futures (bottom chart). Today's trade has been in line with the bullish bias for the day, and a positive Cumulative NYSE TICK has confirmed that, but we also face resistance in the 1110-1112 area and thus a key trading range.

The resolution of this range will be important; failure to sustain recent market strength would position us with a lower high across most averages and the possibility of a test of recent lows from early this month. That would have technicians making hay out of a possible head and shoulders pattern on the daily chart (top chart).

While I'm less than enthusiastic about chart patterns, the possibility that we're seeing a lower high in a broad topping pattern has me concerned about the market upside and ready to position aggressively for a decline if short-term action is supportive.


skogie said...

On the daily SPY one minute chart I feel like we're consolidating in the range of 110.53 and 110.80 and that this will resolve to the upside. Brett, or anyone else care to comment on that thought?

RDV said...

If the big marketmakers fail to break through this developing negativ pattern of resistances around 1112 and 1130 then, thinking as a marketmaker, this might mean they accept another bigger move down and are preparing for it.

Selling slowly and carefully off to the remaining bulls (the small traders) and then let the market drop to 1053 or 1040. Or even lower?

Or am I being paranoïd? Any way, I'm prepared.

Matt Fahmie said...

Although I cannot predict highs or lows,
I would assume the probability of 1148
Being the top to be extremely low.
Week over week we have an unsecure high
or matching highs. Without any sign of
Excess at the high, one can infer that
Longer term sellers have not stepped in yet,
And this current break is a function of
Intermediate term liquidation break.
Note the week of 2/05/10 produced such excess
On a weekly chart indicating swift rejection of those prices
As opposed to the highs of weeks 1/15/10
And 1/22/10 which are within a point of one another.
I will comment with a chart attachment
to accompany my analysis above.

-Matthew Fahmie

Matt Fahmie said...

Also, I agree with you chart patterns such as head and shoulders etc... are really nothing to give much thought over. Though, I do believe two and three bar patterns across any time frame in conjunction with detailed volume and range and range analysis can be extremely useful. Concepts from Market Profile such as unsecure highs and excess/extremes are logically consistent with auction market theory and can be seen not only on a profile, but in larger timeframes such as weekly and monthly with equal effectiveness.

John Gilner said...

It's also possible that we have a fakeout/shakeout down to one of the Fib retracement levels (~1072-1080)and then get going to the upside; that would possibly create an inverted head and shoulders on the daily chart. Just thinking about the counter point to your scenario...and people like those Fib levels...for some reason...