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Haytham and RealTraders:
Here is my chart from May 25. Here are the signs of weakness as I noted
them in my trading comments from May 16 to May 25:
1.Prices had been in an upward "waterfall" pattern, meaning price would
coil and then run higher until it expended its energy, then coil again and
run higher again once energy was re-stored. This waterfall pattern started
on May 16, leaving a small open gap to the upside on the intraday charts.
2. On May 22, prices gapped higher, opening above the 1.68 warning line to
the Major Up sloping ML set. Why is that important? Price had been
climbing, but "respecting" that line the entire move. On the open of May
22, price tried to accelerate by gapping above this warning line--but the
gap was quickly closed as price was unable to stay above the warning line.
That's the first two signs of weakness: First, a quickly filled upside gap
and second, a rejection of prices above the current tested warning line.
3. Price coiled furiously May 22; in fact, if you look at the chart, price
coiled tighter and tighter May 21 and May 22.
4. The break of that tight coil was a gap open to the bottom on May 23 that
remained unfilled. This is a very bearish sign.
5. The multi-pivot trend line at 1992-1997 held literally no support for
the decline. That area had been a major attractor of prices in the past. I
consider the lack of support there a very bearish sign.
6.Price broke the 61.8 retrace of the current swing at 1869 and closed
below that retrace level. To me, that ended my thoughts of this being a
retracement, though a deep one. Given the open gap above and the move and
close below 1869, at the end of trading on 5/23, I count this market as
clearly in a down trend.
7. On May 24, prices mount a rally, but the rally fails at the 50 pct
retrace of B-C, the current down leg. That's all the upside energy price
could mount.
8. Prices re-test the 50 pct retrace on the open of May 25, but cannot
climb above that level and quickly sell off. As price sells off, I draw in
the new Median Line [in blue]. Price tests it but does not move above or
out of the MLs.
9. Last, context. Knowing waterfall formations, I know that markets tend to
make mirror images once one is complete. When the open gap lower is left
unfilled on 5/23, the first thought I had was that a downward waterfall was
potentially forming. And as Tuesday opened, you saw the next leg down of
the waterfall that left the next open gap. And this morning's action left
the next leg lower of the waterfall.
I hope the description was clear and the charts match the descriptions.
I'll do my best to answer questions or criticisms.
Best,
Tim Morge
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