A nice infograph that explains Stan Weinstein market stages. I think one is much better off using a structure like this to model market and develop setups to play each phase. Instead the route pursued by majority is to get lost in myriad of patterns, equations and trading knowledge accumulation.
Question to ponder - how effective is my R&D and how is it different from majority?
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| Understanding Market Structure |
Be yourself! Everyone else is already taken. ~ Oscar Wilde
Conceptus (CPTS) had deeper correction from resistance band (shaded rectangle) as analyzed in prior post. Prior post is available here -
(Mar 19) CPTS. The stock came few cents short of resistance band before selling off strongly. Besides the structure of chart, another reason is general market weakness.
The chart is quite symmetrical i.e., 3 big up swings (A, B, C) and 3rd leg had again 3 minor up legs (a1, b1, c1). Markings on the chart. Also last couple of times, when the stock sold off, both times it slid along lower channel for few bars (arrows on the chart). Generally these kind of things would be missed by indicators. Assuming it does again, that means stock would likely go further down to around $13. Beyond that, for now it is wait and see mode. Depending on how general market is, either the stock might go into sideways mode or have further correction.
Both market corrections are fairly close to the analysis so far and bounced from long zones. Prior analysis on these two markets can be found here:
(Apr-03)$USDJPY,
(Apr-07)$GBPJPY.
USDJPY:
Not much has changed. 3 legged correction to long zone as analyzed in prior post on Apr-3. Bounced from the zone strongly. 1st correction on higher time frame. So better to keep part of position for a larger move. Once it closes decisively above ~ 82.25, stop can be moved to break even.
GBPJPY:
Deeper correction to the long zone as analyzed in prior post. Unless entered on anticipation, the entry now would require taking too large risk. So better to pass. Entering on anticipation for this market would have been ok given that the zone coincides with a strong resistance turned support.
Strong sell off last few days. Micro 3 leg top - (A, B, C on the chart). Broke trend line (dashed line) that held the trend for several months. Given above factors, I think we will likely have a 2 legged correction to 1330 area. One factor to keep in mind though is high VIX reading. So I wouldn't rule out if the second leg forms as sideways move. At this point, I don't know if market will go on to make new highs. It really doesn't matter. What I am interested is whether I can get a low risk zone to get on board long side and profit without needing market to make a new high.
Strong breakout of a long consolidation zone with a run up. Chart is similar to USDJPY. Forming 1st correction. Prior up leg has three legs (On chart - A, B, C). So greater chance the correction will be an higher time frame correction. 127 - 126 (shaded long zone on chart) is a good confluence zone i.e., prior resistance turned support (horizontal line) and is between 38% and 50% on Fibonacci grid.
Larger Scale: Strong breakout of a long consolidation zone with a run up.
Daily Chart: Forming 1st correction. Currently had two legs within correction.
Current thinking: Two possible outcomes. The up leg resumes from here. But that requires too large stop and is not my preference. If we miss, not a big deal. Another outcome is the market forms 3rd leg down and comes into the 80.75-81.5 zone. Given strong down bars in the correction so far, I think a 3rd down leg is likely providing a low risk entry zone (circle on the chart).
I track few select stocks. Conceptus (CPTS) is one of those. Analysis is on the chart itself.
Prior two posts on IWV short trade can be found here -
before entry and
before 1st target. Today IWV triggered the break even stop. Some might have locked profits on part of the position if they had sold on next day at open (details in 2nd post) without waiting to reach the dashed line on charts. What is more important is not loosing money. So getting out as break even is still a plus. Chart has more details along with my current thinking about market direction.
Both IVW and IWV bounced from the resistance zone couple of days back providing low risk entry point for shorts. If interested,
first post has my analysis, resistance zones and reasons to consider shorts. It took nearly a month for these ETFs to reach the resistance zones. I guess I under-estimated the time factor.
As I mentioned in that post, given these two markets are tightly correlated, there is no point taking short on both trades. Often as traders we run into this situation i.e., we get entries for multiple shorts and we need to pick one. My reasons for picking IWV short are - (a) Tighter resistance band and (b) Weaker relative strength. Who knows, IVW might turn out to be better short but we never know future. We have to work with present.
So what's next?
Given the sharp drop plus the fact it is now at short term swing point (blue dash line on chart), I think IWV might stall or bounce in next couple of days. Given quick 1R+ gain, my preference is to take profit on part of the position tomorrow and move stop on the remaining position to entry point (i.e., break even stop as marked on the chart).
So if this minor resistance (blue dash line on chart) holds and IWV bounces back, we will still be in a good place i.e., we already pocketed some profits and remaining position is not at risk. (Past Example: See TLT
long trade post. There stock came back few days later and stopped out rest of the position). Another reason, taking partial profit here will also help ride any noise without much stress. (Example: See
SLX trade posts. SLX had lot of noise after first target which was also faced minor resistance like here.).
Now instead of bouncing, if the minor resistance fails, then the next strong resistance is near blue solid line on chart. Should that happen we have 2nd part of the position to participate in the gains. (Past Examples: See EURUSD long trade posts. Another example is on-going SLX
short trade. That one now chugging towards target-2).
SLX price action so far is fairly close to analysis done in prior posts. In retrospect, it was good call to exit 1st part of the short position at what turned out to be low of the range (
Second post). If interested, chart analysis and entry locations before the short was triggered is available in
First post.
I think SLX trade is a good example of why having patience and getting a good entry location matters. These helped position to be at risk only for a very short time. Also it helped to ride out most of the noise comfortably sitting with above 1R gain pay off in pocket (on part of the position) and risk free position on the rest.
What's next?
SLX came close to stopping out and then made strong down move today. I think general market sell off helped. SLX now is in an interesting location.
If in next couple of days SLX follows through and closes strongly below $52, then there is good chance it will go down further and we can start thinking about target-2 (see chart). On other hand, if it stalls here and starts coming up, then there is good chance it will run all way to top of range. So it makes more sense to tighten the trailing stop (2nd red bar on chart). That way should SLX come back up, we locked-in some profit on remaining position.
This is 3rd post on the EURUSD trade. First post has analysis and case for taking long position two weeks back. It is available
here. Second post has analysis and reason for taking partial profits from the position. It is available
here.
In retrospect, would had more gains if part of the position was not taken off. But on other hand, the profits (R:R) were good, it is counter trend play and we never know how market would unfold in future.
At this point, market hasn't touched the stop on 2nd part of the position. So what is next? Given the recent sharp up leg (strong momentum) and break of prior swing high (blue line), good chance that market might bounce from any pause/pullback. So assuming for now market is still on path to 1.345 area (blue rectangle on chart). Moving the stop up to 1.305 area (i..e., red line on chart) though as it is counter trend position. If a pause/pullback forms before reaching 1.345 area (which is likely given the size of up move), would trail stop more closely after that.
Prior analysis for EURUSD along with my reasoning for long scenario are available
here.
Best way to understand the follow up is to approach from this premise i.e., find low risk zones, manage to profitable outcome basing on what market has done and stay away from reward predictions or what market should do next.
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| EurUsd Analysis - Jan 20 2012 |
Longs who entered in the zone after waiting for market to rinse early longs and shorts should have good R:R in their position now. The question is what's next?
Market is in a place where one can make a case for both bulls and bears (but without low risk) and that is not a good thing. For
bearish view, market in down trend on daily chart scale and it pays to follow trend. But flip side, trend is extended with 5+ pullbacks without deep correction. For
bullish view, market completed first part of diabolic sequence (i.e., trap early reversal longs) using strong support zone (visible better on weekly chart) as base and 2nd part typical for bigger with trend moves is pending i.e., rinse longs that came in after trap or eager shorts who want to follow down trend. But flip side, the position is fighting trend.
Given above, my sense is to be satisfied with good R:R from longs i.e., cash out good part around 1.295 area with a tight stop on the rest (like around 1.283 area). Then wait for a low risk short zone and leave high risk zones to experts/advanced players.
Summary:
Long term looks like 1st correction of a down trend. On daily, last down leg started in Aug 2011, then big sideways congestion followed by contraction i.e., smaller sideways congestion. Two potential short zones. One zone is higher risk then other. Probably it will be more clear after seeing the chart. Regarding targets probably I would keep some position beyond target 2 as it is a first leg.
Note:
I generally prefer entering in low risk zones. A zone is low risk for me when it has two attributes - small stop AND an entry point that allows position to break even very quickly with low chance of getting stopped out after that. The later is a stringent filter and would miss often good moves. But there is always another train coming. I am curious to see how other readers would analyze this chart. Feel free to let me know.
Summary:
TLT (iShares 10-20Yr Treasury bond fund) - in long term uptrend with large corrections and in sideways congestion last few months. Since December 2011 it is both sideways and contraction. Now I think it is at a point where it rinsed and outrun patience of enough traders to start a move. The annotated chart below would make above summary more clear.
Now would the move and direction as analyzed will happen? I don't know and probably will be more of interest to analysts and newsletters. As trader what interests me is -- do I have a
high probability,
high reward and
low risk position? I find this chart meets those requirements if it happens in next 2 days.
Current analysis for EURUSD currency pair. Analysis is on the chart itself. Will see how it behaves next couple of weeks.
