1. A weekly chart to convey my longer-term analyses (will need infrequent updating)
2. A daily chart to convey System daily trends and cycles
3. An hourly System trading chart with buy/sell signals, System s/r and targets
4. A 5min chart to narrow down targets to actively manage the System trades
Today, I am providing Version 1.0 of chart #3 and #4. Let me know if you have any questions or suggestions. Here they are with more commentary below.
On the 5min chart, you'll notice that every SPY volume spike over 15mil led to a 1%+ reversal within a few bars and often much more. Also, periods where volume steadily ramped up to 10mil+ over 5-10 bars generally led to reversals when the final 10+mil candle matched the trend. The volume surge after a big intraday down move to end Monday and Wednesday led to gap ups the next morning. The opposite occurred at the close on Friday and Tuesday. At the end of today, volume had not even ramped to 10mil yet as SPX reached 1186 when suddenly the last 15 minutes produced three 10+mil down bars with the last one being 25+mil making it the 3rd largest volume 5min bar in the last 5 trading days. That shows extreme nervousness. The previous top 5 volume bars this week were all reversed sharply although the post-Fed period had 3 whipsaw 25+mil volume bars so we saw a reversal of a reversal of a reversal in less than 2 hours. A HUGE volume close with SPX dropping more than 1% would normally be met with either a gap up or a small down gap & trap. That suggests that SPX will at least come close to retesting today's 1186 high on Friday. Let's see if the volume trick continues to work.
Also, on the 5min chart, you'll notice some Fibs, wave measurements and targets. There appears to be some technical convergence around SPX 1188-1190 (SPY is not precisely 10% of SPX) and around SPX 1210-1220. Since the larger time frames suggest 1187-1200 and 1220-1233 with bullseyes around 1191-1195 and 1225, I'd have to say the two time frames sync up pretty well at 1190ish but they diverge too much to be useful at 1210-1233. So, my feeling is that 1190ish could very easily mark the top, but, if SPX breaks through there, it will run into increasing trouble as it reaches the 1195 Fib level, 1199 gap fill and then 1210-1225+. We'll need to watch RSI and volume and candles for clues as SPX reaches 1186 again to determine the likely top.
Finally, on the 5min chart, you'll notice that I've projected 3 RSI time frames assuming that SPX will rally for 0.5 to 1.5 days more. All 3 RSIs are sitting on the charted support box. Although I put a little less faith and give a little more room for error on such small time frames with Dynamic RSI and although SPX RSI is actually a tiny bit higher than SPY, the basic message is that SPX cannot drop too many points or minutes before Dynamic RSI will suggest that the rally from 1118 is complete. The one exception is an EDT/LDT. So, if SPX gaps or trades down tomorrow morning, either the rally finished at 1186 or we'll see some sort of choppy wedge-like rally to the 1190s or maybe 1210+. To make the latter wedge possible on a gap down, we'd likely need to see the drop on large volume again leading to a reversal by 9:45 or 10.
It is difficult to predict the daily news, but the mostly positive retail earnings and the huge ramp in discretionary spending in July (http://www.consumerindexes.com) favor a better-than-expected report on Friday morning which should boost SPX unless there's more bad news in the interim. Also, the European short-sale ban combined with the US afternoon rally should provide tailwinds to the European markets before the US opens...once again assuming there is no more bad news to counteract it. But, my chart earlier today proves that short sale bans are not likely to provide more than a day or two of relief unless the fundamentals actually get better too.
On the 60min chart, you'll see some RSI resistance boxes which should help us identify the top if SPX rallies higher. They worked well when SPX rallied to 1215 before the plunge to 1119 and many other times too. Also, you'll see that TICK and NYADV are extremely high which usually leads to a sizable pullback the next morning or within a day. Ideally, I'd like to see a gap and run to make a nice clean 5-wave pattern to end an ABC from 1102 before reversing. But, Mr. Market likes to throw curve balls, so if SPX drops 1-2% to trap more bears expecting another immediate reversal, I'd like to see a volume surge with sharp reversal up above 1186. Overlap with 1160 could indicate a C-wave EDT but getting below 1150 again would probably put bears back in control. Good luck.
BTW, the 4.4% SPX drop on Wednesday made the top 40 percentage down days. That makes 3 in one week. Just like 2008, 2009 and 1987. Hmmm.
S2, will need to study your charts in more detail over the weekend.
ReplyDeleteOne thing I notice is that most of the volume surges will either be at close, or a few other predictable times such as FOMC or the occasional 'important' report that is released midday. Just wondering how many of those volume spikes are end of day and the implications.
Yes. I have often observed the end of day volume spikes, but of course the most recent ones have particularly stood out as total daily volume doubled. Maybe the EOD spikes would not work so well under normal volume days. Will watch. Also, it does appear that the the mini-volume spikes intraday to 10-15mil usually lead to a short-term reversal of 10-20pts (probably would be less under less volatility) but those reversals don't tend to stick as much until the 2nd or 3rd try unlike the larger volume spikes which are often EOD and stick better. I have never found daily volume to be predicitive, but I started looking at 5min volume a few weeks ago and have used it successfully a few times although it caught me off guard once. So, I'm keeping my eye on it and may use it more to help trade around the System position with 25-50% of my position as the System allows. I won't be playing every volume-projected reversal intraday...that's for sure. But, after a trade goes in my favor, I might lighten up 25% on a volume surge and re-enter 5-10pts better. If I do that during a whole trend, it would protect some profits, never get me too far out of my main position and possibly increase my profits in many cases. Regardless, I'm just watching it and using it occasionally now at volume extremes. thx for the comment
ReplyDeleteNice work S2, thank you!
ReplyDelete