Something I'm watching on the Dow. Potential bearish seasonality is around the corner, it's not a sure bet, as nothing is, but it's something to pay attention, the whole sell in May and go away thing. However, when we combine that seasonal bias with price action, magic happens. I'm monitoring this red line on the weekly chart, also visible on daily and even monthly, depends how much you stretch your charts, anyway, point is that it is a structural line that plays an important role as it could become a right shoulder sometime in the future. If at any time price finds itself below it, especially acting as resistance, market could be in big trouble. Until then, just monitoring and playing it a day at a time to see if anything major develops, so far no real technical damage in my charts, but this could change soon if the above does occur.
Very similar to what I've been looking at bigger picture on SPX. What do you mean by the line could become a right shoulder? I see a possible H&S on the daily and potential right shoulder could have been put in this week. Just wondering what you mean by right shoulder. Thanks and good chart as always...
Quote from Xspurt: the Dow break usually has an ABC pattern before the real downside sets in. Weekly charts are getting ready for a very strong counter move. It looks like a strong UP cycle is setting up if we fail to get down and 13000 is taken out the weekly upside will most likely be in. dv4632 So you were looking for a push lower to 12600 before an up move, and then the real down move. In any case it looks like the weekly upside is in, so are you now on alert for the expected big down move? ------------------------------------------------------------------------------------ Good question and thanks for following the thread. I find it hard to do much Dow analysis on trading days as after market I do some mentoring to help me write a book that makes more sense than Al Brooks, so time is limited. Let's look at some important lessons here that should help you. 1) Last week I posted an item on Success From Failures to explain how a failure can be a great confirmation. Then I followed it by explaining we had cycles opposing each other - the monthly is down, the weekly was up and yes I was expecting a little pull back however this was on the 4hr chart. I don't think I have got any 4hr expectations wrong before this but I always said a call on the 4 hr over the w/e is the hardest to get right. I mentioned the cycle conflicts so it was a deliberate choice for a great time to post that item on Success from Failures to prepare for a failure and make a profit from it. Expecting a very strong up cycle while looking for a little short means that short would be countertrend. Intraday what happens is the swing fails to reach anything close to its expected amplitude or even fails to materialise because it gets run over by a monster move going the opposite way. 2) On the attached chart we closed last week on the 50% support and as soon as we opened on Monday, the power of the push up (green arrow) left no doubt that the failure on the 4hr was in place - the expected upswing was in place. 3) Having the dual expectation of a very strong up swing and the failure of the smaller cycle lets the trader get in early for big profits to the upside when obvious strength is in the market and it becomes a no-brainer trade for fast and big profits. So now the question is, are we ready now for the real move down? I'm going shopping now and I'll address that later PS: the attached chart uses 2 sets of Quad lines in blue.
There are two ways to spot shoulders before the formation is complete, one is via parallel line copy paste projection the other is via broken trendlines that fail to breakout by not holding their backtest. What would happen if my dow red line failed its backtest correctly ? Then it would become a fake breakout and the so called old breakout would now become a head. What would happen if after a swing low we tested that red line once again but from below ? Then it would complete a right shoulder and the failed breakout would now be it's corresponding head. In short, the downtrendline would have morphed into a downsloping head and shoulders, in other words, the downtrend would be back in place. Unbroken trendlines are unreliable, broken ones are golden, now, not all lines are or were trendlines, it's important to make that distinction.
Hey CF, I notice you post a lot of 1-2-3 (also put ABC) setups. Just curious if there is any deeper logic to it as I see it occur across all timeframes/planes. Perhaps it is as simple as: real move - fake move - real move IMO it offers up great pinpoint entries on 1 minute charts - either failures or if it holds very strong continuation of the trend. Sorry if you touched on this and I just missed it. Greatly appreciate all the info. Take care, BD
Hey BD, The logic of them is stated probably like 100 years ago, when Dow theory was developed. Price rarely just goes straight up or down, it moves in waves and logic of 123 pattern in my view is that price fails to reach the last swing high/low, thus demonstrating the lack of conviction among the previous trend followers to continue buying or selling and from the other side it demonstrates willingness of the reversal players to start buying (or selling) more aggressively at the worse price vs. which was previously reached during the current trend. Hope everything I just wrote makes sense to you. I cover that topic quite detailed in my blog with some people regularly participating in discussion using comments to posts, probably you could find some more info on that pattern there too. P. S. Failures of 123 (aka ABC) reversal often constitute flag pattern indeed, which can be tradable if trend is strong. Also they can be viewed as 2B pattern, which is also a good thing to trade, when context supports it (a bit dangerous pattern to blindly take against the strong trend, though).
As usual I had mapped out my expectation of the Dow's move well in advance and I was looking for an ABC up move. If you look at the attached chart you can see there is a clear ABC upside fulfillment so the question has to be, is this move complete now? When I am mentoring traders I first teach them to think like other traders before I give them my slant and to make a decision on the potency of the ABC this time I will look at an Elliot Wave structure. I want to examine the down waves. On the right is the Daily line chart clearly showing the ABC up wave. To help clarify that I have a 2hr intraday chart on the left so I can see the structure of the down move. That shows a quality 5 wave structure where W2 is complex, W4 is simple. W3 is short but W5 = W1 in amplitude. There are good time ratios as well as price ratios so this is a text book example of a 5 wave structure down from an important cycle top. Any student of Elliot will be jumping on this as a complete W1 down, and now with an ABC = W2 correction it looks well set up for the real down move which is W3 i.e. normally the big one. So we have an ABC confirmed by a clear prior 5 wave down structure so it should be done and dusted - watch out below! To see if that matches what my own analysis predicts you'll have to come back tomorrow because I have not got that far myself. However that is one scary formation and I will need something powerful to stop the lows of 5 being taken out and then much lower. Cya later
Dow bearish wedge analysis. Bearish wedges can fail, just as they can fake down and then reverse back up. Bottomline is I hate to predict, I rather listen and react. I trade these wedges by drawing a horizontal line at the uptrendline breakout point, area I marked as red horizontal. Above it I'm bullish, up to a point, the backtest point. In order for this wedge to manifest it's bearishness price needs to decisively plot lowers lows below it, make that red horizontal resistance. At the present time we are dancing around my red breakout point area, undecided, but you can see the very first attempt to crawl back above it was unsuccessful, bears got the upper hand for now as they try to make it resistance. There can be bends and even upside move, which should get stopped by the first backtest above it, area of the uptrendline that changes from white to red. I don't know what price will do, the good news is, I don't need to know, but I do know the key areas that I need to listen, to watch out for a counter trade or if they fail to hold, a breakout trade. As a trader I prepare myself for the expected and the unexpected, that way I minimize the chances of getting spooked or shocked. After so many years I've learned that anything and everything can happen, therefore, I like to trade with a complete neutral bias, particularly when every pattern, bearish, bullish or even neutral, can work, fail, and even fake before working.
SPY's inability to hop back into the uptrend line is a concern for the bulls. On the other hand, if price is able to get back on track above it and regain that line as support, bears might need to pause their wishes until such action is no more. I've also drawn the uptrend line breakout horizontal point as it serves as a line in the sand to study the sideways action that typically develops when a structural line is broken. In the meantime, bulls are trying hard to keep the uptrend intact by holding the March lows, on the other side, the bears are not allowing it to get back above the old uptrend line. Needless to say, a fight is happening as we do market speak.