While we no longer have an Elliott Type One trade on the SPY we do have a very clear cut False Bar Stochastic Trade that his triggered back on July 9 at the cross of the Regression Trend Channel.  

This scenario has led to a little bit of confusion this week in our mentoring program by more than a few traders.  It is important to note that while the Elliott Type One Trade and the False Bar Stochastic are based on similar Elliott Patterns they can occasionally conflict with each other.  This is due to the number of bars that each trade is taking into account in the strategy.  For example, our default Elliott Wave Counts are looking at the last 300  bars while the Stochastic is typically looking at 28 bars and up.

If you have taken advantage of this latest move on the SPY now is the time to adjust your stops and take initial profits.  The Ellipse that I am showing has been drawn from the trend high on June 11 to the retracement low on July 8.  Using the Ellipse in this manner has been shown in the past to be a very good predictor of where new trends may fail in their attempts to make new highs.

If you remember I posted a similar method back on July 1st on our first attempt at new highs before the market ultimately made another new retracement low.

http://www.agetblog.com/tradingtechniques/2009/07/spy-and-resistance.html

Historically the Elliott Type One trade is a little more reliable then the False Bar Stochastic due to its stringent rules (PTI, OSC, Wave 4 Channels).  The False Bar Stochastic Trade gives you more trading opportunities with it's much more basic rule set.  The beauty of the Stochastic trade is that we can make up for the slight difference in dependability with a more strict money management plan, just like the one I pointed out in the current example of the SPY.

Ron Wheeler

I held off posting this on Sunday and Monday hoping for a definitive move either higher or lower on the Dollar so I could get a read on the weekly trend.  Unfortunately the markets are not cooperating with me.  Before I get to my outlook I want to say that the currencies for me are a secondary market that I trade, and I have no problems sitting out for a time until the markets get into more predictable movement.  In fact, lets be honest the whole purpose of learning Technical Analysis is to find predictable market movement so it benefits us to wait until the market is in these patterns.

As I have stated in my previous currency outlooks I like to first look at the US Dollar to get an idea of trends before placing trades.  If the dollar looks to be moving higher, I buy short the Euro or Pound, if the dollar is moving lower I buy the Euro, Pound, etc.

This week so far we have a US Dollar that is not moving anywhere.  While the overall trend suggests a Wave 4 rally followed by a Wave 5 decline right now we are in a sideways non trending area.  I will be waiting on the sidelines until we either break above the Blue Trend Line (short the Euro, Pound, etc) or break below the Red Trend Line (long the Euro, Pound).  While this market stays in the channel I'll hold off trading and wait it out.

Ron Wheeler

Well folks, the Daily S&P Futures chart hasnow violated the Wave 4 Channels (on Wednesday's bar) and today, has violated 140% retracement in the Oscillator. Thus, 2 out of 4 rules for the Type One trade are broken.

So what does this mean? Specifically, with the Wave 4 Channels being violated, it means that there is a less than 50% chance of making higher highs in a good 5th Wave.The Oscillator Pullback violation means that we have a 94% chance in being correct that this is NOT a true Wave 4. Yes...a 94% chance. The research done before Advanced GET was released way back in 1987 found that, during Wave 4, the 5, 35 Oscillator pulled back to zero (90%-140% retracement) 94% of the time. That means that only 6% of all Elliott Wave 4s have a retracement other than the 90-140. Unless this is one of that 6%, we are NOT in a true Wave 4.

That brings up an interesting question: If it's not a 4...WHAT IS IT?!

We'll discuss the possibilities of that in future posts.

Be prepared!

nate mccartney

As promised, I wanted to revisit some of the Stochastic and Type I setups I listed on June 29th.

As it stands, only one of the three trades triggered us in.  NVTL is only a couple of ticks from stopping us out. While many traders stress out over getting stopped, I view them as simply the cost of doing business. In the NVTL setup, we were looking at a 7-1 reward to risk setup. I'll take that kind of ratio any day of the week.

The other two candidates never provided us with a clean trigger mechanism to enter the market as they made new lows during the retracement. Step back, reevaluate the trade and keep them on the radar as they may still be good setups with a potentially better entry price.

Trade Smart

~Duane Gott

We received our adjusted count today in the S&P and Dow markets. All is well so far. Our PTI in both markets is still good, as are the Wave 4 Channels. However, the Dow is getting very close to violating the Red channel. If we move much lower than yesterday's low, we will wind up violating this level.

In the S&P, we still have some wiggle room for the W4C.

In either case, each time we make a lower low during Wave 4, we will get updated numbers for the PTI and adjusted levels for the W4C. We need to keep a close eye on these values, as well as the Oscillator, to make sure the rules for the Type One setup remain intact. Any violation of these rules would indicate that the Weekly time frame is ready to take over.

Be Prepared!

nate mccartney

The Daily S&P and Dow Futures charts had triggered LONG on the Type One and Stochastic setups. For reasons stated before (Time Frame Conflict) I had not triggered long. I'm waiting until we have a clear direction and an agreement between the Daily and Weekly charts before I commit long term.

Today, however, we have made a lower low in the Wave 4 on the Daily chart. That means we will have a recount once data for tomorrow's bar shows up on the Daily chart. Wave 4 will adjust to the new low, and we will reset the PTI and Wave 4 Channels. It remains to be seen whether or not the rules on the Daily will be met. We could have a violation of the Wave 4 Channels or the PTI once this new count is established. That would offer us some more clear direction on whether to believe the Daily or the Weekly chart at this point in time. We'll examine that more as the week goes on.

Be Prepared!

nate mccartney

As a new week of currency trading begins we'll look first at the Daily US Dollar Index to possibly identify any trends or direction which can assist in our short term swing trading this week.

The Dollar continues into the Wave 4 rally on the Daily Chart, while the Wave 4 high is labeled in early June the Elliott Oscillator has only now pulled back to zero signifying a true Wave 4.  It's important to note that just because Wave 4 has been established it does not mean that profit taking is complete, a Wave 4 has the potential to retrace to 61.8% which on the dollar is price of .8521.  Until that price level is taken out or one of our four Elliott Wave 4 rules have been violated (PTI, Osc Pullback, Wave 4 Channels, Fib Level) this market must be looked at as a down trend in a profit taking rally. 

While this profit taking rally is in effect I will remain bearish on the Euro and Pound as long as we have continued upward movement on the Dollar.  To establish this I have drawn a simple trend line across the highs of the last swing, as you can see as of early this morning we have a breakout indicating a possible move higher on the Dollar.  I have also added a trend line across the lows, this acts as support and will let me know when the Wave 5 move towards new lows will begin.  As long as we stay above the Red Trend Line I will stay bullish on the dollar and bearish on the Euro and Pound.  With the breakout this morning it may be time to sell into a decline on the Euro and I will be watching for that this morning.

Remember, this is a weekly outlook and not my long term opinions on the currencies.  This is to help establish swing trading opportunities on the 60 and 180 minute charts. 

I will update you to any trades that I see.

Ron Wheeler

As most of you know the Daily chart of the the SPY has presented us with a very nice Elliott Type One Buy and was triggered on June 25th using an aggressive entry.  As a reminder an aggressive entry means that we are simply waiting for a break of the regression trend channel and not necessarily a close.  While during mentoring we have talked in length about the conflict between the daily and the weekly charts this trade should still have been triggered and entered as all 4 rules of the Elliott Type One were met.  My colleague Nate McCartney made an excellent post on the conflict a few days ago and I highly suggest you read it as it has been a focus of discussion in most mentoring classes it seems.  http://www.agetblog.com/tradingtechniques/2009/06/time-frame-conflict.html

As far as the Type One goes we are now hitting some very key resistance levels that you should be made aware of.  In mentoring we have covered how to use the Ellipse (to steal a term from medicine) in an off-label use.  By drawing the Normal Ellipse from Wave 3 to Wave 4 we can get an idea of where our Gann Resistance lies in the Wave 5 Rally.  As you can see we are at a level of concern for multiple reasons.  First it is a match of the previous highs from early and mid-May, second we could be forming the right shoulder of a classic head and shoulder pattern which could signal a reversal.  Either of which tells me to take initial profits on our longs and to adjust stops in case this reversal occurs.

If the reversal occurs we are covered and will be profitable on the trade, if it does not occur then we continue the rally and we are still covered.  It's a win - win scenario.  If this Type One Breaks down meaning that the PTI drops below 35, the Oscillator retraces more than 140% or the Wave 4 channels are violated then we can shift to the Weekly chart for the Type I sell that is presented. 

Ron Wheeler

I wanted to post a quick update on the money management plan concerning the trade that was mentioned a couple of weeks ago during mentoring . At this point, we are in the money with a couple of areas where we should have been taking some profits and thus reducing our exposure. One of the key aspects to this trade was giving it enough breathing room by using the displaced moving average as a trailing stop.

We are still shooting for the MOB Target of $21-$20 as of June 29th, but so far things are progressing in a profitable way. Good trading to those who capitalized on this Type II Setup!

~Duane Gott

Last night in Mentoring, we had a pretty in-depth time of discussion concerning the current setups in the major market indexes. The fact that there is a Type One Sell set up on the Weekly, but a Type One Buy on the Daily has a lot of people in a quandary about what to do with this scenario. It's actually not an uncommon occurrence, but doesn't show itself that often on a MAJOR scale like this in such a widely followed market. The fact that this setup is showing on both the ES and the YM means that MANY people have noticed what is going on.

So what do we do about it? How do we handle the fact that there are seemingly conflicting setups on these two time frames? To answer this, I'll tell you what I have done about it, and we'll discuss other possibilities as well.

For starters, I got out of my long positions in the S&P on Monday of this week. I did this because the Short setup on the Weekly chart triggered by taking out last week's low - a bar which closed outside of the Weekly Regression Trend Channel. That triggered a Sell setup on the Weekly chart.

However, I did not go ahead and get short yet. There is still a possibility of another leg UP on the Daily chart, based on the Type One Buy setup that is forming. I got out of the long position because there is a possibility of the Daily setup failing, but the Weekly did NOT fail. Thus, I'm done being long...at least for now. If the Daily holds to the rules of the trade, and has a smooth trigger, I'll get long again. Here is a shot of how the Daily looks today.

No trigger yet, but today looks like a pretty good up day.

Now, most people have a problem with this thinking, because at first glance, it looks like we'd be going AGAINST the Weekly chart if we buy long on the Daily. "How can you ignore that setup on the HIGHER time frame" I've been asked?

The answer lies in looking ahead at the "what ifs". What if the Daily triggers? What if we go long and form a Wave 5 on the Daily chart to new highs of somewhere between 975 and 1000? What type of setup will be showing then on the Daily chart?!! That's right...we'll have a Type Two - say it with me... - SELL!!

So, the Daily would then be telling us to sell. What then would be showing on the Weekly chart? That's right! The weekly Type One setup is most likely NOT going to be violated by a price move up near 1000. We'd still have that Type One sell on the Weekly, and in ADDITION, we'd have a Type Two sell on the Daily!

My, how the picture will have changed. I can hear the collective "A-haaaaa" coming from all the readers, and the even bigger one coming down the road from everyone who was confused at this point, but becomes enlightened if and when this scenario plays out. :)

Now, we need to be prepared for other scenarios, and this is why I have not gone ahead and committed to one direction or the other yet. I just know that at this point, I'm sitting out, keeping my money out of harm's way. There is a possibility that the Daily chart will FAIL. If we pull back more than 140% in the oscillator, or the PTI drops below 35, or we violate the Red Wave 4 Channel, the Daily will be busted. Then, I'll look to get SHORT in this market on down to 600 or so in the S&P. (The MOB off the Weekly Wave 3 low).

So, at this point, the Daily is in control. If it plays by the rules, we might be long for an as of yet undetermined amount of time. Perhaps we'll be long until we reach 90 days off the Wave 3 low of the Daily chart. (see Craig's post the other day on the S&P timing) That happens to be exactly where the 2nd time hash mark in the current MOB off the Wave 3 high on the Daily chart sits, 14 trading days from today. We know that most swings of the market last 13-21 bars, and yesterday looks like a good low, holding just above the Green W4 Channel. Is this it? Time will tell. But at least we are all prepared!

nate mccartney

Well I was stopped out of the DBA position this morning. Which is ok 50 cents worth of risk for a potential of 4 points was an 8 too one reward risk ratio. I will take those anytime.

Craig

Often times people will ask questions about time frame convergence in my trading. Usually the question is something like "the 5 minute says long but the 30 minute is a short.... how do you deal with this?". So I thought I would show you an example of how I combine time frames in some of my trades.

I put up a quick post earlier about Powershares DB Agriculture (DBA). Here I will show you the charts and what I was seeing.

Below is the 15 minute chart of DBA. There was a pretty clear Type 2 trade setup coming in on it. Now this is a counter trend trade. I think its relatively clear that the trend on the 15 was down and here I am looking to go long. Normally I am not a big counter trend trader but in situations where the bigger picture is looking good (in this case the daily) I like to try and sneak into that bigger picture on the smaller time frame.

So there I have my entry into what I am expecting to be a nice continuation trade on the daily (see chart below). I will manage my stops on the 15 minute until I build a bit of profit and then switch over to working solely off the daily chart.

So now its just money management and I will see where this can lead.

Hope that is helpful.

Good Trading

Craig

Quick post here. I am watching both DBA and NVTL for potential longs on the daily charts. However both have setup Type 2 buys on the 15 min. charts and are triggering away so I thought I would throw this out now. I will elaborate with charts later.

Good Trading

Craig

The S&P 500 ($SPX) is pulling back on the daily. When will it end? Time is one of the most difficult factors to work with in the markets. However, some simplistic number series can be used to give us some points in time to look for near term low/hi to come in. I personally like a combo of Fib and Gann numbers. I typically look for the turn to come in + or - one bar (day in this case). Below is a daily chart of the S&P and I have the the relevant bar counts below. As you can see we are approaching a day 72 (using trading days) from the March low. You can see we turned off off day 55 and 45. I am looking for this market to establish a near term low around this day 72. What kind of bounce will this be? I am not sure yet, but I will be prepared for it to start.

Good Trading

Craig

It pays to attend the Advanced GET / eSignal Learning Mentoring sessions......literally.

During Tuesday nights mentoring session, we were taking a look at the daily chart of JACK. With the current Wave 5 high, MOB resistance and clear cut divergence in the Advanced GET Oscillator, it met all the parameters for a beautiful counter-trend trade.

Over the last three days, the counter trend setup has played out beautifully and we are now at an area where it is good to take a little money off the table. Using a Regression Trend Channel and the 50% Fibonacci level, we can now reduce the position size and limit our exposure. This partial profit taking approach can help maintain profitability while accuracy sits shotgun. Always pay yourself for a job well done!

Trade Smart......Duane Gott

Stops were taken out on the Euro last night (around 2:00AM) but it still left a modest profit to be made if you would have taken profits at the Gann Levels we talked about.  The Euro is still in a False Bar Stochastic Sell and a new sell can be taken if we cross below the new Regression Trend Channels drawn from the latest pivot low (6:00AM ET) to the current high.  The max retracement is the 61.8% which is 1.4089, if we move past that price I will no longer look to go short the Euro and it may indicate the daily USD is not ready for the full Wave 4 retracement and we should resume our bearish outlook on the USD.

Ron Wheeler

Here is a link to the original post I made just under an hour ago:

http://www.agetblog.com/tradingtechniques/2009/06/euro-fx-shorting-opportunity.html#more

The Euro has hit my first target of 1.3860 and initial profits are now taken on the trade.  Your new stop should be placed at the original entry. Typically, I like to have 3 profit targets set on all my trades.  The first one was the Gann Level we just hit the third and last level is the MOB.  For the second target I have to get a little creative as we have no Gann Level between our current price and the MOB.  In this case I am going to simply split the difference between my first target of 1.3860 and our target of 1.3772, this give me my next target of 1.3815 where I can place my next limit buy order for profit taking.  My typical profit taking strategy has me taking 1/3 profits at the first target, 1/3 at the second and the final 1/3 at the MOB.  But this can always be adjusted depending on the time the trade is taking to hit my targets.

In a perfect world we would have 2 Gann Levels for targets followed by the MOB for our last target.  However, we don't always get the perfect world and sometimes we have to improvise our targets.

If you haven't read Duane Gott's entry about profit taking, take the time to read it as he outlines a good partial profit taking strategy and also explains why stepping out of your trades is the preferred method.  Below is the link to his entry.

http://www.agetblog.com/tradingtechniques/2009/06/risk-management-through-partial-profit-taking.html

Ron Wheeler

As I mentioned in my last post on currencies:

http://www.agetblog.com/tradingtechniques/2009/06/short-term-currency-outlook.html

I am bearish on the Euro and Pound for the short term due to the profit taking rally on the daily USD Index.

On the 60 minute chart of the Euro we have a classic False Bar Stochastic Sell.  The trigger is simply a Regression Trend Channel drawn from the low bar at 5:00AM ET to the retracement high at 7:00PM ET.  The entry is the break at 10PM ET bar near the price of 1.3900.  Our stop is placed above the retracement high at 1.3940.  Using a Gann Box my first profit target is at 1.3860 and a limit buy order can be placed there for profit taking.  The ultimate goal for this trade is to take out the low and hit the MOB at 1.3780 which is scaled off the screen.

I will update as the trade progresses...

Ron Wheeler

Last week in mentoring, we were taking about how to take partial profits. Learning to do this well takes a little practice, but that time can pay dividends when it comes to trades that are moving in your favor.

There are two techniques that I use for taking partial profits. The first is by using the 50% rule. Any trade that moves at least 50% from my entry to my target is at a good level at which I am willing to reduce my exposure and put some money in the bank.

In the example below, I'm looking at a 60 minute chart of LXK. The first example is using the 50% level from the entry to the highest level of the MOB. In the second example, I am using an alternate technique which involves drawing an ellipse to help isolate an area where the price action could falter on the way to the MOB. Which ever method you prefer, it is critical to good trading to go risk free as soon as the market gives you an opportunity.

Ideally, we want to see this thing move to the MOB, but by strategically taking some profits off the table, we are able to reduce our exposure in case things don't work out as expected. When this type of behavior is practiced, we can still profit from trades that don't meet our target or officially "fail". Trade Smart

~Duane Gott