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As I am becoming reacquainted with forks, I am seeing some interesting setups.  Below is a weekly chart of the ES (starting at the Oct 2007 high to present) showing we are at a median line cross of two forks.  On the downward fork, I added the 2x and 2.5x extensions of the fork (labeled on chart), which lines up well with recent lows we've seen.  The stochastic and oscillator are also looking like a bearish setup.

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Let's take note of an interesting point about the above chart.  The recent market action has a repeated pullback, rally, pullback, rally, in a relatively short amount of time.  Below is  a chart from the July/August 2008 timeframe where we saw similar action... then a steep fall.

 

 

The chart below is still the 2008 timeframe where we try and see how we could've predicted the high of that Jul/Aug rally.  We went back to the last rally where the stoch went from oversold to overbought, from the last wave up and take a measurement (small, blue arrow to the left).  Almost exact 1:1 movement!  This technique is similar to what we did above with the current market action.

 

 

Below is the weekly Nasdaq (NQ) with a bearish setup.

 

 

 

Below is the weekly DJTA ($TRAN) also with a bearish setup. However, it would be nice if the oscillator and stochastics pulled back a bit more.

 

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The market just can't make up its mind on which direction it wants to go.  Easter is this upcoming weekend, so it makes any move suspect.

As of this writing, we are currently at a 0.618 pullback from the 3/30 low to the 4/5 high.  I am going to watch the overnight action closely to see if it wants to play out the scenario shown in the chart below (2 hour chart).

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Interesting article:

http://www.reuters.com/article/marketsNews/idINN0747118320090407?rpc=44 

How could the results be anything but bad?  If they were good, they would be eager to tell the world. Otherwise, they don't want to compound the upcoming bad earnings season with this bad news to put the market into a nose dive. 

"to avoid complicating stock market reaction" sounds like a spin on "sending the markets to zero"  ;]

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Many signs are pointing to this recent rally having some legs.  I'm not convinced yet.  I've spoken about the 837 area in past posts and we've yet to have a convincing close above it.  Each time we approach it, we seem to fall back.

From a broad perspective, we look at the ES weekly chart.  As you can see, we are merely at the 50% - 61.8% retracement area and look poised for a fall.  Also, most all MA's you put on this weekly chart show us clearly still below it. I'm not drinking the kool-aid yet, but I am staying open to the posibility.

Good hunting traders! 

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Below is a 30min ES chart with overnight data removed.  Looks like we are making lower highs right at the 61.8%, 55.9% and the 50% daily retracements. 

On our daily chart we have a 50% pullback at 804.25 and a 61.8% pullback at 837 (see 2nd chart if unclear).  Last week I was expecting a push to this 837 level and a big fall. We failed to get that high (see "A").  The next day, the 55.9% level acted as resistance (half way between the 50% and the 61.8% levels) (See "B").  Today we hit the 50% level and fell very fast and hard (See "C").

Does this series of lower highs mean lights out for this rally? 

If it's unclear where these levels come from, below is the daily chart showing where the measurements were taken. Thus, the chart above is a "zoomed in" view of the chart below.

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What if we break 837 and go long?  That's a big IF.  What are some targets?

Here are some interesting fib clusters I've found in the 930's and 990-1000 areas (blue arrows). These areas also line up with past high pivots. 

This is the ES daily chart... 

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A few charts on why I think the 837 area will be a wall of fire.  All charts are daily ES charts.

The center of a few major moves (notice the 50% line in each of the fib measurements): 

The 61.8% pullback of this last move downward:

 

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Dreaming ;]

(ES Daily) 

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ES -  Below shows the 2007 high.  Measured from the 1st pullback off that high, we had a fall, then exactly a 61.8% pullback, then came within 1.58% of the target (-23.6% move) 

After reaching our target, we made a 50% retracement.  Again, using the 1st pullback off the high. 

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The ES made a perfect 618 pullback to 942 area and it's been all down hill since then.   This gives a potential target of 662.50 that we are nearing. 

Zooming into the most recent fall, we made a 50% pullback form the recent high and fell.  The .236 target caused some pause in the market, but only a short while.  The 1:1 target is very near the target in the above chart. 

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ES- Below is a daily ES chart.  A week ago I drew the gray line we bounced off of on Friday.  This line is equidistant to blue line as the light-grey line is above the blue line.

The chart also shows a couple targets at 724 and 669.  However, we may see a return to 812, 826, or perhaps the ascending blue line in the 840's before getting there.   In a very weak market, we may not see 800 again before falling. 

Homework, Lesson

ES - Below is the market action for Thursday, 2009.01.29.  This may be hard to follow, but I feel is extremely interesting and important to understand.

As the market fell, since we didn't get a rebound at the 90° level and instead went an extra 30° to the 90+30 level (856.50, "A"), it wasn't surprising we had a larger pullback beyond the 45° level.  In this case, we rebounded to the 22.5° level (866.75, "B").  (Also note, measured from "A" upwards, we have a 90° level at 865.25, which would also have been a good entry point short.)

After the pullback, the target was the 180° level, which we went exactly to (850.50, "C").  After hitting the 180° level, we'd expect either a pullback to the 90° or a pullback to the 45° level.  In this case, we had the pullback to the 90° ("D"), which makes sense based on the location of "A".  After that pullback, we'd then expect to continue to fall below 180.  As you can see, we had that fall.

After the pullback, we had a fall to "E" (180+45+30=255).  Since this level held and we didn't go straight to 180+90, I consider this a "soft" pullback and one to be shorted at the retest of the 180° level ("F") down to the target of 180+90, which we hit going into the close.  We even had a 3.5 point bounce off that level, showing the strength of that level. 

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ES -  A chart was brought to my attention by a friend and I feel it is very interesting.  It seems we keep making 0.618 fib pullbacks and it is creating a nice wedge.  We just broke out of our parallel channel to the up side, so perhaps our next target is 887-894 near the top of that descending line?  I hate to be bullish in a bear market, but we can't always go straight down.  After hitting the wedge one last time, perhaps that will give us our next leg down to lower lows.

UPDATE:  I updated the chart to show the bounce as expected.  Oscar (from LiveWithOscar.com) brought to my attention the top of the channel we are hitting.  Also cooresponds to a Gann Level at 871 (180+45).  

Where to?  Scenarios: 

1. Perhaps a 45° or 90° pullback (860 or 848), then up to the targets at 887-894.  You can see how well this lines up with this new horizontal line. 
   
2. Upward move continues above the top of the wedge in the next 2-3 days (target of 916), then a hard fall below the bottom of the wedge around the 0.750 time level (Wednesday, 2009.02.11) and on to new lows.  1/29 is key.

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ES - Afterhours action is displaying a huge surge.  As of this typing I see we are hitting the 856 area, which may be the highs of Wednesday.  From here, I am expecting a pretty decent pullback (perhaps to 847 or 842).  As more market action develops, I will be able to fine tune and adjust these targets or abandon them altogether.  Being perfectly right is rare, but being able to adjust is key.

UPDATE:  The 856 area did not hold as expected.  The level held the action for about 4 hours, but eventually failed to hold.  My next strong area of resistance is 862.75 and 868-875 (with more weight on the lower end of that range).  Also, keep in mind this is an FOMC meeting day with an announcement coming at 2:15 EST.  Careful trading!

6E - I am looking at resistance at 1.33160 on the way up, that may give a 90-100 tick drop. Otherwise, I am looking at 1.34790 being a high, if we get there. 

UPDATE: We went 5 ticks above that 1.3316 level and are now trading 75+ ticks down.  Target levels of 1.3201, 1.3143 and 1.3115 (and be careful of levels listed below)

UPDATE: Wow, 200 ticks later, we are hitting the extreme low target at 1.3115 and getting a bounce.  Let's here it for TA! Below is a chart with levels measured from the top (1.3320).  You can see we went straight to the 90° level, pulled back to the 45° then the bottom dropped out to hit 180°!  Amazing!  Then look at that pop off 180°! 

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The past few days have really been exceptional Gann examples in the ES.  The chart below may be a little difficult to follow, but price action behaved very well with the horizontal Gann lines.  Also, as you can see, the Gann fan (angled lines) behaved very well.  If the past few days have been any indication, we may fall to the 808-809 area before bouncing up.

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The trading for 2009.01.23 was amazingly textbook from a Gann level progression.  Measured from the low of the morning (small red dash), we went up to the 180° level.  After hitting the 180, we typically look for a retracement to 90° or 45° before moving back above 180°.  In this case, we went to 90°, then eventually stopped dead at the 360° level (835.75).  At this point, I looked for a reversal... see 2nd screen shot below.  (FYI, 824 is from a daily Gann level)

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Interesting measurements on the ES.  Each noted level is measured from the previous noted swing. Lots of symmetry.  Also, take notice of projections. 

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When people look at a trading system, they often ask, "What is its win/loss percentage?"  As I am growing to be a more seasoned trader, I am quickly seeing how naive a question that is.  Money management is all that matters.  That is the silver bullet to trading.

What is a winning trade?  If you get out after one tick, is that a winning trade?  If you have a target of 50 points and you only get to 49.75 before it turns against you, is that a losing trade?  Your system didn't hit the target, so that's a failure, right?  Not in this game.

Here is my definition of "A Winning Trade":  A trade where you didn't lose money, even if you didn't make a cent.  If you have a good entry (goes against you very little), have a 10 point target, and if you get out after 4 and 7 points (on two lots), but it failed to hit your target of 10 points, then that is still a winning trade.  You took profits on the first lot, brought your stops in to make sure the trade did not turn into a losing trade (one where you lost money) and you got out thinking that the target would not get hit (regardless if it were hit or not).  Even if you didn't take any profits and only moved your stops to break even on both lots, then your target would've been missed and you would've been stopped out at break even.  That's okay.  If you didn't lose, you won.  Just look onward to the next trade.  As my father says, this is a game of "mining"; you go in, look for the setup, take your piece, and get out.  You don't have to get it all, just enough.

My definition of "A Good Trading System" is: A good trading system is one where your entry is as close as possible to a turning point that gives you a move that is large enough to make money on.  That's it. You will rarely hit the extreme low or high, but if you can get close (in time and dollar amount), then that's all you need.  If you rarely hit your target with your system, that's okay.  That just means you need to take profits earlier (and perhaps look for better entries). What matters is that your typical achieved target is greater than 1.6 times to 2 times your typical risk.  For example, if you risk 4 points, you want to make somewhere in the neighborhood of 6-8 points (or more).  Don't risk 4 to make 1.  That means if you take a loss, you have to have 4 winning trades just to break even.  You want to be in a position where if you take a loss, you can make it back and more the very next trade.

So, what all this boils down to is, focus on entry and focus on money management (exit).  Don't let a winning trade turn into a losing one.

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Due to the holidays, things have been a bit sluggish; both for the market and for my postings.  However,  I wanted to share a daily Bond chart (ZB).  You can see the major gann levels (multiples of 180°) each marked areas of consolidation.  We are currently bouncing back and forth on the 720° (2x360) level.  Could this mark the end of the bond's rise? 

UPDATE 2008.01.05 - Here is the current chart.  Like magic it fell the very next day.  And look where we are at today!  Spot on. 

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ES - Due to this being the holiday season, my homework is getting a little sparse.  December isn't the best time to trade, so I am just keeping tabs on the action in preparation for the start of the new year.

This is a summary of Wednesday's shortened session due to it being Christmas Eve!

After 5 days of declines, we have a very muted rally that stopped at the 34 volume weighted MA (burnt orange MA, one of my favorites). You can also see the 360° is also holding, but I don't feel like for long.   We may get a rally up to the crossing of those navy trendlines (or the 405° line), but I feel that will be about it.

Homework, Lesson

ES - This is a summary of Tuesday from a Gann perspective.  This is today's chart filled in, continued from the chart in yesterday's HW.  I tried to make it as confusing as possible. ;]  If you can follow it, this is really mind-blowing.  The Gann fan lines are still there from the previous pivot high (downward sloping, light gray lines).  With the addition of a measurement taking from yesterday's low (bottom left of the chart).  As mentioned in the chart from yesterday, we were pivoting on the 90° line, moving 30° lower (to 120) and 30° higher (to 60) before yesterday's close.  In the overnight action, we pulled back a little more, to the 45° line (876.75) and then fell back to the "center" at 90° (962) to complete the cycle, as noted in yesterday's HW.  After hitting that 90° line we swung up, then swung down a similar distance, all contained within the gray Gann fan lines.

One interesting thing to note, the distance from yesterday's swing high pivot and the swing low from this chart is 38 bars. 38 bars from that swing low is the exact peak before we began the fall of today's action (the bar that crossed the 45 line a second time).  Another 38 puts us at 3:30 EST tomorrow morning.  We will see if anything significant happens there.

Ultimately we closed at the 858.25 line from the daily chart, as mentioned in the previous HW. 

Homework, Lesson

ES - This is a summary of Monday's action from a Gann perspective.  From Friday's low, we bounced 45° to 891 area.  Then, taking a measurement from that retracement, we fell to the 120° (852) area, then ultimately found resistance on a 50% pullback to the 60° (872) area.  Another way to look at that is we went to 90+30 (120°), then rotated on that 90° level to 90-30 (60°).  Now that that rotation is complete, a return to the center 90° is probable (862).

You can also notice that on the way down to that 120° area, we had a small bounce on the 45° on the way down. 

This may be hard to understand, but it is very interesting.  Below is the same chart as above with some additional info on it.  It took 18 bars to go from the high pivot (marked "Pivot H0") to cross the 45° level (where first vertical blue line and horizontal 45° blue bar cross).  From there, it took another 18 bars to go from that point till it crossed the 90° line (second vertical blue line).  From that 90° line, it took 2 bars to go 30° more to 90+30=120°.  Then another 2 bars to go from that 120 to 90-30=60°!  

In other words, the vertical blue lines are 18 bars wide.  We crossed the 45 and the 90 in the same unit of time.  Then, after crossing the 90°, two quick red bars down to 90+30=120, then 2 quick green bars up to 90-30=60.  We are now in overnight data, so price does not move as quickly.  Perhaps we will return to the 90° line by the 4th vertical blue line?  (I've done some more work on the Gann Fan portion of my Gann script, which is much more complete and accurate now.  These are the light gray lines.)

Here is a look from a daily standpoint.  We see that we bounced off the 360° level (a 180° fall from the 540° area high) and returned within the triangle (blue lines). Looks like I was a day early on the 855-858 target (see Friday's homework)

Homework, Lesson

Very useful tool to see what the market did on any particular FOMC (Federal Open Market Committee) day: 

http://www.mypivots.com/Education/tools/fomcdays.aspx

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History repeats itself, so it's foolish not to learn from the past. 

The beginning of 2003 marked the beginning of a great rally in the dow to take it from 7500 up to 14,000.  What could have told us that this was going to happen right at that spot?

Here is a suggestion to consider... 

Below is a monthly chart of the Dow showing the behavior at that major pivot at the beginning of 2003.  If the overall monthly chart is right at support that's a multiple of 90° (See the larger picture), start looking for a balanced 45° movement as shown on the chart (45° up, then 45° down).  Just a 30° movement could be a sign of a continuation lower (instead of a reversal). 

Below is the current Dow monthly chart.  Does this look anything like the above chart?  Yes and no.  We do have an amazing reversal right off the 180° level (which is a multiple of 90°).  However, it is too early to tell if we will continue down another 90° (to 270° (4983)) or start putting in a bottom here.  In any case, it will take months to play out.

Some bold predictions... I've taken a measurement off the Oct 2007 close, the peak month of the rally (see chart below).  We bounced exactly off the 180° level in November.  However, IF we see 4983 (270°), then see a rally to 5755 (30° retracement) that does not hold, look for that 3000 level!  If we see a rally to 6161 (45°) off that 4983, look for a retest of 4983-5362, then BUY!   Now THAT will be your bottom.  Though, with that said, one thing you can count on is the market will be right.  The market is always right.

In any case, depending on where December closes, I'm expecting to see a rally to 9000 early in January (a 30° rally... or perhaps a multiple of 30° rally), then a continuation down to the next 90° level, 4983!  It took us a year to move down that 180° and that was a tremendous distance at a tremendous speed.  I don't expect us to fall that quickly from here, so it may take another year to just put in that next 90°. 

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This is a post that I'm sure I will revisit in the next few years and say, "why didn't I just do ____!  It was so clear!"

Major market reversal points typically happen at a multiples of 90°.  Thus, all lines on the charts below are increments of 90° (unless noted).  Let's take a look at the past 20-30 years of the major indexes. (None of these lines were manually placed at support/resistance areas.  Instead, these lines are calculated using a single number at a major low pivot and the market followed them!)

Monthly Dow Jones chart, measured from the bottom of the '87 crash.  I wish I had more historical data to do a complete analysis.  

Monthly S&P chart, measured from the lowest low I have data for.  The pop up and fall back to the 90° line is the '87 crash.  Then a rally up to the tech bubble and financial bubble double tops.  Both right on the 540° level (360°+180°=540°).

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ES - I am turning in my homework late and this is a summary of Monday instead of actual homework.  As mentioned in this Gann Lesson, we reached the 180° level soon after trading resumed Sunday afternoon and retraced to the 90° level (see first chart below).  This high also came right at a daily resistance line (see second chart).

Important Gann lesson:

• Multiples of 45° are considered "hard", "corrective" moves.
  
• Multiples of 30° are considered "soft", "continuation" moves. 

When there is a movement to the 180° level, there is typically a retracement of 45° and/or 90°.  This played out perfectly in today's action.  When we hit the 180° level, we retraced to 45°, then took a "soft" 30° pullback before continuing down to the 90° area.  To illustrate this, if you look closely at the chart, you see we bounced off the 135° level.  This is 180°-45° = 135°.  Thus, a 45° pullback from the 180°.  Then a small bounce (30°, not shown on chart), then a 90° retracement (180°-90°=90°).  What next?  Well, typically, we return to 180° then on to 360°.  However, we are in a bear market, so I will wait to see what the market tells us.

Today's bar is indicated by the large blue arrow.  Notice the day's high stopped cold at the blue resistance line (this is the same area discussed above).  Also, notice today's low stopped at the 360° rotation measured from the low we saw on 11/20.  Then, we closed on the 405° level (360°+45°).  Amazing!

You will also notice other levels lining up perfectly with past data.  For example,  270° (180°+90°) and 240° (180°+60°) levels. 

Homework, Lesson

ES - I just noticed something on the current intra-day chart that I had to post.  From the beginning of the fall Thursday afternoon, I was looking for a full 360° fall down to 866.  If we take another 360° move from that 866 level (thus, a 720° from the top), we have 829.25!  This is dead on to where we stopped this big fall.  Incredible! 

To better illustrate this, I updated my Gann script to handle degrees larger than 360°.  The chart below better illustrates the progression from Thursday's high, down to Friday's low (720° rotation (2x360)), then a return to the 180° mark by Friday's close.  Again, what's amazing about this, are these levels are calculated using a single number, 903.50 (small blue dash on chart).

 

 

While on the subject of a 720° move.  This next chart is mind boggling to me.  This is the weekly ES chart, taking a calculation from the Oct 2007 high (1586.75), you see we made a 720° rotation (to the TICK!) down to the recent November low (739).  You can see we retraced back to the 540° level (360° + 180° = 540°).

 

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