Homework for Thursday 2008.12.04

3. December 2008
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ESZ8 - Wednesday's close was a bit surprising, as I was expecting a fall.  So, I did some more research as to what would've foretold this move and why I missed it. My initial research turned up the 34ema (weighted).  This is the dark blue MA on the chart.  As you can see, we went right to it.  In the past, everytime we hit this line, we either bounced off immediately or crossed it and returned below it the very next day.  I recommend taking a look at the 34ema weighted (blue MA) and the 34ema volume weighted (maroon MA).  When price is between those two eMAs, it's decision time...  Either we will reverse back into original trend, or break out into a new trend.  I also recommend NOT trading if the 34 ema is flat (<30 angle).  This is merely "chop", without direction.  Based purely on the dark blue line (34 ema), you can see we are obviously trending down.

Also, based on the chart, we have a crisscrossing trendlines (purple line and dark yellow line) at around the 870-875 area.  Thursday's bar will place that purple line at 870, the dark yellow line at 877-880 (and, of course, the less-likely 897 line (big red line). 

  • Sell 870 872 (purple trendline and blue MA (you can see the chart labeled 872 on the right)), sell 877-880 (dark yellow trendline) 
    • Target 835 (blue horizontal line and light gray line from pitchfork)
  • Scroll down for the LONG argument... 
 
 
 
Long Scenario
This is an unlikely scenario, but it's good to be prepared... since we do have a bounce off the MOB (green block), divergence on the oscillator (vertical red lines with divergence shown with dark yellow line), and we are at the 34ema.
 
Here is the short-term, LONG argument.  If this pull back contains 3 waves, we could see a move to 973 (or to the grey-line from our pitchfork at 938-ish) then a move down to new lows.  Looking at the stochastic, we see we are almost over-bought, but not quite.  This could mean:
  • Buy at 865
    • Target 897 
Overnight trading should give us a better idea of direction.
 
 
 
 
Summary - 15:02 CST -  Wow, talk about spot on!  Our sell levels were 872 and 877-880 with a target of 835.  We hit 875.50 (4:30am CST) and broke 25 points!  We hit 875.50 a second time (9:55am CST) and broke all the way to 832!  That's another 43 points!  The sell areas were right there, the target area was also right there.  By the close, we managed to get above that light grey line from our pitchfork.
 
Of course, catching all those points would be a real feat, but 68 points is about $3,400 a contract!  Just catching half those points is still a great day.
 
Tomorrow, employment numbers!  No way those are going to be good.  More downside tomorrow.
 
 

Homework

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