Homework for Wednesday 2008.12.24

24. December 2008
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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.

 
 
Below is an intraday chart (30-min).  Even though today is Christmas eve and a shortened day, doesn't mean the market just moves randomly.  Based on the 360° line from the above chart (858.25) I applied one of my, what I like to call, "Primary Rotation" scripts. These are the horizontal light gray lines.  What this script does is, based off the primary pivot (in this case "A") and a user entered level (858.25, big red line), it takes measurements and outputs levels.  
 
In this example, (look at the labels for the horizontal gray lines) you can see:
  • Price hit the low swing ("A"), then continued the same distance above the "center line" to the 100% level ("B").  To finish the rotation, price returns to the center.
  • It then went 25% lower ("C"), thus went at least 25% higher (to the 75% level, "D").  (half of the rotation that A/B made)
  • Half-way between the 75% and the 100% is 87.5%, which is the area that "D" hit.  Thus, to complete the rotation, we make an equal move down to the 12.5% level (half way between 0% and 25%)
  • FYI, The high point of the day ("F") is about twice the distance from "A" to "D".  Two times 87.5% = 175%, which is around where we topped out at.
So, if you can identify an important support/resistance level, it doesn't necessarily mean it will only act as support or resistance.  Sometimes, it will act as a "center line" that price will swing back and forth on.  If price does this you can take a look at the distance it moved below the line, then look for an equal move above the line and vice versa.  "Sideways" days typically demonstrate this behavior, just as today did.
 

Homework, Lesson

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