Market Setup Example, 2009.10.08

8. October 2009
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ES 1597T: The ES got a jolt of adrenaline after hours due to Alcoa earnings.  Using the rules posted in the last post, we are forced to look at a higher time frame due to this spike in price action.  The right, blue arrow shows an extension (161.8%) of the left blue arrow (rule #1).  Using the first pullback off the previous swing high, we get an idea of where price will pull back too for the next move higher.  These are the two red arrows.  See next chart for a closer look at this movement. (FYI, the light blue areas are overnight trading.  Thus, this chart shows two days of price action.)

 

Below is a closer look at the price action and how that little movement (from two days ago!) gave a window to how far the initial pullback could be off this high (red arrow).  As you can see, it was perfect, to the tick.  Then, there was a rally to a double top, then a sell off in the direction of the gap fill.  Typically, we would expect a higher high, but due to the time of day (8:30am EST) and the typical gravitation toward the gap (1053.25 in this case), it is not surprising to see a sell off.  Also, 1065.75 lines up with the 9/29/2009 high, so that also adds confluence.

 
 
 
 

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