By Chris Diodato
Most technicians are trend followers. I'm terrible at trend following, so I like picking tops and bottoms instead. In this video, you'll see how I try to pick a short term swing bottom in HAL and how you can trade the prediction today. Good luck!
By Christopher Diodato
Hey short term traders, it looks like the market is gearing for another breakout. We have been in a consolidation (while the rest of the world has been declining) since Bernanke's announcement of QE3. Now, it looks like the market, with renewed passion, is making another push to break through the resistance level at 1465 on the SPX and 13,660 on the Dow. This is a "flag" formation. To trade this breakout, set a stop order slightly above the resistance level and once filled, ride the breakout to the target of 13,925. Wise traders will take their profits slightly before the target is hit (don't get greedy)!
You can access the picture of the formation by clicking here.
Happy trading!
By Christopher Diodato
Yes, it seems that I have had a recent infatuation with crude oil. The price has been falling, but it found support right at the triple confluence zone I talked about last week. Now, watching momentum indicators, it looks like crude oil has, at least for the short term, bottomed.
A divergence occurs when price continues to trend in one direction, but momentum, which generally leads price tops, reverses. Here is the chart of USO (Sorry, I don't have the actual chart of crude on this computer). Notice how the RSI (a momentum indicator) bottomed early last week. Now, the RSI is climbing, and is using the 40 level as support. This is indicative of the stage being set for a bullish reversal.
In addition to this intra-day signal, a candlestick signal also says that today was a potential bottom. The actual pattern is called a "hammer"
So, "longers" in crude, it looks like the pain is about to end. Good job holding steady and not selling!
Happy trading!
~Chris Diodato
By Chris Diodato
In my Tuesday post and in today’s post, my objective is to support my thesis that the market is going to make some sort of important top around October 22-26. In another post, I used the Demark sequential to show that the market will be very vulnerable to bullish exhaustion. Now, to explore the market with the very little known methods of W.D. Gann.
Here’s the chart of SPY (I used the ETF because I wanted gaps included. Indices don’t gap). I use the “Square of 52″ and the 45 degree and 22.5% angles to find points of support and confluence.
The market seems to respect 45 degree trendlines from market bottoms quite well. The practice of drawing those trendlines for support has been used since the early days of point & figure charting. What I consider more notable is that when an important 45 and 22.5 degree line cross, the market tends to reverse. The next cross is scheduled to be around October 24.
Before we finish, let’s show one more chart. Here’s the same chart, with the Elliott Wave labels, and the time length of each of the two impulse waves, A, and C, labeled.
The equality point for wave C gives us a price target at 1566 on the S & P 500 on the last day of October.
So, in summary
Now I definitely won’t be doing this type of analysis that often, but it’s just nice to sometimes get a different point of view, and especially one that you will never see on the news media. To judge this signal when the time comes, look for consolidation during the last two weeks of October and our first sell signal in the beginning of November. Until then, if you’re not long, you’re wrong!
Happy trading!
~Christopher Diodato
By Chris Diodato
So called "experts" on the major business news stations scrambled this afternoon to explain oil's sudden decline of 4% at 2 P.M. EST. Attempting to find some sort of causality, news anchors rationalized the decline by suggesting that there may have been rumors of the government considering a release of oil from the Strategic Petroleum Reserve (SPR). Frankly, I believe that Democrats in office, seeking to maximize their appearance of doing "good will" for extra votes, would not use the SPR this far away from the election.
Watching the price movement today in an Elliott Wave and Gann framework, there is not enough information to confirm a new down trend yet. Below is what I consider the most probable wave count for oil, using USO. The chart for crude is very similar, but much more difficult to see.
This is not a line chart of the data. It is a study called the "Zig-Zag" which only shows price swings resulting in a 1% move or greater. It makes analyzing waves much easier. From this scenario we arrive at three different scenarios, which I'll phrase in "if/then" statements.
Either way, two of our three scenarios result in a wave four correction. Fours are characterized by "surprising disappointment." I believe that an SPR rumor appearing from smoke is a surprise enough. With wave 2 (July) taking the form of a quick decline, I expect the corrective wave four to be some sort of triangle or rectangle.
Which levels are acting as strong support for oil? For this, I will use the actual chart for crude oil futures.
Notice the two rectangles, filled in with pink and gray. Each of these levels are confluence zones, or major support areas. The pink level around $93.75 would correspond to an overall wave "4." For those not familiar with the implications, that means that oil is still in a fierce up trend, and will not be ending soon.
