Crater Day for $SPX: More to Come?

Today is a compelling refutation of yesterday’s headline GDP-predicated retracement/rally, particularly given the high live volume vis-a-vis the prevalent low volume program trading paradigm. My ongoing observation has been that small cap growth is leading other areas of the style map around by the nose, and today is no different with $RUT posting a 2.85% decline at 1330ET.

Chart below is of SPX with some key technical considerations and potential target/bounce points based off fibonacci extension levels Wednesday-today’s activity.

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Time For A Breath?

…My thinking.  $SPX has tagged and closed above 1k (yippee for now), but is in the thick of a small, formidable range bounded to the upside ~1014 (38.2% fib retracement from top to bottom).  That may mean nothing: if not, the way up is tall and thin with little to bump one’s head on until 1122 (50% retracement).  Upside resistance there on the equity side resonates with what I think are the terminal fibonacci extensions to be tagged on this move up for EUR/USD, GBP/USD and GBP/JPY: three of a small handful of pairs I monitor to evaluate sentiment.  I may be all wrong (and I’m guarding convictions with fairly tight stops), but I see some backflow out of EUR and GBP overnight, into the morning.  CPCEPI and Consumption out at 0830ET could catalyze or nullify that projections.

Trades for overnight:

USD/CAD: Long 1.0663, Stop 1.0570, TP 1.0763

GBP/JPY: Short 161.63, Stop 162.40, TP 160.64

EUR/USD: Short 1.4403, Stop 144.73, TP 1.4303

EUR/JPY Short 137.30, Stop 137.92, TP 136.29

08/03/09 Overnight Trades: GBP/USD

Last night’s long trades on GBP/JPY, GBP/USD, EUR/JPY, EUR/USD and short on USD/CAD went over well.  Each trade was based on anticipation of attaining a fibonacci extension level, building on last Friday’s substantial movement.  No time to outline each trade, but here’s a snippet, going over the GBP/USD trade.

First, a simple trade I outlined over the weekend, didn’t take for obvious reasons (entry was on 07/19), but on which the trade I did take last night was built:

And last night’s trade.  Basic 1-2-3 pattern: a measured move up, even if it’s a pretty ugly one.  Given that I wasn’t starting this until the beginning of this month, I was a little late to the party.

Picking the low on 07/29 at 1.6338 as Point 1, the swing high early the next morning at 1.6526 and then the low shortly thereafter at 164.56, the original trigger for this trade would’ve been either:

• a close above the corrective trendline at 1000 ET on 07/30 at 1.6492, which subsequently spun its wheels until, the second and more conservative entry point at
• on the close above the range of the first fibonacci study in the 0000 ET 07/31 candle at 1.6542.

With neither of those applying by Sunday night, I entered a couple pips above the 161.8% extension of the green study from the previous chart (the top dashed green line @ 1.6735) at 1.6737. Breaking above the congestion at 1.6760 (the 161.8% extension of the second green study on this chart) confirmed the entry. I then time stopped the trade to take profit this morning at 1.6868 for +131.

If one were to draw a retracement over the congestion from 1200 ET 07/31 to 0000 ET 08/03, they’d find price retraced 78.6%, from which an extension could be drawn that pegs the 161.8% level for each in the 168.50 area. The next area of interest is the 261.8% of these and the latter green study on the above chart, all falling at 1.6937-1.6954.

The trade itself is noteworthy because of the hesitancy I would otherwise have over taking an entry after a parabolic rise like the one that occurred on 07/31.

July Behind, August Ahead

At risk of jeopardizing positive momentum, I’ll say it anyway: July was a great month.  The final two weeks brought the incline of my primary account’s equity curve back to a more reasonable angle, but were still fantastic weeks.  Overall, the preceding 6 weeks have been an amazing streak that have more than doubled my equity from mid-June.

Perpetuating success means looking around for failure.  Bad habits go away, making room for others or become dormant only to return more forcefully than ever.  I’ve elaborated some on what I feel I’ve been doing right in previous posts; but what have I been doing wrong?  Well, the usual answer: ineffectively managing risk.  My win ratio has been through the roof across this 1.5 month period (well, what I regard as “through the roof”: 70-80%), but those times where I have been wrong, especially one instance of multiple pairs on together with a correlated risk profile that I didn’t properly account for, I’ve taken hits that I think are unacceptable.  A related issue is volume: “high probability setups” is just fine, but when you’re taking quite a few of those and managing them a little more shoddily than you’d like because quantity overwhelms your patience, availability, etc., then there is a problem, “high probability” be damned.

This month, I’ll be concentrating on 1) moderating trade volume.  No quotas or that kind of nonsense.  2) In tandem with that, evaluating trades-in-progress (TIP) a bit more rigorously.  I usually time stop any TIPs two times a day (once around 7-8 a.m., the other around 12 p.m-1 p.m. ET) whether in profit or not, but there is always the occasional trade I regret letting go of because of further potential.  Sure, I’ll dip back in later if variables align, but fewer trades and less analysis for re-entry would follow from letting those “winners run”.  Or maybe I shouldn’t screw with a good thing.  We’ll see.

In other news, a randomly answered question over the weekend about fibonacci retracements and extensions rekindled my interest in their application to my own activity.  I’ve never been much for mucking around with indicators, methodologies developed and peddled by others, systems (automated or not).  My toolbox has accumulated odds-and-ends over time, but is relatively lo-tech, simplistic and without novelty.  Thankfully, innate temperament has always dissuaded me from hopping on the custom indicator/EA/method-o’-the-week hamster wheel.  Fibonacci – and Ichimoku – is, really, about as “sophisticated” as gets, and I realize I’ve missed how my use of fib studies complemented those tools I more typically use.  My plan is to use retracements, projections, extensions and fans more extensively, and if I’m inclined I’ll get back into some Gartley and other harmonic patterns.

GBP/JPY Battles the Pink Robots And Wins

Right around 124.67 (the previously, previously discussed 261.8% fibonacci extension line) there’s an ascending triangle winding out that looks to break up or down (but usually up) sometime in early Tokyo. You’ll find the same construction across the board on JPY crosses.

Da' Guppy: Ascending Triangle Breakout?

Listen to the Flaming Lips’ account of the epic altercation here:

Okay, so that isn’t really GBP/JPY they are talking about. But you guessed that already. Right?

That track necessitates inclusion of my favorite song off of that disc, one of my favorite albums (of the last 10 years, at any rate):

Not a bad video, either.

Symmetrical Triangle: Bearish Continuation?

A mostly uniform symmetrical triangle is winding up on GBP/JPY. On the left is the triangle (with the previously discussed 261.8% extension at ~124.67); on the right, the same chart overlaid with several fibonacci retracement/extension studies. That one is quite noisy but you can see overlapping ratios providing confluence more clearly mapping activity within the triangle. Building extensions over triangles (and other patterns) is helpful for developing take-profit points in coordination with the more textbook targets associated with whatever pattern is in play.

There isn’t much challenging a bearish continuation technically, except the appearance of long lower shadows on the 1D: yesterday’s (unconfirmed) hammer and today’s (currently) kind of hammer-ish spinning top. These obviously aren’t definitive, but presage tops/pullbacks/throwbacks/corrections/reversals often enough to carry solid weight. There are several great examples of this on the chart above.

Until there’s solid evidence otherwise, I’ll be looking for short opps only for my typical long day/swing trades. I’ve taken a series of countertrend/throwback long daytrades this week that aren’t time “scalps” but typically last 15 min. – 1 hour. As unaccustomed as I’ve become to trading in quantity and with much intraday frequency, these trades have gone strikingly well, even while they turn into the prevailing winds driving the pair down. If I see a (relatively) quick round trip, I’ll take it. But I’m no scalper; the light went out on that corner of my “trading personality” when I gave up skimming ticks off of e-minis contracts several years ago. How I trade now is much less “sexy”, but immensely more productive.

And now I won’t end up like that trader with the ulcer in the bathroom before the pit scene in Trading Places. And speaking of the pit scene:

“Get those traders back in here! Turn those machines back on! TURN THOSE MACHINES BACK ON!!!”

Never get tired of that….

GBP/JPY: Top To Bottom?

GBP/JPY’s weekend straddling double top has fallen almost 1100 pips since Sunday evening. According to one rendering of that move I’ve been working with, the pair is bumping against the 461.8% fibonacci extension off the swing-high at the first top and swing-low at the trough before the second top:

Double Top: At Bottom?

According to the same schema off the latter top, we have this treatment, where the 261.8% extension falls around 124.67: Using high and lows rather than closes on the candle, the extension value falls closer to 124.32.

Double Top: Or this Bottom?

Maybe all this bottom-talk is foolish; but at these levels, a little speculation on how the pair will behave is warranted.