Generally speaking you can’t ask for more – prices have hit new highs; a “break out” above the recent trading range has been made. Still, there are some issues here we should look at.
Market Internals
- Yesterday NYA hit new highs even as there are some divergences in the New High
- Divergence in our custom A/D volume indicator.
SPX and VIX – we also learned that VIX hit a new 9 year low this week – in fact VIX gapped down, showing a total lack of fear on that day.
VIX is threatening to reverse which plays into a market timing sell setup called the Larry Connors VIX Reversal on the link provided for a Knowledge Base article on this sell / buy setup.
ES 15M chart breaks the rising trendline; sometimes this provides an ideal for an aggressive intraday long – think of the quick break as a “trap” and what would happen if price reversed strongly.
On the other hand if the bounce is weak and within the lower half of the tall down bar, sellers will come out again if price heads lower. Note also that ADX had moved to over 40 on the 45 minute chart – in that time frame, when ADX moves above 40 we start to feel that price has been stretched too far. For smaller time frame charts, such as 1, 5 or 15 minute, its not uncommon for ADX to rise to 50, 60 and sometimes much higher.
If you ever are in such a trade (ADX > 50), tightening up stops to maximize profit taking makes a ton of sense.
Again on the 45M chart we see that the primary target has been reached (close enough for our purposes) – now the next key bit of information is whether price will again find support here. If not, we can expect a retracement into the range. Yellow alert on break of the range high; red alert on break of the range low, particularly if price is trending (lower swing highs, lower swing lows) down.
Taking Advantage Of Clues
Market direction analysis gives us clues as to when we should be hunting down possible changes in trend. Knowing that the picture here adds up to at least an attempt at failure (more sellers than buyers), I know what I have to do.
Due to the divergences in new highs and our volume indicator, I decided to stalk a failed test of intraday highs, and was rewarded with a decent entry point at 1207.50. WIth a break even stop in place now, I feel comfortable leaving this trade open for the day and will evaluate it at the close; if a decent profit cushion is built up, I’ll hold it over night.
04.12.15 11:13 #