VST Triangle Update


(click image to enlarge chart)

Yesterday’s price action was a textbook example of what I was talking about in the previous post about false trend line breaks followed by a sharp reversal after stops have been run–and is typical trading range activity.

They got the close in bull stops on the false trend line break of the purple trend line.  That trade is illustrated by the small yellow highlight at the dotted green trend line break—and then down to the larger yellow highlight oval where the stops were taken (under the dotted purple trend line) followed by a reversal back inside the triangle.

Notice that the upside push stopped just shy of hitting the price where the VST counter-trend sell occurred (illustrated by the small yellow oval at the dotted green trend line).  That holds those bears in the trade who missed the cover opportunity below the purple trend line break.  A push up and through that level could take out the day trading bears both at that line and on the other side of the red descending trend line.

The next easy prize would seem to be taking those close-in bear stops mentioned in the paragraph above to achieve the mirror trend line break—but we’ll see.

The next area of major upside resistance (in my opinion) is near 1125-1128 area (illustrated by the yellow rectangle in the image above).

On a closing bar basis, the trends remain up in all time frames here after enduring several intraday tests of the recent IT and ST trend change on February 16–but price remains near the center of the current trading range between 1056-1145 so some volatility is expected and fast moves can occur in either direction.

The gray ST trident channel remains the current dominant technical feature (in my opinion) and there is an interesting confluence of the trend channel top with the major resistance area near 1125-1128 (mentioned in a previous post) that could be the next target of a push higher, if one transpires.

An eventual test of the trading range (roughly bound by the ST gray trident channel) is the primary interest here in the ST and could lead to a decent VST trade setup at a touch of either the top or bottom rail of the gray trident.

The current VST line of interest here is the red trend line with likely bear stops resting on the other side.  It will be interesting to see if price accelerates higher to the trend channel top if a breakout of that line occurs—or if it again retreats after (if) stops are taken.  The opposite corollary to yesterday applies here…a true VST trending move likely will break the line and continue to run without violating the breakout line on a pullback.

If the current push higher stalls and reverses–a move lower from here could initially target intratrend support near the 1080 area.

…my .02

VST Triangle

(click image to enlarge chart)

A triangle has formed around the Stops and Targets ST primary trend line, which is pitting counter-trend bears against VST bulls vying for control of the trend.

The purple trend line defines VST support and the red trend line defines VST (counter-trend) resistance (in my opinion).  In a trading range environment, resting stops often become the target as range traders oscillate back and forth looking for easy prey.  VST stops may likely be found on either side of the two trendlines mentioned above.

The small yellow highlight circle shows where the most aggressive counter-trend short trade began.  Those bears would likely be forced to cover if the current push goes up and through that entry level.  The red trendline serves as a reasonable stop placement area for those counter-trend bears who think the entry at the yellow circle is the start of a new cascading downtrend.

Many VST and ST bulls may be watching the purple trendline as a protective stop placement area.  If selling reappears, then the ST trend will flip followed by the VST at the purple trendline.

So (in my opinion) those two trendlines form a triangle that delineates the lines of next importance for VST trading.

Those of you who have been reading my rants for a while may be familiar with what I call the ‘white knuckle time’ on a new trade entry.  Often, a new entry will be tested with a scary pullback near the ideal entry point to shake out latecomers and to free up shares for those who wish to move in the opposite direction of the shakeout.  We’ll have to wait and see if yesterday’s action was a shakeout in the existing uptrend—or the precursor to a trend change.  The purple trendline trend line (presently lining up nicely with the ST primary trend line) seems a reasonable place to serve as a dividing line between bullish and bearish momentum here in the VST and price action may be considered bullish above that line—but switching to bearish on a takeout and hold below.

This is a trading range here at present—so volatility is to be expected as traders consolidate positions and place their bets on the next trending move–but beware of the false trendline breaks and reversals after stops are run.  This is a place of confusion for many traders and the most zealous ones will be looking to place large emotional bets–which, of course, attract the stop runners.  The two places I have pointed out could be targets for stop running–but watch the price action carefully after the stops are taken.  A real VST trending move will most likely run without recrossing the trendline break.

Present trading range is 1056 to 1145 and roughly corresponds to the gray ST trident channel shown on the chart above.  Current price is presently at the midway point of that range–so the house has the advantage on daytrading activity in this area.

…my .02

ES Update 2-23-10

(click on image to enlarge chart)

The bottom rail of the small blue trident channel was broken this morning (now shown as dotted blue line in the chart above).  (I have drawn in a dotted green line that represents the most aggressive countertrend short entry to keep track of the likely defensive posture of those who entered short trades at that break)

The purple trendline shows VST trendline support and under there is where current VST long stops are likely located.

S&T indicates that ES is presently in a trading range between 1056 and 1145.75.  Add those two numbers together and divide by two and the mid-range doldrums number is at about 1100, so there could be some volatility within that trading range and no clear cut trending move winner until one side or the other is eventually broken.

ST trend would reverse to down under 1092.75 and VST under the purple trend line.  For now, the trends remain up with a white-knuckle test of bullish resolve presently occurring.

Protective profit stop for ideal ST trade from 1087 is in profit here by about 5 points—not a lot, but a small cushion that is being tested on this probe lower.

The purple trendline seems to be the key line to watch here on this pullback.  A break and hold of that line could open the doors for the bears to do something–and the ST, IT and VST trends would all flip back down on a push and hold below.  On the other hand—this is a potential pullback buy zone with excellent gain/risk ratios if this probe bounces near support and resumes the recent uptrend.

…my .02

ES Update

(click on the image to enlarge chart)

Not much has changed tactically since the last update.  There was a little back-testing of the old descending trend line (now shown as dotted red) followed by a shot to the center tine of the blue channel to close February OpEx last Friday and to take the bear stops mentioned in the previous post.

The gray channel continues to illustrate the ST uptrend and the blue channel has worked nicely representing the VST uptrend.

The top rail of the gray channel could be the next upside target–and the lower rail of the blue trident channel serves as an early warning indicator if a sell-off develops.  Those are the two key lines in play here (in my opinion).

The yellow shaded area on the chart above represents the next area of significant resistance above the gray trend channel–and is where sell signals were generated for the recent down-move to the 2/5 low.

If the current rally is merely a snap-back within an unfolding intermediate bearish downtrend, then that yellow shaded area could cap the rally.  On the other hand, if ES can break out above that resistance band–then most remaining shorts will be forced to concede and new highs could be forthcoming.

As always, the trend is your friend until it isn’t and all trends remain up on ES above the Stops and Targets primary trend line currently at 1091.25 (shown as a blue horizontal line on the chart above).

…my .02

ES VST Intraday Trident

(click image to enlarge chart)

I have hidden some of the old lines on the VST chart above to show what I believe to be the current channels in play on an intraday basis.

The light gray trident corresponds to the embedded VST channel within the darker gray ST channel on the daily bar chart posted yesterday.

The blue trident channel represents the current push up, and price is hovering around the broken red downtrend line awaiting resolution after the IT bear stops were taken just above there.

Bulls remain in control of the macro trend here (in my opinion) so long as price remains above the bottom rail of the blue channel (which currently lines up with IT primary trend support).

Next bear stops higher are likely just above 1102 to 1105 area, shown by yellow rectangle.

…my .02