Contracting Range


(click image to enlarge chart)


We now have a smaller range within a range corresponding to last week’s ‘Bin Laden bar high’ at 1373.50 and the low at 1325.25.  I have drawn in a shaded yellow rectangle on the chart above to show the new range.  I have also moved the range center line to 1349.50 and the accumulation zones to 1355.50 and 1343.25.

The old range center line at 1331.75 pegged two snap-back rally areas (1325.25 and yesterday at 1328.75), so not too shabby…and illustrates why it is important to correctly diagnose a range-bound environment–versus trending.

As I type (at 7:30 am EST) ES is sitting near the center of the previous week’s bar shadow at 1349. Last week was an outside bar that swept bear stops above and bull stops below the preceding week to take advantage (in my opinion) of the ‘news and noise’ surrounding the Bin Laden event.   This week, so far, has been an inside bar.

For this week to turn into anything significant from a weekly trending perspective–we would need to see either a new high above 1373.50–or a new low below 1325.25. The new center line at 1349.50 can serve as a statistical starting point today for keeping score of intra-range momentum. Risk management is the prime focus for pros, and the gain to risk odds are set at the mean in a range-bound market.

Stops and Targets’ nailed yesterday’s low in the short-term time frame at 1329.25 (see screen capture image from previous post) and shows a fully-bullish market above 1337.50.  S&T’s trading range is a bit different from mine, but I suspect theirs will also contract at the end of day if we don’t get a breakout.  S&T’s next ST upside target is at 1359.75 with a following stop set at 1337.50 from yesterday’s buy signal at 1329.25.

Weekly bull/bear line remains at 1325.25.

…my .02