Nuanced Waves

The Present Gap in the S&P 500 Futures

+29 points Mid-Day Wednesday

• Discernment of Trend Status
• The Gap aspect as a potential trap for bulls and bears
• When new lows are reached (in this micro trend) and we probe new depths

In the comment boxes you will see relative tops 1, 2 and 3: and we feel that the bulls would have bought into the idea of a next phase higher in each of those levels between 2735 and 2740.  

From top to bottom of this 60 point range you'll see the highs are declining just gradually, and the bottom fell out at 2700 this week when it fell through quickly yesterday, confirming the pattern yet setting up a bear trap, which is likely just demand expressing itself. 

The return back to origin

In the middle, it would look like railroad tracks, I have found these to be in alignment with several key turning points.  At 2726 and 2724.50,  those levels acted as initially a bull trap and then a bear trap (the base of that gap which filled).  I would say the point of imbalance is because of where the sell-off originated and for that reason we have such a spike in equities today, these things tend to return back to home.  

If the pattern still persists we should see a break to new depths below 2680 and the market moving at a swifter pace while expanding the average true range 

Stops should be called Shields

NZD/JPY 

How Stops Saved Me Once Again

Here are some of the parameters for this NZD/JPY trade; it was a long position

I risked 15 to get a reward of 40 but as it turned out my risks would have expanded by almost double or triple if I kept the long position or added to it. 

My stop was located at the red line at 74.99, and my entry was at 75.15.

• I put in my orders with stops first, entries second, and targets third
• I tend to go with the flow, unless there is an extreme range imbalance which should be exploited
• My perceptions were not in tune with the tape perhaps
• Stops are Fundamental to trading

The logic for my entry was that I believe it was basing near 75 and it was coming into a level at support, basically buy at the bottom of the range (it was like thin ice)

My view of the imbalance was that the buyers would come in and defend 75 but as it turned out there was enough of a rush to bring it down to 74.544 and flush it down 50 pips greater than my expectations

The Yen was very strong like we have been saying, but maybe the most important aspect of this was all the money I would have lost if I kept the trade in and started nursing it.  

I always like to show how deep the problems would have been [the green shaded zone would have been my punishment for keeping a long position during a massive liquidation like this]

The good news is that it is starting to show some signs of improvement and Yen related pairs are good to watch now should the Yen begin to give back some of its gains.  

Why I would be bullish on the Yen and bearish on the Euro?

The Deception of Long Term Euro Support

EURO VS YEN

• Simplified Technicals
• Mid Range Challenges
• Yen is the Overriding factor
• Should follow sequence without too much difficulty

On the far left edge of this chart (daily) you can see the type of pattern that occurred during the 2015 to 2016 plunge of the EUR/JPY.  So since we are comparing these moments of time lets look at the levels between 135 and 137.50 shaded in red and look to the late summer of 2015 to a guide as to what might repeat

I believe the pattern has already set in, and its only about a third completed.  

The 127.50 might deceive bears as it may turn out to be a bear trap (Euro at significant support levels) when comparing the Euro to many other currencies some of the short term issues are in the process of being priced in so at the moment it may revive itself for a quick burst before reaching a faster downside momentum

Whether the Yen gets stronger tomorrow or not, we still think that the fuel to the fire behind the continuation of this sell off is BECAUSE of the Yen or is exacerbated by a combination of Yen strength and Euro weakness; the timing of these challenges is to be determined  

The sequence back in 2015 follow this type of course in terms of its point declines and rises from the summer of 2015 to May of 2016

-600, +500, -698, +515, -822, +548, -1032, +575  etc etc 

And followed a similar pattern until  -1229 at the absolute bottom where the Euro bears capitulated

This most recent plunge was 411 pips and it has historically acted well around 127.50 so I invite any bounces to enable us to get great short entries on the back of a unusually strong Yen.  

Idiosyncratic

Our Personal Perceptions

The CBOE Vix traded between 8.56 and 50.3 this year

A daily chart of the VXX 

The failure to support 38.59:

• I was buying calls on the deeper dips near the mid line
• I bought puts in February several times each of which paid off nicely
• I could not justify buying puts in April except if I did I would have made out well

This is a self-decaying asset, and for the most part, the only way to make money on it is in an intense corrective sequence in the S&P 500 and to not hold this name for a position for longer than a specified number of trading days.

Options provided a great solution to this problem.

The dashed mid-line here (38.59) was the line in the sand for me personally with how far I thought they would allow the VXX to drop before bringing it back to the 1st quarter highs.  

So for us the strategies we employed paid off nicely for both bullish and bearish directions, but as you can see by the directional change-over in April it would have been more slanted to the bears winning and the put options (long) would have been paying well.

For my method of analysis price is more important than time, but lets take a look at how long in the tooth the correction has lasted.  If you combine the descent from April to mid april and then April 26th to now you would have 12 and 34 days of decline and that spells trouble for the bears of VXX.  (on a time basis)

Although I am not ruling out a possibility of a return to the 25-27 range if the market hits new all time highs again, I am just saying that my personal perceptions were not calibrated to the reality of 34 was where the deep demand (or S&P 500 selling pressure) in VXX would be located. 

The notes on the chart for this past week include 1st test at 33.54 and the second test which happened on Friday - that is to say that if 34 is the strongest point of support for VXX that will be proven this next trading week.  

This second chart is the purest form of the Vix, and today its showing (by my personal notes) it was able to dip into the "area of extreme complacency" between 14 and 13.22

And because we have our eyes on so many markets it took me this long to revisit the Vix index, as we believe its time again to start ramping higher; when this happened last in the earlier part of this year it did not end well for the S&P 500 bulls.  In this current position it has acted as a launching pad to move us into the amazing highs of 50.3.  Will history repeat? Time will tell....

USD/CAD, Crude Oil and the Vix with both the CBOE Vix index and VXX

Hi Everyone,

today I am faced with some technical problems with systems updates on my work-computer so we will revise this post to include more photos and it will be re-done tomorrow once the system is back up and running

4th Time is a Charm?

The Upside Break-Out that Might Occur in USD/CAD

Breaking out of the yellow cage

1. Longer Term Rally Set In
2. The many times this 1.2915 was rejected led to more than 100 pips of downside
3. 1.2750 or the 50% retracement could be tested in an environment of dollar weakness
4. The commodity currencies are resuming their downtrend

That is the executive summary for today!

447 Minutes - Beastly Yen

The Dangers of Counter-Trend Trading

NZD/JPY long position 

 Filtered from the 30 minute chart and viewed from the 1 minute

• Price was ticking higher yet above the 50 moving average
• Programmed exit at 76.25 (whole numbers and fractions as exit signals)
• The Vertical Lines as times of the day 

My entry was at the second test of support at 75.90 I didn't think I would be filled, but I was long and I did not experience that much pain initially (that is usually a good sign)

Since I entered below the 76 handle I thought it might bounce by a factor of 15 to 35 pips and that is exactly what happened.

For something like this, Think or Swim has shown us 7 hours of holding period, how long that feels for you is more subjective, this felt like nothing at all for me because day trades make up about 10% of my focus 

What is also very clear about this chart is that I exited at a great time.  So with all of that said, bounces because of mean-reversion opportunities come quite often, but in the end it would have been a disaster if I held on to this long position with so much strength in the Yen.  

When trend reverse even if temporarily

EUR/USD DAILY

Long Position 

• Significant departure out of the 1.17177 line
• Bullish reversal candlestick
• slight consolidation and tapering off the downside pressure
• Moving average far away 
• Mid-line at 1.2050
• Shock Appeal of the 1.17 level being touched

Departure 

I mentioned in previous posts how important that deeper zone where the buyers would be located in green would be in the not too distant future and it seems that the technicals of today's market proved that 1.1717 would be one of the most critical support points for EUR/USD

Bullish Candlestick:  Hammer

The departure yesterday and today's re-attempt at reaching lows indicate a bullish reversal, we are more likely than not going to be challenging the mid-range of this 1.25548 top to 1.1717 bottom 

Consolidation and fake Break-Down

The daily candlesticks here started deliberating a bit before the final climax lower (excitement for bears) and what happened recently before the steep decline seen on Monday was the weak hands being washed out of the trade.  There was some degree of pause in terms of momentum slowing down (more consolidations) before the final rush to near 1.17

Moving Average (50 simple) Far Away at 1.2162

This and the other factor being the mid point in the range increase the chance of buyers showing their willingness to trigger algorithms "buy programs" designed to level up to 1.18, 1.19, and 1.20 etc until the ultimate goal in this sequence is achieved

Mid-Line

It was more of a subjective measure on my part to say the mid-line is at 1.2050 because it can be higher, but as always when scaling in and scaling out of trades its better to manage profits on the way higher.    

Shock

Many Euro bulls had their attitudes and expectations challenged over the past few weeks, and maybe what they needed was the last test of their strength with the long wicked daily candle printed yesterday.  For a majority of this year it would have been hard to believe that the EUR/USD would even trade below 1.21 let alone 1.20

Put Options in Starbucks SBUX

Will there be a pullback in the USD?

The Year of the Dollar or Pending Euro-Zone Weakness

The Higher Time Frame 

Here are some technical conditions in the US-Dollar

• 471 Point Advance since January 25th 
• The Power of this most recent Advance
• The placement of the 50-SMA (Moving Average)
• Where the more aggressive buyers triggered orders
• The Shallow Pauses

The magnitude of this advance has been very powerful and 471 points is enough to cause a stall here, and possible retracement.  The dollar has not pulled back much ever since breakout out of the buyer's zone below (light yellow)

Many measured moves have been completed (goals have been met) and even though the US-Dollar didn't reach the psychologically significant 12,000 level it still came very close to the shelf top established in December last year at or around 11,975

The simple moving average here is constantly in motion, but if the index would mean revert today back to it, price would have to touch 11,736 (current position) The slope of the line will adjust tomorrow and next week, but its fair to say that many will be anticipating a move back toward that line, and for that reason there could be some buyers stepping aside until enough time has passed.  

Most of the aggressive buyers were waiting for a pullback at just a notch above 11,850 (acceptance) and we anticipate the Dollar to pullback to there initially.  

The Lower Time Frame 

• Stalling on this time Frame (hard to hold above the rectangle)
• Mean Reversion at 11,925 but potential to go back to the rally origin
• 115 points is not unreasonable 

The dollar index is getting rejected more frequently at 11,980 and that could be the barrier to further upside, there is no doubt the trend is still higher so we are not calling the top by any means.  However, this rejection matters, because it could lead to further downside momentum to 11,900

If price on this time frame mean reverts fully, that would mean a downside target of 11,875 to 11,900 is well within reach

Before, we discussed the dollar advancing 471 points from trough to peak (peak? mini-peak possibly at at 11,980) and 115 points of a drop is not a pipe-dream 

30,000 on my neck

Get wet

Projections, Extensions and Probabilities

When You Snooze You Loose

Daily Chart of the 1.27 to 1.2850

US-Dollar Long Bias, and CAD short bias (flexible)

• Points of Interest on the Bullish Nature of this Recent Trend
• Turning the corner, completing Fibonacci Retracements
• Balanced Approach
• Ready for Either Direction with Milestones

Points of Interest; The Bull Side and Bear Side

When I was writing about this currency pair days ago, I wrote that I could anticipate a continuation of the bullish move after making a decent enough of a pullback, yet 1.2753 was good enough to create a base of support to rally into today's session.  

The most obvious trade would be a long position going to 1.29083 (within reach) so we expect that to be tapped within a day or so but time will tell

The Fibonacci Levels Were Met

The retracements drawn a few days ago came to fruition, all of our goals re: the pullback was met so we expect the upward direction to pick up momentum and at another point in the trend we'll redraw fibonacci retracements. 

Balanced Approach

We are turning more bullish on the US-Dollar and more bearish on the Canadian Dollar; what we anticipate is a break out of the zone between 1.27 and 1.28 and the establishment of a new trading zone where prices bounce back and forth between the 1.29 and 1.33 territory, the rest of the trade logic would deal with milestones

Directional Order Placement (Chart notes)

What we have noted as shelves "mini shelf, shelf, and Shelf A" are the areas in which we expect to see stalling, if the US-dollar gets overheated and needs to calm down then it would be a good idea to taper off the long position.  

Each of the bullish objectives are (yellow zones)

• 1.2908
• 1.2991
• 1.3093
• 1.3319

If things go the way we don't expect then (deeper green zones)

• 1.2753
• 1.2538
• 1.2259
• 1.2122

Longer Term Dollar Implications

The US-Dollar VS Swiss Franc

The Monthly Curve; expensive or cheap

We are comparing the economy of the US to the Swiss

The downtrend is clear, however for many months the dollar is starting to turn the corner, so it is up for debate just how the US comparatively handles its monetary policy to the Swiss

The curve for the Dollar against the Franc has been slowly grinding higher for the past 6 years and it is starting to show fresher highs, with a longer term base that appears to be one of the classic cup-with handle patterns and the upside breakout is coming on soon.  The challenge for dollar bulls is the 1.03576 level which I put in the horizontal line above.  And the green and red rectangles here mark where I believe there is either buying or selling pressure (green and red respectively) 

 

The trend on the weekly timeframe

Price on its weekly timeframe is showing some signs of fatigue but there is still plenty of upside left because the current level of 1.0012 is not EXTREMELY expensive yet, and the more powerful overhead resistance is located near the bottom of the red rectangle between 1.03 and 1.0357

The daily and closer to exhaustion and pullback

If the trend is much more bullish then the logic would be that the pullback will be modest and should be seen as a buying opportunity because of the break of the 0.9971 level that puts the exchange rate in a much more bullish sequence of events.  And what I mean by that is the motivation would be to break above the near-term high of 1.00558 and gradually pace itself to 1.01, then 1.02 etc with each level set to a higher goal.  

There are some early signs of distribution and the Dollar index itself is starting to weaken a bit, but if the trend overall is still intact patience would pay off when buying these dip opportunities.     

The Obvious Thing that didn't Work

The Obvious and the Subtle 

• Obviously Wrong
• Signals on Principle
• No Need for Whole Numbers

Obviously Wrong

Anyone with a background in technical analysis can point out that his trend line here should have been a resistance point for anyone speculating on the inference that the wash-out that occurred in late January would continue for the rest of the year with a few pauses along the way.  From one point of view, the most obvious take on trendline analysis has proven to be wrong .

Signals on Principle

The upside break of the trendline here acted as a bullish buy signal and it proved the potential to add another 2.9% to the SPY.  Each downside break along the path to 256.  Being a good trader involves obeying and respecting signals, and in this instance it was a bullish one and powerful enough to carve out some decent profits even if its a bullish view.

The Need for a Whole Number

Many traders and analysts need whole numbers like 275, or 280 to claim an important number (in this scenario a resistance point) And in this next image we'll examine the point of inflection and why 274.05-275 was important as both an origin of a rally and correction.  

 1.  274 maters because it was a point of a gap.  Price then rallied extremely fast lead us up to all time highs.  The hidden nature of 274 is probably embedded in the memory of many programs that are set to either buy heavy or sell heavy at this level.

2.  It is clear that this point on the chart expanded the range and momentum to the downside and eventually bottomed at 254.14

3.  There were two touches of this line, both acting as (memory) of the decline that happened in reference #2, resulting in tall candle wicks and marking more distributive pressure.

4.  The first bullish attempt to reclaim a rally but we'll see how it doesn't last until it gaps

5.  An equally powerful red candle to signal and engulfing candlestick formation (make note 4 and 5 had very long real bodies) the action between 3 and 5 was more sideways and should have been traded like a range of 2 to 5 points

6.  The SPY was only able to reclaim 2.41% similar to point 4 where it only gained 1.71% it also proved the point in how likely gaps are to fill

7.  Plunge with Heavy Supply - this was one of the last tests of the buyer's strength, time will tell whether this marks the most significant area of supply (heavy distribution) and the reason why I noted point 8 as stall.  This level was an important point of inflection for either a rally origin, correction origin and a mid-range energizer.  Today's candlestick also can take a bearish interpretation of being the consolidation before the downside break or reversal.

As always there are so many millions of people in the crowd involved in these markets and opinions are subject to having flaws.  I have been following the bear case for a long time and I could have skewed the point here, but this would make an awesome top here if that proves to be true.  

Technically speaking, this could spark a bearish reversal, but confirmation is needed for it to have more staying power.  

Trade well...

Comparisons

Crude Oil and The US-Dollar

The US-Dollar against the Canadian dollar is shaded in red and green while Crude Oil is shaded in purple and white.  They are on there to underline the negative relationship the dollar is supposed to have to crude oil and/or the Canadian dollar

Most of the arrow points on this chart highlight advances in crude, between 3.86%, 4.38% and 6.81%

Point A

It is the start of the 3.86% rally in June of last year.  The underlying commodity experienced a modest rally while the dollar declined massively against it.  After that, the USD and Crude oil were in a bit of a sideways comparative movement, while crude oil mostly gained. 

In December of last year crude oil picked up massively while the dollar continued its retest of multi week lows.  From mid-November to mid-January the negative relationship correlated very well. 

Point B

Even though Crude retraced 3.53% you could notice how powerful the Dollar's responsive rally was, and even though that relationship broke in 4/9 until now (meaning they started positively correlating) there is still chance for the mid-January type of set-up to resume where the dollar rallies and crude fades

Point C

The Dollar had a technical retracement because of many issues like how quickly the dollar index advanced, the overall state of the commodity market and in particular this currency pair can have the interpretation of a lower high in a series of higher highs, or a speedbump on the way higher if you would.  There are surely many political reasons why crude can continue climbing, but it is our opinion that the US-Dollar spent an 8 month period basing against the Canadian dollar and the commodities that trade with it. 

Fractal

The Same Pattern on Different Time Frames

Where are the new buyers to keep the IWM climbing?

The answer is that volume is so dry now, that it would appear to us they are not showing up in massive numbers with a positive and confirmative rally: or total and complete follow through

I don't believe this is precisely what is meant to model Head and Shoulders top patterns or if these are "triple tops" but one thing we can reference from prior chart patterns and resolutions is if the buyers can't seem to bring this past the breaking point there would have to be some form of disappointment.  

• These chart patterns draw interesting similarities
• The sellers are acting that precisely 

What will energize the IWM chart higher next week?

• Waning Momentum (highs are becoming relatively lower)
• The overnight gap may be on the side of a near fill or attempt
• What has held historically as resistance on the weekly time frame is still just as relavant on the micro one hour
• The sellers become more invigorated (in some cases) when they can prove the power of holding down a price especially if being able sucessfully block the 160-160.67 zone

Rapidly Meeting Goals

Personal Reference Experiences

• Proving It Works
• Ability to Anticipate
• Close Positions
• Go with your own beliefs and be willing to change

It Works

So I thought it would be good to show what I thought would be the outcome of such a powerful uptrend coming to a resolution with a 50% pullback.  I didn't see things happening so quickly, after all this is an 8-hour chart and once the first break (noted on the chart as first break) and then rip through occured it was an all out free-fall until 1.27678

Ability to Anticipate

Trends in forex are so clear that one would have to keep up with how much faster price is accelerating and those short selling opportunities didn't provide many throw backs higher to give short sellers the chance to get it, when it rains it pours!

Closing Positions 

Having a plan make it easier to just reap the rewards of the practice.  Rather than think based on recent conditions that it will continue taking below 1.27099 and 1.26420 (continue down and continue) it FEELS like its ready to go down much farther when in fact the price is in a decent buy zone relative to its time frame.  

Beliefs

Now that the goal was met so quickly I might have to adapt and go do the opposite of what I was thinking initially, if the dollar turns again and becomes bullish it would mean that I would need to take the opposite side of what I shared on here originally

The Trade Plan

Strategy Session

I love using fibonacci retracements

• More frequent and larger bearish candlesticks
• Consolidation support or break
• Close to another rally point at 1.2750

I was not completely clear on the source of this sell off in spot Forex USD/CAD at 1.30 but its fair to say now the buyers of CAD are back and because of the relative weakness in the US-Dollar Index we have an opportunity in the commodity currencies. 

I am anticipating a revisit of the 50% retracement from 1.2250 (base of the rally) to 1.30 and that would be in line with the 1.27648 level - the mid point


Bearish Candlesticks

The pace at which the dollar is declining is become better.  The red candlesticks are in fact expanding their range which means we can anticipate the momentum to keep this pace.  Where it is now it would stand to reason that it would move in 50-pip intervals, it is a wild currency pair!

Consolidation

The yellow box drawn in the middle was the last break point for the US-dollar bulls now that they have managed to realize the goal of hitting 1.30 they would really test their faith on the bottom line of the rectangle at 1.28081; a

rip though support would be damaging psychologically

Rally Point

The 1.2750 level is important because the consolidation/break-out occurred on 4/23 right there and it sits just below the 50% retracement.  There are willing buyers eager to load the truck on the dollar index there, and "meeting them halfway" would work but the markets don't necessarily have to treat the 50% retracement as if it were as powerful as reinforced concrete, meaning it can drift just below the 50% at  1.27648. The 1.2750 is an important rally origin and if it tests and successfully holds it could be the rally in the CaD most traders were looking to fade. 



 

Getting under the hood

The Greatest Fizzle? 

• The Most Intense Sellers
• The Most Intense Buyers
• Condensing Price into a Box
• The 50 - Period Simple Moving Average

One of the most telling things about this S&P-500 futures chart is the decline in volume, it should be totally quantified because this is an art too, but look at the right edge of the chart on the of contracts traded.  It is clearly waning from 4.67 million to yesterday's figure at near 1.26 million, the rally is objectively not confirmed.  


The Most Intense Sellers

Relative range highs at 2806 was for this moment the true test of how powerfully and quicky price left that price level.  The S&P 500 has been below that point of origin all year, and what I'd like to suggest is that the most recent barrier at 2712-13 stays as well

The Most Intense Buyers

Playing the rally in April as a no-brainer, price was so suppressed taht 2550 and 2554 were prime moments to be a buyer, I'll take an 8% rally.  

Condensing Price into a Box

It seems to me that the back and forth and indecision from April until today is more of a sign of a long period consolidation before the inevitable decision.  Indeed, the market is scraping toward the highs of this yellow box, but its so near the expensive aspect of it, and volume is not increasing along with price

The 50 - Period Simple Moving Average

The only black arrow noted from 5/7/2018 shows how the moving average so far acted as a point of rejection, and today's trading session ended in a more sideways-chop which means that an implied move with a greater magnitude is coming.  

Exploring the Unknown

In some of my previous posts I made it sound like the AAPL trade was more contained in this bigger range and that it was relatively more expensive but I learned how much farther it can go than you think.  That is, price goes to the path of least resistance.

One thing I am totally sure of is that I can expect to be surprised by these markets, especially when all the negative headlines were coming out about China.

In this segment I'm going to be going over the amount of profit I left "on the table" by not selecting more call options and higher strike prices.

I did not play an aggressive short position through being long put options, but if something were to happen I was  ready for the 152.50 puts to pay well if there was some type of earnings disappointment.

I was forced into being bullish (and bearish with put options) in a trade set up that would only make money on a major move whether it be up or down.  In other words I could not make money on a neutral reaction to AAPL's earnings

These were some bullish call spread I was setting up

The first green arrow above last Tuesday's chart was a 162.50/170 call spread  (last week)

The second one was 165/170 bullish call spread for last week also

The last one I bought before earnings (literally 3:40PM) were the 175/180 call spreads.

If I knew that AAPL should have been trading to 187 I would have loaded the truck with calls with higher strikes and much more of them.  But like many things in trading (where there is no resist point above) there is always a chance to learn and improve.

My exits are noted at 175.64 and 176.71 which as you can tell was way too early.  The zone of missed profits in yellow spans 12 points!

History Repeats

AUD/USD spot Forex

This is an example of an idea I thought I would suggest about value propositions, buyer demand and and a past set up that worked.  The area is between the oval on the left, between 0.74831 and 0.74970 and it was where price ripped through the 50-simple moving average in May of last year. 

Seeing that the event happened already this could be cause for some follow through, there are some intense sellers located above.  The 50-simple is now hovering at 0.7707 so I would mark that price zone as a  potential overhead road block.  The other way you look at it is that the USD has room to fall a bit here as the Aussie continues its rally attempt. 

The Score

From the Open of the Year to Current Conditions

There are 252 trading sessions for US stocks traded on the New York Stock Exchange.  The rest of the days of the year account for weekends, and holidays.  That means our chances of trading well and making money vary depending on whether the direction is up, down, or sideways.

Classical Technicals

For what its worth, whether trend lines work or not, I suspect that the bounce in SPY shares today is a part of this tendency to mean revert , and with that said a number of moving averages are slightly above price.

Should this index run any further there is still more room for upside in spite of this appearance here of a descending triangle which has a much deeper resolution (SPY 254 to 250)

The part of buy the dip sell the rip sequence is still playing out for whoever thought 260 was a value area great, and I am still in support of trading in the direction of the trend. 

Profit Extraction -Making Both Sides Happy

AAPL Margin Cuts Both Ways

Enlarge these charts, this is a comparison of perspectives both bull and bear and how to get the most out of a profit swing

• September to November 
• 17.99%
• December of 2017
• 6.19%
• January of 2018 
• 6.19%
• February to March of 2018 
• 21.82%
• April of 2018 
• 8.9%
• April of 2018
• 10.68%

Most of the energy behind a price movement is obviously earnings but from the conventions of technical analysis we would use the location of price above or below the moving average (in this case the 50 simple) so what is most clear on this chart is that when price pulled back for a period of 7-10 down trading days it would normally snap back up by the amount of 6.19% to as high as 21.82!

These kinds of returns would not be achievable with the broader market averages

Making Profits on the Downswings

• November to December 
• 5.12%
• December to January
• 4.55% 
• January 18th to Febuary 9th
• 16.75%
• March 13th to April 2nd
• 10.24%
• April 17th to 4/27
• 10.36%

Range-bound conditions make it more favorable to sell the relative tops and buy the relative bottoms.  Although 16.75% is a bigger swing in percentage terms the math overall slightly stacks the deck in favor of the bulls.

The fact is the expression price takes the stairs up and the elevator down is still true in the sense that the rate of momentum should be that shares were declining 2x as fast.  What has happened over this past year is that the buying pressure from institutions is the reason for the stalemate and why price is stuck in between both directions.  It is only about $4 higher than its moving average at $172.74, so it is taking its time deliberating what to do next even with the support of Berkshire Hathaway and the collective force of buyers who dictate price.  

Building a Base vs. Building a Top

AAPL and its Stage of the Business Cycle

It has been said that tops take longer to form than bases.  One of my mentor's Bill O'Neil (vicarious mentor) has many case studies about chart patterns and their need to base in order for the stock to have some sort of "launching pad" that was caused by all of the deliberation.

What I can tell from this is not necessarily a series of higher highs or a series of lower lows, but this type of price action to me is more of a situation of a range that gets violated in both directions, meaning the tops are blown off, and the bottoms are weak as well.  Clearly, you can tell that since October of 2017 until now price traded between 158 and 183.50  and the upper barrier on this yellow shaded rectangle encompassing most of the chart is about 178.50.  The highs are starting to taper.  Price cannot seem to hold enough strength to stay above 178 anymore and by the looks of it 5 highs were printed for this year and every attempt AAPL makes to get its head above water it just gets denied.

The widest arching top in this stock's history 162.50 to 177.50 - the points above and below to me suggest exhaustion for either buyers or sellers

The horizontal line made for today shoed how the 177.75 price level was the exact completion of the gap created on 4/19/2018 (Thursday)

Lets take a look at this same chart with volume indicated below 

The price and volume relationship can be tricky sometimes, especially around earnings releases.  In this case here I have found it to show more evidence of people chasing price rather than confirming the upswing.  And at times volume can peak at the climax of an impulse or rush higher or lower.  

The surge in volume on 2/1 and 2/2 had the opposite effect where instead of validating the downtrend it just indicated a surge of sellers at precisely the bottom at the time.  

 The company has changed its public perception as a software and services business instead of relying too much on their phones, and that was likely the institutional order flow coming into to create the millions of shares traded and in one sense it similar to a  buy climax.

Price has consistently shown that it can stay above the 50 period moving average for a shorter duration every time it pop above it:  October, February, March and April; when the uptrend was a lot stronger it typically held above the 50 for a much longer duration.  

Now my "building a top" theory could be turned on its head if the company continues to deliver such fantastic numbers from its other services rather than being a "one trick pony" that relies so heavily on phone sales

On the other hand the institutions accounting for all the order flow may have scaled out of the position quietly between 177 and 183.50 without telling the public their intentions of the liquidation, yet for every buyer there is a seller, and a sucker is born every minute.  

Bull Trap or Speedbump?

Nasdaq Futures 

This is the first edition of this post, I plan on adding some other indicators like moving averages, RSI, and Bollinger Bands

For now the idea is how prices go into the areas where sellers are willing to exit a position that is not favorable for long only traders.  But I will discuss both points of view: Bull and Bear.