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Market Commentary Page
S&P; 500 Mar SPH3 We have two Pattern Signals fired for today's trading in the S&P;, the first of which is the NR7. This signal tells us that the market has gone through a period of contraction with Friday's range being the narrowest of the last seven. If the market were thought of as a spring gradually being compressed, this signal represents a potential trigger point for releasing that pressure. A good clue as to if and which direction it might break can be determined by today's market action near Friday's 897.80 high and 886.00 low levels. A break of either is a likely indication of the new trend direction out of this contraction period. An aggressive trader can enter on the break. A conservative trader might want to wait until a return to the breakout level, which often happens before a sustained move begins. Some initial clues to breakout direction can often come from early rejections of these levels. If the high is approached, repelled, and price then moves through the DP, the likely breakout direction is the low. Likewise, if the low is approached, repelled, and price goes through the DP from below, the likely breakout direction is the high. Another clue can often be found in price action near the DP. If price is unable to move through this level, the likely breakout direction will be the same side as it originated. The second signal fired for today is the 90-10 Low Continuation. This signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10, thus reducing the pattern's frequency of occurrence, but increasing its probability as a forecasting tool. The 90-10 Low Continuation signal is fired when the day's close is within the bottom 10% of the day's range. This signal is telling us to expect morning continuation of the downmove. On the S&P; Half Day chart, all three of our Cycle Indicators moved lower with Friday's activity. Cycle Indicators imply lower to sideways trading for today. The ADX level on the 120 minute chart is above a value of 30, indicating that the trend to lower prices is still intact in this timeframe (see ADX charts below). If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in the 120 minute timeframe, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be Friday's 886.00 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making. The ADX level on the 15 minute chart is below a value of 18. When this occurs, we know that it is a good time to keep an eye out for any developing triangles, wedges, flags, or channels in the respective time frames. We can use breakouts from these patterns as either a trigger into a trade or to help determine directional bias. Although the 90-10 Low Continuation signal is suggesting further downside activity, the NR7 signal will likely be the real key to today's trading. Whenever a Narrow Range Day Pattern Signal fires we can go into the trading day with two key pieces of information at our side. 1) We know that in all likelihood, price activity should essentially trend in one primary direction. And (2) clues to the direction of the potential trend day breakout will most likely be determined by price action relative to the prior day's high and low, and to today's DP as described above.
Nasdaq 100 Mar NDH3 The only Pattern Signal fired for today's trading in the Nasdaq 100 is the 90-10 Low Continuation & Reversal. The concept behind this signal originates from the 80-20s set-ups as described in "Street Smarts". But, rather than using the 80-20 guidelines, the parameters have been narrowed to 90-10. This reduces the pattern's frequency of occurrence, but increases its probability as a forecasting tool. The 90-10 Low Continuation & Reversal signal is fired when the day's open is within the top 10% of the day's range and the day's close is within the bottom 10% of the day's range. This signal is telling us to expect continuation of the downmove in the morning, and then a reversal sometime during the day. On the Nasdaq 100 Half Day Chart, all three of our Cycle Indicators moved lower with Friday's activity. Cycle Indicators imply lower to sideways trading for today. The ADX level on the 120 minute chart is above a value of 30, indicating that the trend to lower prices is still intact in this timeframe (see ADX charts below). If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in the 120 minute timeframe, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be Friday's 1009.00 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making. The 90-10 Low Continuation & Reversal signal is telling us to expect more downside in the morning. Whether that might be tradable or not is difficult to determine, but regard any rally prior to Friday's low being broken as a potential short entry point. Watch for a Reversal Pattern and/or Oscillator Divergence on a retracement move towards any 20EMA or the 1017.00 Daily Pivot. Friday's 1009.00 low would be a potential target, but that doesn't negate the possibility that price may go lower, and we should be prepared to take advantage of the move should it occur. From there, keep a sharp eye out for price reversal patterns and/or 3/10 Oscillator Divergence on potential lines of support below this level. Likely reversal zones include the 999.50 level of the Normal Low Range Projection, and the 991.00 level of the Extended Low Range Projection. The aggressive trader can try to catch the initial reversal turn itself, should it occur. The more conservative might be better off just letting it happen, and then attempt to get in on the retracement. Holy Grail patterns are particularly effective for this. Pay special attention to the 5 min. 20EMA. Another technique is to draw a downward trendline along the highs of a 5 or 15 minute chart and use the break as your trigger into the trade. Make sure that you have a logical place to put your stop within your preferred limits of tolerance. Going into trading today, we have a signal implying more downside with the possibility of a strong reversal. However, such signals should never be interpreted in mechanical fashion. They are to be used as a "heads up" for the day's trading . . . not as a strict set of rules, but only as an aid in the creation of a strategy. Pattern Signals are an indication of what has happened on a fairly consistent basis in the past, but they make no guarantees of the future. Always let immediate price action be the ultimate determining factor in all your trading decisions.
US T-Bond Mar USH3 The only Pattern Signal fired for today's trading in T-Bonds is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals originate from the book "Street Smarts" by Larry Connors and Linda Raschke. They represent an attempt to identify potential periods of very short term buying and selling exhaustion so as to capture a possible move in the opposite direction. Before any action is taken, however, the Momentum Pinball Buy signal requires a breach of the first hour high for confirmation. Because Momentum Pinball Buy/Sell signals are intended to flag the end of a short term trend, it is not unusual to see, on the same day, other Pattern Signal firings which indicate likely movement in the opposite direction. When this occurs we know that a break of the first hour high/low represents a market bias in the opposite direction as originally indicated by other Pattern Signal firings. Friday's action caused Historical Volatility values to move back above, but remain very close to, trigger level (chart above right). Historical Volatility is a measure of the degree in which price has fluctuated over a particular period of time. Generally, when a market has gone through a period of contraction, there will be a tendency for volatility levels to increase. And sometimes that increase can be very sudden and dramatic. These kind of low Historical Volatility readings have us on lookout for the development of wide-range days which trend in a single direction - the kind of days that are well-suited for capturing large profits. On the T-bond Half Day chart, all three of our Cycle Indicators moved lower from overbought levels with Friday's activity. Of greatest significance is the downturn in the 7 period %K. A turn of this indicator from its overbought or oversold zone is usually a good indication that a new trend has begun and at least several more bars of new short term direction should follow. The ADX level on the 30 minute chart is above a value of 30, indicating that the trend to lower prices is still intact in this timeframe (see ADX charts below). If we were triggered into a short position by a price reversal pattern and/or Oscillator Divergence near the 20EMA in the 30 minute timeframe, we would have the makings of a Holy Grail setup. A trade based in part on a Holy Grail pattern can take as its minimum profit target a return to the most recent swing pivot extreme, which would be Friday's 109-24 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making. The ADX level on the 5 minute chart is below a value of 18. When this occurs, we know that it is a good time to keep an eye out for any developing triangles, wedges, flags, or channels in the respective time frames. We can use breakouts from these patterns as either a trigger into a trade or to help determine directional bias. It would be best to enter today's trading without any directional preference. Instead pay close attention to market action relative to important support and resistance levels. In today's early going, pay particular notice to price level will imply further upside. Activity below will hint at further downside. Also, keep in mind that the Momentum Pinball Buy signal is flagging potential short term downtrend exhaustion with a possible move in the opposite direction. If today's first hour high is breached we'd want to more seriously consider a bullish bias. The aggressive trader can enter on the break. The more conservative might want to wait until a return to the breakout level, which often happens before a sustained move begins. As always, our most confident entries are accompanied by Reversal Patterns and/or Oscillator Divergence along known levels of support.
For the S&P; 500, Nasdaq 100, and T-Bond Futures Markets
Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.
NR7 Signal (narrowest range of the last seven days)
This signal indicates that range expansion is highly likely.
If, during the day, yesterday's high is exceeded then either buy the breakout
(aggressive) or buy the retracement to the breakout (conservative).
If, during the day, yesterday's low is exceeded then either sell the breakout
(aggressive) or sell the retracement to the breakout (conservative).
90-10 Low Continuation: Morning follow through
on yesterday's weak close is likely. Look for shorts.
Pivot System Support & Resistance Levels - used on the floor to determine relative value
based on prior day price action. Significant shifts in market psychology often occur near these levels.
R3·910 R2·902 R1·894 DP·890 S1·882 S2·878 S3·871
Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.
Most Recent Trading Day With Pivot System Historical Volatility & Narrow Range Days
S&R; Levels and 5, 15, and 30 Minute 20EMAs. Expect range expansion when HisVol is low.
TODAY'S S&P; 500 COMMENTARY
ADX>18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend
moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.
Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.
90-10 Low Continuation & Reversal: Look for morning
follow through on yesterday's weak close and then a likely reversal.
Pivot System Support & Resistance Levels - used on the floor to determine relative value
based on prior day price action. Significant shifts in market psychology often occur near these levels.
R3·1053 R2·1039 R1·1025 DP·1017 S1·1003 S2·995 S3·981
Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.
Most Recent Trading Day With Pivot System Historical Volatility & Narrow Range Days
S&R; Levels and 5, 15, and 30 Minute 20EMAs. Expect range expansion when HisVol is low.
TODAY'S NASDAQ 100 COMMENTARY
ADX<18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend
moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.
Pattern Signals - an automated pattern recognition process which
identifies today's most likely market scenario based on recent price behavior.
Momentum Pinball Buy: If price action is strong enough to break the
first hour high, then a bullish bias should be assumed. Look to either buy the
breakout (aggressive) or buy the retracement to the breakout (conservative).
Pivot System Support & Resistance Levels - used on the floor to determine relative value
based on prior day price action. Significant shifts in market psychology often occur near these levels.
R3·112´16 R2·111´22 R1·110´27 DP·110´10 S1·109´15 S2·108´30 S3·108´03
Range Projections - This market will have a tendency to trade within the Normal
High/Low Range today as noted below. If those levels are exceeded, use the Extended Range.
Most Recent Trading Day With Pivot System Historical Volatility & Narrow Range Days
S&R; Levels and 5, 15, and 30 Minute 20EMAs. Expect range expansion when HisVol is low.
TODAY'S T-BOND COMMENTARY
ADX<18 indicates ambivalence: use chart pattern breakouts to help determine directional bias. ADX>30 defines trend
moves in that timeframe: watch for retracements to the 20EMA. The colored bar under ADX represents trend direction.
Statement of disclaimer: This information was compiled from sources believed to be reliable, but its accuracy cannot be guaranteed. There is substantial risk of loss in stock and futures trading. There is no warranty, express or implied, in regards to the fitness of this information for any particular purpose. Past performance is not a guarantee of future results. Terms and conditions: Use of The Pattern Trapper Newsletter is granted to the subscriber of record only. Any abuse of subscriber privileges will result in denied access without a refund. All materials are copyright © 2002 by Bob Hunt. No part of these resources may be reproduced, stored or transmitted without the prior written permission of the copyright holder.