- 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 yesterday's range being the narrowest of the last seven days. 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 yesterday's 873.00 high and 859.00 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 Pattern Signal fired for today's trading is the 2 Day ROC Sell. This signal is the Raschke and Connors way of quantifying the swing trading methods as taught by the Taylor Trading Technique. This technique teaches that there is a natural pattern to the sequence of buy and sell days. The 2 Day ROC Sell signal is telling us to expect today to be the "sell day" part of that pattern.
Chart created by Tradestation. |
On the S&P; Half Day Chart, all three of our Cycle Indicators moved even further into overbought territory with yesterday's activity. This does not necessarily mean that we should expect them to soon turn. If short term cyclical patterns have returned to normal behavior, we should see a period of topping action develop before they launch their next cycle lower. Our first clue will come from a 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.
Economic reports on today's agenda include the ICSC-Goldman Store Sales at 6:45CT, the Redbook Survey of US Retail Sales at 7:55CT, and Wholesale Trade Inventories at 9:00CT.
ADX levels on 5, 15, and 120 minute charts are below a value of 18 (see ADX charts below). 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 2 Day ROC Sell signal is suggesting further downside, 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.
