The Pattern Trapper for Friday, January 30, 2009

	The Pattern Trapper High Probability Futures Trading
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Market Commentary Quick Links: S&P; Dow Jones Russell T-Bond

The Pattern Trapper March S&P; 500
Analysis for Friday, January 30, 2009
Pit Symbol: SPH9

Electronic Symbol: ESH9

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.

Pivot System S&R; Levels
Used to determine relative value.
Signficant shifts in market psychol-
ogy often occur near these levels.

DP 847.50
R1 854.75

S1 835.50
R2 866.75

S2 828.25
R3 878.75

S3 816.25

Pattern Signals
A pattern recognition technique
which identifies today's most likely
scenario based on recent activity.

2 Day ROC Sell
Low Range Close
Momentum Pinball Buy

Range Projections
This market will tend to trade within
the Normal High/Low Range levels.
If exceeded, use Extended levels.

Extend High:

859.73
Normal High:

852.38
Normal Low:

833.13
Extend Low:

825.77

S&P; 500 Market Commentary - We have three Pattern Signals fired for today's trading in the S&P;, the first of which is the 2 Day Rate Of Change 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.

The second Pattern Signal fired for today's trading is the Low Range Close. This signal indicates that the close of the prior day's trading was within the bottom 20% of the day's range and suggests an 80-85% chance that today's low will be less than yesterday's.

The last Pattern Signal fired for today's trading is the Momentum Pinball Buy. The Momentum Pinball Buy and Sell Signals 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.

Chart created by Tradestation.

On the S&P; Half Day chart, all three of our Cycle Indicators moved lower from overbought territory with yesterday's activity. Of greatest significance is the sharp downturn in the 7 period %K. A clean 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 Gross Domestic Product and the Employment Cost Index at 7:30CT, the Chicago Purchasing Manager's Index at 8:45CT, and the Michigan Consumer Sentiment Index at 8:55CT.

The ADX level on the 15 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 15 minute 20EMA, 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 yesterday's 840.25 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making.

ADX levels on 60 and 120 minute charts are 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.

Both the 2 Day ROC Sell and the Low Range Close signals are telling us to look for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above yesterday's closing price, the most significant being that of the 847.50 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the Low Range Close signal telling us to expect yesterday's 840.25 low to be exceeded.

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.

20 Period Exponential Moving Average and 14 Period ADX

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.

Market Commentary Quick Links: S&P; Dow Jones Russell T-Bond

The Pattern Trapper March Dow Jones
Analysis for Friday, January 30, 2009
Pit Symbol: DJH9

Electronic Symbol: YMH9

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.

Pivot System S&R; Levels
Used to determine relative value.
Signficant shifts in market psychol-
ogy often occur near these levels.

DP 8146
R1 8213

S1 8046
R2 8313

S2 7979
R3 8414

S3 7879

Pattern Signals
A pattern recognition technique
which identifies today's most likely
scenario based on recent activity.

2 Day ROC Sell
Low Range Close

Range Projections
This market will tend to trade within
the Normal High/Low Range levels.
If exceeded, use Extended levels.

Extend High:

8259
Normal High:

8196
Normal Low:

8029
Extend Low:

7965

Dow Jones Market Commentary - We have two Pattern Signals fired for today's trading in the Dow Jones, the first of which is the 2 Day Rate Of Change 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 Dow Jones Half Day chart, all three of our Cycle Indicators moved lower from overbought territory with yesterday's activity. Of greatest significance is the sharp downturn in the 7 period %K. A clean 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 15 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 15 minute 20EMA, 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 yesterday's 8080 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making.

Both the 2 Day ROC Sell and the Low Range Close signals are telling us to look for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above yesterday's closing price, the most significant being that of the 8146 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the Low Range Close signal telling us to expect yesterday's 8080 low to be exceeded.

Market Commentary Quick Links: S&P; Dow Jones Russell T-Bond

The Pattern Trapper March Russell
Analysis for Friday, January 30, 2009
Electronic Symbol: TFH9

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.

Pivot System S&R; Levels
Used to determine relative value.
Signficant shifts in market psychol-
ogy often occur near these levels.

DP 457.30
R1 463.40

S1 448.60
R2 472.10

S2 442.50
R3 480.80

S3 433.80

Pattern Signals
A pattern recognition technique
which identifies today's most likely
scenario based on recent activity.

2 Day ROC Sell
High Breakout Cont. Setup

Range Projections
This market will tend to trade within
the Normal High/Low Range levels.
If exceeded, use Extended levels.

Extend High:

467.75
Normal High:

462.10
Normal Low:

447.30
Extend Low:

441.65

Russell Market Commentary - We have two Pattern Signals fired for today's trading in the Russell, the first of which 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.

The second Pattern Signal fired for today is the High Breakout Continuation. This one is a little different than the bulk of the signals that we normally incorporate. Rather than creating a directional bias for the trading day, it points to a likely market development IF an additional condition is met.

The setup for the High Breakout Continuation signal includes (1) the signal day's high is within the middle 20% of the prior day's range, and (2) the signal day's low is lower than the prior day's low. If on the day following the signal day (today's trading), the high of the previous day happens to be taken out (yesterday's high) then the probabilities of a continuation trend move upward is very high.

This signal is NOT setting up a directional bias for today's trading. Rather, it is indicating that if the prior day's high happens to be taken out, we want to be on board the upward move because odds are it has further to go.

Chart created by Tradestation.

On the Russell Half Day chart, all three of our Cycle Indicators moved lower from overbought territory with yesterday's activity. Of greatest significance is the sharp downturn in the 7 period %K. A clean 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.

ADX levels on 5 and 15 minute charts are above a value of 30, indicating that the trend to lower prices is still intact in these timeframes (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 either of these timeframes, 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 yesterday's 451.20 low. If the move to that level can occur on Momentum Confirmation, there should be even more downside in the making.

Even though the 2 Day ROC Sell signal is suggesting further downside activity, it would be best to enter today's trading without any directional bias. Instead pay close attention to market action relative to important support and resistance levels. In today's early going, pay particular notice to price behavior in relation to the 457.30 Daily Pivot. Significant activity above this level will imply further upside. Activity below will hint at further downside.

Keep in mind, also, that the firing of our High Breakout Continuation signal is telling us that if yesterday's 466.00 high happens to be taken out, the move higher most likely has further to go and we want to be on board. Significant activity above the Daily Pivot will be our earliest warning.

Market Commentary Quick Links: S&P; Dow Jones Russell T-Bond

The Pattern Trapper March US T-Bond
Analysis for Friday, January 30, 2009
Pit Symbol: USH9

Electronic Symbol: ZBH9

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.

Pivot System S&R; Levels
Used to determine relative value.
Signficant shifts in market psychol-
ogy often occur near these levels.

DP 127-26
R1 128-17

S1 126-14
R2 129-29

S2 125-23
R3 131-10

S3 124-11

Pattern Signals
A pattern recognition technique
which identifies today's most likely
scenario based on recent activity.

90-10 Low Continuation

Range Projections
This market will tend to trade within
the Normal High/Low Range levels.
If exceeded, use Extended levels.

Extend High:

129-00
Normal High:

128-06
Normal Low:

126-03
Extend Low:

125-09

US T-Bond Market Commentary - The only Pattern Signal fired for today's trading in T-Bonds 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.

Chart created by Tradestation.

On the T-Bond Half Day chart, all three of our Cycle Indicators moved lower with yesterday's activity and are now within oversold territory. 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 base-building develop before they launch their next cycle higher. Our first clue will come from an upturn 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, the Case-Shiller Home Price Index at 8:00CT, the Chicago Purchasing Manager's Index at 8:45CT, and the Consumer Confidence Index at 9:00CT.

ADX levels on 5, 15, and 30 minute charts are above a value of 30, indicating that the trend to lower prices is still intact in these timeframes (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 any of these timeframes, 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 yesterday's 127-03.5 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 signal is enough to have us looking for shorts in today's early trading. The ideal setup would entail corrective action towards one of the resistance levels directly above yesterday's closing price, the most significant being that of the 127-26.0 Daily Pivot level. If price were able to reach this zone as higher timeframe 20EMAs were coming down to meet it from above, we'd have an extra reason to get short. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the 90-10 Low Continuation signal telling us to expect yesterday's 127-03.5 low to be exceeded.

On the other hand, a convincing upside break of the Daily Pivot would have us thinking more bullish thoughts.

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 © 2009 by Bob Hunt. No part of these resources may be reproduced, stored or transmitted without the prior written permission of the copyright holder.

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