Tuesday, November 03, 2009

Base building

Here is a 60 minute bar chart showing day session e-mini trading. I still think this market has a shot at the 1020 level (blue oval). But I also see a very substantial, potential base developing (lower blue dash rectangle). Notice that the average range of the bars making up this base is visibly larger than the average range of the bars making up the recent top (higher dash blue rectangle). This difference in activity shows up even more dramatically on my point and figure charts. It means that any rally from current levels will start from support strong enough to push the market at least to my 1120 target and probably even higher than that. And it also means that the market is preparing for a good rally from current levels, even if this rally should end at a lower top instead.

My line in the sand remains at the 1008 level, the point at which the drop from 1099 would equal the length of the June-July reaction. Any weakness below 1008 would make me conclude that the market would be on its way to 960.

In the meantime I am watching the resistance levels at the two recent small tops (horizontal green dash lines). A move above either one of these, on good volume, would be a very bullish indication and mean that the base building is complete.

4 comments:

MaverickUK said...

I agree with that totally - except it will be a lower top.

Kishore said...

Carl, I am trying to understand your interpretation of the range of a bar in a given time period, at the top versus the bottom.

You have posted that a wider range at a bottom versus narrow ranges at the top indicates stronger base building.

However, is it not true that a wider range in a given time period indicates more uncertainty in the minds of the traders? We all have have seen huge swings after a FED annoncement, when everyone is trying to interpret what the horse's mouth FOMC really means!

In other words, the wide range bars only indicate uncertainty. Some of the uncertainty may be resolved tomorrow after the FOMC meeting is out of the way.

I sincerely hope that the Congress would pass laws to ban the FED from interventions in supposedly free markets or, better still, disband the FED.

tapped out said...

1st try over the fence at 1042.50 is Strike One!

dcatlowpj said...

Kishore, those are excellent questions.

I like to think that range also indicates Pure Price action over time. Thus, in any given period for a single bar, if the RANGE is extended, this means that a particular move in price or moves in price over that same period (say 5minutes or 60minutes) are telling us that momentum may be strengthened in that direction.

Lazier moves with less volume and range tell me that there is hesitation.

I sense a bailing out, if you will, and try to let Price Action speak for itself.

Oversimplification, well I think so, but this is how I like to look at range. It is yet another look at action in price.