Day Trading Signals and Strategy - 09-18-2015

Proper context can start the day with a solid win and make all the difference.

CHARTROOM LINK(s) o Win XP-Friendly entry o non-xp friendly (ilinc) (pre-open Market Tour begins at 8:55 ET)

Through the prior close... New recovery highs had been probed already to 1994.00 before Thursday's FOMC policy statement and Yellen's Q&A start produced surges to 2000.00 and 2011.75. Yellen's Q&A start was surrounded by two reactions down to 1976.00, which was being tested into the close. A post-close blip-down extended to 2072.00. Meanwhile, afternoon buyers had gained traction for their efforts by exiting the bias environment at 2:30 above the noon hour's range and entering the final hour above the bias environment's range -- because of the unusual news flow at the time, and regardless of its subsequent price action. Overnight action's new info... That subsequent price action has resumed. Initially, a retest of 1972.00 had reacted up to 1983.00, and ranged narrowly for awhile supported by 1976.50. That range gave way 2-1/2 hours ago to what has become a 22-point slide testing 1954.50. If, then... I had noted during yesterday's post-market Wrap the room for only a pullback to "lower prior highs" around 1950.00-1955.00. Gapping down to support prevents attracting new sponsorship along the way down. The trick is not to gap down so far that expiration strategies are triggered to reverse direction in the same way the week's earlier rally became a perpetual motion machine pointed higher. This is either done by holding a retest of support, or signaled by already recovering high enough into the open. Opening back above the 1956.75-1961.25 "running correction" we had monitored during Wednesday's rally would suggest the latter. Opening under 1952.75 would dash the former. Meanwhile, this being expiration, trending through the opening 15 minutes would be predictive. And this being expiration, regardless of the opening action, trending at all can get carried away in either direction. First Trade... Exiting the open at 9:45 above 1961.25 and 1964.50 would be increasingly likely also to recover this morning's 1965.00 bias-down target in time to avoid renewing the bias-down signal at 10:15. Exiting the open under 1956.75-1957.50 would be much less likely to recover the bias-down target.

The earlier bounce from 1954.50 peaked at 1961.25 instead of recovering it. It was pretty early anyway for counter-trend sponsorship to gain traction. And now the decline has resumed pre-open to attack 1944.00. There's a big line in the sand at 1945.00, needing to hold as support through 9:45 as long as it's being tested, or else all could be lost. Surely a portion of this pre-open selling wave is exacerbated by sellers suddenly concerned by two days of illiquidity. But that doesn't mean more can't follow. Having tested 1945.00, exiting the open above 1952.75 would be a big step to signaling that sellers are trapped, and that buyers are retaking control. Details and other markets coverage are in the pre-market Tour, recorded here: https://roddavid10.mitel-nhwc.com/join/xmmvfwp

Maximum support tested, reacted, but not quite rejected. 1945.00 wasn't really the lowest of the "lower prior highs" whose support could stop the decline. Lower than that range, 1945.00 is the lower-end of the lowest structure among the lower prior highs. So, holding its test represents expending all possible selling pressure without gaining traction for the effort. Firming into the open and then surging was in-line with having expended all available selling pressure. So is eventually extending to 1965.50. But neither is proof of the trend reversing up. Currently, a reaction down to 1956.00 has reacted up to 1961.25 resistance in an attempt to resume the recovery. It could extend to 1969.00 before suggesting something substantial underway. And "higher prior lows" at 1977.00 could still be a problem. Back under 1957.50 would start to signal the recovery may have ended.

This being expiration -- like all Fridays, but on steroids -- trending is difficult enough to start, and more difficult to reverse once started. The gap down is trying to launch an uptrend, and exiting the bias environment with that intact could marginalize sellers for the balance of the day.

FRI afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above  1981.75 1970.00 ...would target 1988.75  1977.00 Bias-down: under  1971.00  1959.25 ...would target  1964.75  1953.00 Signal status: BIAS-DOWN, BIAS-DOWN TARGET MET FAQ INTRO VIDEOS #1 and #2 1. At 1:20, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target. 2. Not triggering either bias signal at 1:20 would be "no-bias," and the bias signals should define the bias environment's range. -- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias. 3. Touching the bias signal within 3 minutes either way of 1:20 would invoke a grace period through 1:30 to trigger a late signal. -- "Late" signals don't require testing the opposite bias signal, but it's still likely. 4. Still testing the bias signal at 1:30 after invoking the grace period would trigger "noN-bias," with no bias influence.

Is it trending, or just a very wide range? This morning's bias environment trended up throughout. It's difficult enough to generate trending windows on expiration or on Fridays in general. Much more difficult is to reverse them. So, returning back down to 1950.50 might seem bearish, after its test this morning had rallied to 1967.50. Maybe it's just noise within a wide price range, and also within the pessimism from yesterday's action bleeding into an overnight slide that resumed before the open. Remember that expiration sessions often range sideways. Also, bullish WedEX afternoons often range flat-to-higher. There's also a lot of room just for noise. But I'm equally interested in longs. And rallying into today's close could be very bullish for Monday. That's not to dismiss the downside vulnerability. There is significant downside vulnerability, making it worth getting whipsawed out of shorts to be exposed in case the bottom drops out.

A daily summary of high-profile members of several complexes... View a more detailed discussion of each chart at the end of today's Market Wrap. Eurodollar Sep Contract (EC, ETF: (FXE, UUP)) Fresh highs overnight were retraced by Friday's reaction down that retraced 61.8{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} of Thursday's range, correcting the rally but not reversing back down. Gold Dec Contract (GC, ETF: (GLD)) Testing the rally's 1141.50 target to within 20 cents created a reaction down that failed to hold its 1139.20 pullback limit, suggesting the rally's momentum has now lapsed. Silver Dec Contract (SI, ETF: (SLV)) Fresh highs Friday morning tested 15.45 before reversing back down under 15.25, and also under the 15.10 pullback limit. Another buy signal must be generated before resuming the rally. 30-year Treasury Dec Contract (US, ETF: (TLT)) Closing above 152-30 Friday had signaled momentum reversing up, and gapping up sharply Friday extended even higher to retest Monday's prior highs u to 155-24. Crude Oil Oct Contract (CL, ETF: (USO, USL) (UWTI-long, DWTI-short)) Not confirming Wednesday's break higher to 47.70 Thursday was vulnerable to reversing down without delay, which Friday seems to have begun doing by dropping to 42.25. Natural Gas Oct Contract (NG, ETF: (UNG, UNL)) Recovering back within the channel Thursday didn't prevent Friday from retesting Thursday's 2.60 intraday low. It held, but it wasn't rejected, and must still recover at least 2.68 to signal momentum reversing up.

View the Morning Bias here. Friday morning's bias environment rallied sharply, from 1950.50 to 1967.50. At least, price rose 17 points during that single window. It sure looks like trending, when many session (prior to the past several weeks) barely range as widely. This being expiration, the potential is high for only ranging sideways. Sellers didn't gain traction -- the bias environment exit and final hour's entry both were within the noon hour's range. Since the morning's rally didn't extend, but was retraced back to the pre-open low, we have to consider whether that was really only a range. Meanwhile, the bullish WedEX didn't perform. Not obviously, maybe in secret, a secret it kept very well. Still, it wasn't for lack of trying -- the bias environment exit and final hour entry each were greeted in rally mode... before being overwhelmed. The morning rallied, so WedEX couldn't be inverted, only invalidated. What better price action to invalidate than the price action since Wednesday. WedEX can still be influential Monday morning, when it tends to compensate for Friday's underperformance. There are much more relevant influences than WedEX that are capable of absorbing it, so the alternative to a short-squeeze might be a melt-down. Details were discussed during the post-market Wrap recorded here: https://roddavid10.mitel-nhwc.com/join/vsxzwvr Join us for Saturday Review at 9:30am ET. We'll look at the bigger picture and game out Sunday night / Monday morning strategy, and review any stock charts you request. Check your email Saturday morning for the login instructions.

MON morning signal (triggered at 10:15 ET) SPX ES Bias-up: above  1967.25 1956.25 ...would target  1973.75  1962.75 Bias-down: under  1952.00  1941.00 ...would target  1945.00  1934.00 Signal status: BIAS-UP, BIAS-UP TARGET MET FAQ INTRO VIDEOS #1 and #2 1. At 10:15, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target. 2. Not triggering either bias signal at 10:15 would be "no-bias," and the bias signals should define the bias environment's range. -- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias. 3. Touching the bias signal within 3 minutes either way of 10:15 would invoke a grace period through 10:30 to trigger a late signal. -- "Late" signals don't require testing the opposite bias signal, but it's still likely. 4. Still testing the bias signal at 10:30 after invoking the grace period would trigger "noN-bias," with no bias influence.