I thought today we will do things a little differently. Usually we start with the largest time frame and move down. Today I thought we would start with the intraday and move up. Mr. Wyckoff once said that his most successful year of trading was when he spent but one hour per day reading the tape, busy as he was with his publishing job. He could do this because the Trend is visible all day long in the intraday waves. Intraday the supply and the demand are different in a bull market or a bear market. So let's begin and we will use approximately the chart I used during the day, in real time. My observations and thoughts will be reported as I recall them, appropriately edited.The last bar yesterday could unfortunately be considered a spring and we gapped up off of it, although we were oversold, this was a surprise, but not necessarily unexpected. Having a bearish position, I was glad to see that on high volume on the first two bars, we closed well below the bar's high prices and were restrained by the trend line at least for the time being. We now fall in two waves with an intervening rally. The down waves have higher volume than the initial up wave. Support comes in at our old friend 700. Ah hah, The rally was heavily sold and the reaction down as well. Such is the initial hypothesis, strong selling into the rally.
From 700 we rally to 714 on a wave volume, if I added right of 574. Even if I didn't that is what I believed at the time. Further few of the bars in this wave have closes at the top except those at the very beginning and those at the very end. Not much strength in them there bars. 574000 contracts to move a mere 14 points, a huge effort yields very little result. Here is definite proof of strong selling into what appears to be a short covering rally. The line of least resistance is still down as there is huge resistance to an upward move. The upthrust at 63 is an obvious short, knowing that there is a good chance that the short covering still is not done. As there is no spirited down move the short is either closed out or the stop is moved to break even. More short covering to come. The next short covering rally moves 12 points on a wave volume of 365000 contracts. Again the effort does not match the result and there is strong selling into the rally. When that selling is stronger than the rally we dip into support and to the previously drawn trend line on the wave volume of 36. A rally on 33, no where near 365, brings us to a hinge position between the top around 724 and our supporting trend line. The next bar's failure to follow through, its close on the low and its penetration of our trend line make for an obvious short. But should we short the e mini or something else?
Earlier in the day I noticed that the double short financials, the SKF, instead of tanking on the strength in the e mini was in fact rallying. It truly resisted the counter trend move in the broader index and seemed like the safer and possibly more lucrative play. Both it and the e mini moved sharply and swiftly.
Now this does not necessarily mean that the short covering is finished, what we have seen is that the line of least resistance has not changed and the trend is still down. There is no reason to change our long term position. Please see the longer time frame charts above, especially the daily point and figure for further confirmation.
