The second signal fired for today is the 90-10 High Continuation & Reversal. The concept behind 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. This reduces the pattern's frequency of occurrence, but increases its probability as a forecasting tool.

The 90-10 High Continuation & Reversal signal is fired when the day's open is within the bottom 10% of the day's range and the day's close is within the top 10% of the day's range. This signal is telling us to expect continuation of the upmove in the morning, and then a reversal sometime during the day.

The third Pattern Signal fired for today's trading is the Momentum Pinball Sell. 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 Sell signal requires a breach of the first hour low for confirmation.

Because Momentum Pinball Buy/Sell signals are intended to flag the potential 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 higher from oversold levels with yesterday's activity. Of greatest significance is the upturn 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, 15, and 30 minute charts are above a value of 30, indicating that the trend to higher prices is still intact in these timeframes (see ADX charts below). If we were triggered into a long 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 1412.25 high. If the move to that level can occur on Momentum Confirmation, there should be even more upside in the making.

We have some important economic numbers coming out this morning. At 7:30CT we have the Unemployment Rate, Nonfarm Payrolls, Hourly Earnings, Average Workweek, and Personal Income & Expenditures being released. Factory Orders comes out at 9:00CT. Principal market direction will likely be determined before the session even opens. We should enter the day prepared for the possibility of range expansion and a pickup in volatility. One of the more prudent approaches for entering today's trading is to simply stay out of the way until the dust settles. If opening volatility is extreme, we should wait 15 to 30 minutes before entering a position. By this time, you can usually get your bearings and market entry can then be made with a greater degree of confidence and with less chance of getting whipsawed.

Chart created by Tradestation.

One interesting pattern to keep an eye out for early in the day is the Spike & Ledge. If we get a large opening gap or early spike move as a result of today's numbers, this pattern will trigger us into a trade in the opposite direction of the original thrust (example in the chart to the right). It is identified by, first, an obvious spike, and second, a "ledge" created by the first retracement move away from the spike extreme. A violation of the line created by that ledge is our trigger to enter. The big disadvantage of this trade is the fact that the stop typically needs to be placed just past the swing pivot extreme. This is usually too far for my tastes.

Chart created by Tradestation.

Due to the fact that the Employment Report is released before the start of regular trading hours in the indices, it is sometimes the case that the "Ledge" of the Spike & Ledge is created before the normal day session begins at 8:30CT (example in the chart at left). Be sure to monitor price activity after the release of this report so that you can be fully aware of any Spike & Ledge formation.

There is another trick that comes in handy after a large impulse move. I'm always a little gun-shy about jumping on board in the middle of these types of, typically, fast market conditions. You not only risk large slippage, but such volatile spikes often require very wide stop placement. And I'm ALWAYS on the lookout for ways that I can reduce my risk. However, if you pay close attention to the 5 min. 20 EMA on days like today, sometimes you can come out all right. If, for example, we have a large impulse move upward, rather than using some sort of breakout entry where you have to place your stop past the extreme of the swing pivot, you can, instead, just sit back and wait to see if price eventually returns to the 5 min. 20EMA. If it does so, and a price reversal pattern develops near the EMA and a previously identified support zone, you can go long with your stop just below that zone. You won't catch the hero moves this way, but you can still garner some good profits, AND you reduce your risk considerably.

Another important item of note on highly volatile days - the Pivot System S&R levels posted at the top of this report can quickly become useless if the volatility is extreme. The calculations for these values are based on the prior day's range and close. If a report is released that causes significant market movement, the value of the activity on the prior day, and any calculations resulting from that activity, can be rendered meaningless.