- We have two Pattern Signals fired for today's trading in the S&P, the first of which is the 90-10 High 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 High Continuation signal is fired when the day's close is within the top 10% of the day's range. This signal is telling us to expect morning continuation of the upmove.
The second 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 sharply higher from oversold levels with yesterday's activity. Of greatest significance is the 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 ICSC-Goldman Store Sales at 6:45CT, Housing Starts at 7:30CT, the Redbook Survey of US Retail Sales at 7:55CT, and the State Street Investor Confidence Index at 9:00CT.
ADX levels on 15 and 30 minute charts are above a level of 30 (see ADX charts below), indicating that the trend to higher prices is still intact in these timeframes. If we were triggered into a long 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 908.75 high. If the move to that level can occur on Momentum Confirmation, there should be even more upside in the making.
ADX levels 60 and 120 minute charts are either very near or 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.
The 90-10 High Continuation signal is telling us to look for longs in today's early trading. The ideal setup would entail corrective action towards one of the support levels directly beneath yesterday's closing price, the most significant being that of the 901.50 Daily Pivot. If price were able to reach this zone as higher timeframe 20EMAs came up to meet it from below, we'd have an extra reason to go long. A price reversal pattern and/or Oscillator Divergence can trigger us into the position with the 90-10 High Continuation signal telling us to expect yesterday's 908.75 high to be exceeded. Use similar price and oscillator behavior characteristics to determine an appropriate exit point above this level.
Also keep in mind that the Momentum Pinball Sell signal is flagging potential short term uptrend exhaustion with a possible move in the opposite direction. If today's first hour low is breached we'd want to more seriously consider a bearish 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 resistance.