I spent a little more time in this Briefing describing the analysis of the Stock Indices in multiple timeframes and the structure of that price development. I feel it is extremely important to understand in light of the current Market.
In one timeframe Stocks are in an uptrend off the March 23 low. However, the structure of that trend is weakening. This suggest the possibility of a greater degree time and price pause, at least in the intermediate term timeframe. It is always a higher probability price will correct to the internals. However, as I have said before, there is also a smaller possibility the internals will correct to price, supporting the trend. This typically happens around a news event.
Friday saw better than expected employment numbers. The result was a continuation of price development higher, but the internals did not support the move. It will be important, if the breakout is going to continue, for the Market Internals to begin supporting that trend. If not, the risk is, a greater degree time and price pause or correction.
The first part of this week will be important to that analysis, as trader try to determine the next greater degree move.
DAILY BRIEFING 200808 from Joe Mertes on Vimeo.
As you will see in the Briefing, the Stock Indices have been in a rotation pattern for about two weeks. The past week saw them test the extremes of each range. Market Internals have not been strengthening and inter-market divergences are still unresolved.
With that said, price development on Friday was significant. The S&P is testing the upper extreme but the NASDAQ and Russell are lagging. The Industrials are not confirming the apparent strength in the Transports. More importantly, on Friday the Indices, late in the afternoon, traded all the way through the range, allowing the S&P to test the upper extreme of its resistance. The amazing thing was it did this on declining up volume and negative Breadth. The NASDAQ recovered nicely but it also moved on over one thousand shares within the Index trading lower as opposed to higher.
Unless these divergences are resolved early in the week, I would be suspect of the price move that was made on Friday. There is always a chance the Internals will correct to support price, but until they do, caution is warranted.
DAILY BRIEFING 200801 from Joe Mertes on Vimeo.
As discussed in Thursday’s Briefing, the higher probability was a continuation of Thursday’s selloff on Friday. That is exactly what occurred. However, some of the Indices have reached very important support levels. If those levels are traded through and close below them, it would suggest the possibility of a greater degree time and price rotation lower is developing. Holding above those levels would place a higher probability on testing the recent highs.
At Friday’s close, the Indices were approaching oversold territory, but it does not preclude them from trading lower to an extreme oversold condition where we have seen rotations back up. If there is a low put in below Friday, watch for internal divergences. This will suggest the end of the move down and a countertrend rotation back up
DAILY BRIEFING 200725 from Joe Mertes on Vimeo.
Since the beginning of June, the Stock Indices have been paused in a rotational pattern. Last week, they once again tested the upper extreme and paused. While they have attempted to break higher, those moves have been quickly retraced. It is likely due to the very weak internals. However, the current shorter term pause at the end of last week, offers excellent trade location.
As you will see in the Briefing, look for a break outside of the short term rotation. That suggests a break of the longer term rotation that should provide a good move. However, whichever way it breaks, be sure to monitor volume and breadth if you are trading the Indices. If they do not strengthen when there is a break, it could be a false breakout. The Indices have attempted to breakout before, but those moves were quickly retraced.
Currently, they are giving us areas of good trade location, if you have the patience to wait for the break.
DAILY BRIEFING 200718 from Joe Mertes on Vimeo.
The Stock Indices continue to be in search of value. This means traders are unsure of whether value is higher or lower. The result is we are in a trading range. However, for over a week, the Indices have paused at the upper extreme of a greater degree timeframe rotation. A break of the shorter term will suggest a break of the longer term as well and that should lead to a very good move. A break to the downside will simply suggest a possible test of the lower extreme.
I want to stress also, the NASDAQ in terms of the QQQ has been on fire. Not only has price expanded higher but the market internals have been strong. However, as it also paused over the last few days, the internals are showing some weakness. While that is typical in a consolidation, I would suggest using some caution and good stop management until there is an internal strengthening.
DAILY BRIEFING 200711 from Joe Mertes on Vimeo.
The Stock Indices spent the last four days in a rotational pattern. They did work off an overbought condition to some degree and it was on low volume. Important to the analysis is the fact the rotation was at an area of unfair price in the next degree of time. This suggests a break outside of the last four days should be a very good move. The indicators also suggest the higher probability of a break is soon.
The day patterns from all of the Indices suggest lower prices on Monday, unless the single prints in those patterns are traded through. Closing at the low of Friday also tends to indicate the possibility of lower prices as well.
The most important Key Reference Area for the beginning of the week is the upper and lower extremes from the last four days of trading. Breaking those extremes will suggest a possible larger degree move is forming. Those are areas of good trade location.
DAILY BRIEFING 200620 from Joe Mertes on Vimeo.
The Stock Indices performed as expected this week. Longer term, there was a breakout in price to the upside. Thursday saw a retest of the breakout but the Indices were extremely oversold at the end of the day, suggesting a possible pause or countertrend rotation at the breakout. This is what occurred on Friday.
As a result, what happens from here will be significant in terms of the longer term development and larger price moves. Breaking support will raise the probability of additional downside. If support holds, the probabilities will increase for a bounce off the breakout and a move back to test recent highs and possibly all-time highs.
How price develops the first part of the week will be significant information for the longer term development. This will offer opportunities for larger degree moves.
DAiLY BRIEFING 200613 from Joe Mertes on Vimeo.
I have just posted a paper on Trading Unfair Price Levels.
Unfair prices exist when a trend comes to an end and profit taking begins. The opposite is true in a downtrend. Knowing where those levels are in various time frames can offer excellent areas of trade location. Having that information can help significantly in tactical entries, profit projections and stop management. There saying, “the trend is your friend” is certainly true. However, understanding where the market has determined price to be too high or low, offers a significant edge in trade management.
You can access it here for $2.95. How To Trade Unfair Price Levels
Going into Friday’s trading, there were inter-market divergences and internal divergences suggesting the rally off the recent lows was weakening. Often times a news event will change the perception of value on the part of traders and investors. This will result in the elimination of those divergences and the internals will strengthen to support a continuation of the price move. That is exactly what occurred on Friday with the release of the employment numbers.
While the Indices finished the week with stronger internals, they were at a point of being overbought. Therefore, unless there is some negative news that hits the market the first of the week, I have to anticipate the possibility of some type of short-term pause to work off the overbought condition. That does not preclude that pause from putting in a slight new high above Friday’s. It simply means a day of rotation.
The Briefing outlines very important short to intermediate support levels. If those were to be traded through, it would suggest everything that has occurred through Friday is a false breakout.
DAILY BRIEFING 200606 from Joe Mertes on Vimeo.
I am pleased to announce the publishing of my new book WHY TRADERS FAIL. You can click the hyperlink and it will take you to the Amazon page where you can buy it as a Paperback or eBook.
Over the years I have made many of my own trading mistakes and have worked with others in trying to help them overcome their errors. There is one common function most ignore: Planning your trading business and Planning your trades.
I was speaking at an investment seminar some years ago on the importance of planning the trading business and planning the trades. One of the individuals, who had been struggling with success, commented that he had planned and sold to very large, successful businesses and he had done elaborate planning for both. He never considered planning for his trading business. John returned to New Zealand, drafted a business plan and went on to become a successful financial trader.
This book takes you through the planning functions of approaching your trading and investing as a business. Find your vision through the vision statement. From there, learn how to establish long and short-term objectives. Organize for success. Developing a strategy before executing tactically is critical. Finding proper trade location is important before considering a tactical entry. Consider risk management techniques. Most importantly, setup and manage specific financial goals and then control, not just the business but your trades as well.
The book will help the novice trader to the experienced professional establish the planning, organization, management and control functions that will help in success. Most individual traders and investors don’t know how to evaluate performance. The book takes you through the specific goal setting process that tells you when corrective action needs to be taken and how to manage risk appropriately for success.
It is my hope and desire the book will assist many in determing how to control their trades and the trader through proper control procedures.
Click Here for WHY TRADERS FAIL
My best regards,