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Was today's price action predictable?


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Was today's price action predictable?

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  #1 (permalink)
 Fat Tails 
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If I look at 3-day-rolling-pivots, TF already changed direction yesterday, while ES, YM and NQ are still in a downtrend today, if I use again the 3-day rolling pivot to define the trend.

So there were two signs that predicted today's upsurge. The divergence of TF compared to the other index futures and Jim Cramers prediction of a mass panic for today.

The reversal today on high volume trapped a lots of traders, so short covering provided enough fuel for the afternoon rally. Monday's open could be higher than today's close.

Who is watching market depth, new highs and lows or sentiment to comment on today's price action? Any idea, how this can be predicted. Does TF lead the other index futures?

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  #3 (permalink)
 trendisyourfriend 
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Fat Tails View Post
...The reversal today on high volume trapped a lots of traders, so short covering provided enough fuel for the afternoon rally. Monday's open could be higher than today's close.

You probably mean many longer term traders were trapped. If you daytrade then you will want to take advantage of these moves so in a way there is no need to predict anything but i think you need to be highly aware of the structure of the market to take advantage of the many opportunities that emerge.

Take for example the ES this morning (New York time) at around 10:00 price rejected the S1 pivot at 1038.50 and went right at yesterday's POC at 1051 then danced around it a bit and went directly at Value Area High at 1059. AT that time the Initial Balance was established. Price made a pull back at 1054.25 which was the IB High and went through Yest.'s Value Area High at 1059 and broke through Yesterday's High, made a pull back to Yesterday's Value Area High and then closed at 1064 (above Yest.'s High) but also at 50% of the range of Yest.'s Value Area range at 1064.50.

The right question in my mind is how do you gauge the strength and weakness of these many moves at key areas during regular hours to profit from them.

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 Fat Tails 
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My question aimed more at market sentiment. It was quite negative and prepared the bounce.

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  #5 (permalink)
 ollie 
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Today's action was based on the new normal. How can you have a 100+ point rally when the revised GDP was lowered by .8%. The head of the central stated today that the economy is still "vunerable" and in the future the fed may buy even more debt. The housing number this week was extremely low, the 4 week moving average for unemployment was the highest point in two years.

But with all this very bad economis news this week we have a 100 point rally. I believe this is the new normal, when economic news is not as bad as it could be it is seen as positive.

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 PandaWarrior 
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Fat Tails View Post
My question aimed more at market sentiment. It was quite negative and prepared the bounce.


I read something the other day that looked at bad news and stock performance back in 1929-1932. The study was interesting as they found no correlation between bad news and stock performance. The news briefly moved markets and then they kept doing what they were doing before the news. Seems to be the same today. There has to be a certain irrationality in this as traders are pretty myopic about long term trends for the most part. If traders really looked at the global long term situation, there would not be a bullish trader in sight. Which I think lends credence to the theory that traders are myopic.

However, the really rich traders seem to have a feel for long term trends and get in early and ride it a long time. Months and years as opposed to minutes and hours. They are often seen as counter trenders when in fact they are just usually early to the party. The average retail IRA investor (sheep) are just a source of commissions and trading capital for the brokers. Most have no idea of what is going on in the world and don't care, just keep making me money and telling me I am doing the right thing by listening to the conventional wisdom.

My humble and unlearned opinion.

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 Big Mike 
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I think the question becomes, if everyone is so short the world right now, and we continue to move higher, then at what point will you see huge capitulation? Of course 'everyone' in this sense is retail, whereas the banks may have a much different outlook and are not presently short.

I guess the point I am making is this: if you took a poll and 80% of retail traders had a bearish view, do you think they've acted on this view already? Are they long or short in other words. If they are already short, and the market continues to move higher, then capitulation is coming.

I think what makes it a much more difficult task though is the banks. GS, et al, could be behind this bull rally because they've found they can make more money being long right now. If something changes that, and they start getting short, then that could change the whole outlook.

For me, such speculation is fun but not profitable. I prefer to focus on what will happen today or even what will happen in the next 30 minutes, so that I can trade to that end and profit from it. Trade what you see, trade the now.

Yes the market is forward looking but there has been so much bearish news and sentiment for a long time now, yet we move higher. The market seems to be acting irrational, and to me it means it is being manipulated. Like for instance, The Fed injecting billions and billions and billions of "liquidity" into the market, etc.

Personally, for retirement funds I have moved the bulk out of equities as of about two months ago, until I feel more confident about this bullish move continuing. To me, it seems the likelihood of a free-fall down to 900 is much greater than a continuation up to 1200 or 1300.

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 trendisyourfriend 
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Big Mike View Post
For me, such speculation is fun but not profitable. I prefer to focus on what will happen today or even what will happen in the next 30 minutes, so that I can trade to that end and profit from it. Trade what you see, trade the now.
...

I think along these lines too as if there are some movements or a minimum of volatility then we should design our strategy to profit from these conditions. All else is pure speculation :-)

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 MXASJ 
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I ended up not trading anything yesterday, but noticed a divergence in risk assets and some options pricing early in the session. While the ES was heading down, TF and EEM (a very liquid ETF that follows the MSCI EM Index) were holding their own or heading up. December call prices on EEM and EFA (a liquid ETF that is Developed World ex US... mostly Europe) also pointed to prices going up.

I posted a link in the chatbox to the chart below, along with the comment "Is this 2006 all over again, and 30 is the new 20 on the VIX?" There was a few months of fear and loathing in 2006 before we hit new equity highs in 2007 and began the rollercoaster ride again.

Fund flows over the past few weeks appeared to have favored "risk off" sectors like Utilities. Looks like a few people think "risk on" is the near term play... rotate some funds out of the S&P500 and put in in higher-beta plays such as EEM, EFA, IWM (TF), etc etc.

But then I'm just guessing .

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 Silvester17 
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Fat Tails View Post
If I look at 3-day-rolling-pivots, TF already changed direction yesterday, while ES, YM and NQ are still in a downtrend today, if I use again the 3-day rolling pivot to define the trend.

So there were two signs that predicted today's upsurge. The divergence of TF compared to the other index futures and Jim Cramers prediction of a mass panic for today.

The reversal today on high volume trapped a lots of traders, so short covering provided enough fuel for the afternoon rally. Monday's open could be higher than today's close.

Who is watching market depth, new highs and lows or sentiment to comment on today's price action? Any idea, how this can be predicted. Does TF lead the other index futures?

I think there are lots of market participants that look at TF as THE index futures leader.

as far as market action for today, I don't think it was a big surprise. look how much we lost in the last 6 trading days. a lot of bad news was already in the market. and not only cramer was very bearish for today. everybody was expecting more bad news today. but the GDP revision was not as bad as expected and bernanke made some positive remarks. what followed was the classic out of treasuries and back into stocks. plus shorts had to be covered as well. I wouldn't be surprised either if we gap up on Monday.

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 RRider 
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I am of the school of thought that the market price and it's local history best represents the meaning of most sentiment information, i. e. that everyone, with all the important information votes, and we see the results as price. Thus I look for "predictable?" changes in market direction with "interpretations" of recent price behavior.

For example in the TF, which does appear to often lead the market to the upside, we have "double bottoms" which can, at times, be useful in seeing a turn in the market. Longer term the TF has a possible "double bottom" on the 7/6/10 lows and the 8/25/10 lows, near the 585 level. More locally one can see a "double bottom" with the lows on 8/24/10 and 8/25/10.

In the ES we also see a double bottom formed on 8/25/10 and 8/27/10, with Friday's low being made after the 10:00 announcement.

Another condition that can occur near "double bottoms" is symmetric moves. In the TF there was a move of about 24 points off the lows of 8/25/10, and yesterday we had a similar symmetric move off the 10:10 lows of about 24 points. If one was looking for that symmetry then trading off Friday 10:00 lows in TF ( 594), might be easier with direction (up) and likely extent of move (24 pts) in hand.

In the ES, once Friday's low was in place, assuming some symmetry off this perceived "double bottom" would give a trader direction (up) and likely extent of move (about 24 points).

Of course this is a game of probabilities, sometimes it works. But the combinations of the earlier mentioned divergent move in the TF, combined with "strength off previous resistance" in the ES, and the fact that these double bottoms work better when they follow bigger declines, like 80 points in the TF and 60 points or more in the ES, then perhaps the shift in probabilities was enough to be predictable.
lows, and the 8/24 and announcements. A turn in direction off a previous resistance point can lead to strong local moves. Once that low was in place there was a "predictable?" direction for a trade.

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 Big Mike 
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 trendisyourfriend 
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I don't see this thread as a price action thread. In my mind price action has nothing to do with prediction. I would even go so far as saying as price action has everything to do with price dynamics not prediction. I know Fat Tail is found of Fibonacci projection and all its dérivés but when you think about it, it's all based on prediction, ie, where could price bounce or reverse. A true price action reader does not rely on such predictions as he's mostly interested by keeping his risk low and price dynamics. All else is pure speculation. You don't need to make extensive studies of Support/Resistance levels to win money. In fact, there is a whole industry around these levels which in my mind are not a requisite to make money. The search for key levels belongs to a top down approach while using a bottom up approach you do not need to rely as much on this aspect as price will reveal what is important as you move forward during the day provided you know what to look for as it occurs. In my mind, a bottom up approach to trading is superior to a top down approach.

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 Fat Tails 
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Indeed, my idea for this thread was more about sentiment indicators, but I chose the wrong heading, so no problem for me if this thread is closed here.

I will come back to my sentiment idea via another thread.

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 Big Mike 
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Fat Tails View Post
Indeed, my idea for this thread was more about sentiment indicators, but I chose the wrong heading, so no problem for me if this thread is closed here.

I will come back to my sentiment idea via another thread.

Perhaps we should just re-word the thread title. Let me know of a new thread title and I will update it, and no need to close the thread that way if its really not a discussion on price action.

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