January 12, 2009
To Go Long DAILY Setup and Commentary:
[setup values unchanged from the last trading session]
The SPX last Friday closed down @ 890.35.
In terms of Frequency, the most frequent long reversal cluster remains between 890 and 860.
Please notice how the reversal Frequency drops dramatically below the 860.54 level, it goes from 20% frequency to 4% frequency... this means that if you stay short below 860 you are taking a big gamble here.
Can we go lower than 860? Sure we can! But we have to try to stick to the odds to get some grip on the SPX's average behavior during "this type" of retracement down.
879.33 is the most frequent reversal level. It spikes out quite a lot, so it's important to take this into consideration in your trading plan. Also, it converges with the Weekly 879.29, another good reason to consider it good support.
We opened already a few longs @ 890 and we are going to add @ 879 and at each level below.
Our 100% adjusted odds target (below) is set @ 780.96. Should be conservative enough since we are not anymore in crazy-swings-crash-mode since a while.
Please remember that the 850-860 area has offered quite a lot of support as of lately, as explained 2 Weeks ago in our Weekly report , so 860.54 is definitely a good support. If broken, it may open the door to a big plunge, but as you have seen on the Frequency Table above, the most part of reversals are happening above 860.54.
879.33 (below, highlighted in purple) has >70% odds to see a long reversal, with our settings. Quite good if coupled with the fact that 879.33 is also the most frequent long reversal level (see Frequency Table above) and converges with an important Weekly support, as explained before.
Let's check again also the Reversal Risk Meter (below), to see graphically how the long reversal odds will be rising if we fall towards 780.96. The prices you see are marked by a green, yellow and red dots. The red dots are ideally flashing this message: "WARNING - IMPENDING LONG REVERSAL". The risk of a long reversal, on the prices marked with a red dots, are>75%. If you activate this tool on the RL Calculators, you can hover with the mouse over the dots and see the reversal odds. This tool helps the trader visualize the risk of reversal at certain levels, to avoid going short right before a long reversal begins (sounds familiar?). This tool also helps the trader decide where to take profit: once the SPX reaches the yellow or the red dots levels/prices, it's definitely time to take profit.
anuary 12, 2009
To Go Short DAILY Setup and Commentary:
The most frequent short reversal cluster is between 896.94 and 918.26.
896.94 is the most frequent short reversal level. 907.60 as well is very frequent.
From the shape of the graph below we can acquire a very important information: most short reversals are happening quite soon, all the graph's Frequency peaks are in the lower levels. This means that, on average, "this type" of retracement up tends to have a very short life. This doesn't quite match with the Weekly vision, where we have the most frequent short reversal @ 1046. So, you may ask: which one of the 2 is right?
The answer is: both. On a shorter time period (Daily), we may see a little bounce up and then down again. On a longer time period (Weekly) we may see a rise towards 1046 (it can happen in a few weeks, does not have to happen in one week). This will confirm both visions were right.
Or, we may just see a plunge and we'll never go to 1046.
Or we may just see a rise and do not have a reverse soon.
Anything is possible. The logic here is to try to wait for situations, setups, with good odds. Once the good odds are in, take the trade. There's not much more that you can do. A mistake is always possible. But if the odds are stacked in your favor, a mistake is much less probable.
In the Scaling Table below, we have set the 100% odds level at 1008.57.
907.60 has >67% odds to be the reversal level with this setting, and it's also one of the most frequent reversal level, on average (see Table above).
Other good shorting levels are probably in the 930-area, since that was the last resistance encountered. The odds @ 935.51 are >88%, very good.
The 896.94 level is the most frequent reversal level (see Frequency Table above) but does not have great odds, so be careful shorting there, it may work or not, but for sure is a bit of a gamble.
