Illustration of RSI Patterns

Using indicators to confirm my wave count is an integral part of my trading arsenal. The wave count has been removed from this chart.  

There are many ways I use RSI and other momentum indicators in my work; therefore, I briefly want to touch upon the subject and not get into a full blown account of how to use RSI. I'll save that for another day.

Drawing your attention to the RSI indicator which is made up of the standard setting and a 9-period sma. I've drawn in trendlines which in this case provides me with an objective way to measure oscillator resistance against a maturing wave count. 

As you can see by this chart, price and RSI resistance came together at the most recent high.  The decline in price from 13523 has drawn RSI to the lower level of bullish support (40) , and trendline support. If it breaks its bearish. 

As an exercise, label the chart and see how RSI can assist you in building a case for your wave counts.

Best of Trading

Is It Finally Time for Natural Gas to Shine?

I've Pulled The Trigger and

Bought Natural Gas Today...

I've had Natural Gas on my watch list for quite some time. With the seasonal trend up beginning on September 2nd (not shown) and the fact that the Commercials are adding to their long positions, I've been waiting for the completion of w.e of the triangle within w.Y. I am viewing the slight break of the lower boundary of the triangle as a throw over. Any subsequent break of w.c (3.39) would negate the triangle interpretation and my bullish view.

At the daily chart level, from the 3.85 low, I was looking for a five wave advance to confirm the weekly interpretation. If correct, price should thrust from the w.e low. Two sets of technicals are supportive of my analysis. The MACD shows divergence as prices made new lows and the RSI broke through 50-60 levels on the rally to 4.02 signaling that the rise was most likely not a counter trend move.

Subsequent price action is in a three wave zig-zag and the market has found support at the .618 retracement  of w.i. I level.

Trading the futures in Natural Gas is too my for my blood so I prefer using the ETF, ticker symbol UNG .

As to properly disclose to my readers, THIS IS A REAL TRADE, NOT SIMULATED! I will be adding ticker symbol UNG to my trade disclosure. You can locate that disclosure about 3/4 of the way down on the left hand margin of the site.

I've indicated my entry which front ran larger orders at 9.93 and the figure where w.(c) = w.(a) of 9.84 which is a reasonable entry level. Risk on the trade is minimal (.24) per 100 shrs. I'll be watching how price reacts off 9.84, unless the structure of w.ii is already completed. My target is a challenge of the 10.14 with much higher potential.

Should price decline from 10.14 and in a five wave move, the analysis is flawed and so is the trade. As such, from a risk management view, I'd be looking to cover on the next three wave rally up.

If you are interested in following the trade, I'll be making regular comments to this post.

Let's see if I can make some coin.

Best of Trading

As always, following this trade is strictly for educational purposes! Please familiarize yourself with the Risk Disclaimer and Disclosure Statements make within this blog site.

Heard On The Street

Announcement:

This weeks edition of Heard On The Street will not include a video as I had to travel over the weekend.


Identifying, the wave pattern in the $ES_F remains challenging and the market refuses to show it's had. Until it does, all we can do is focus on one wave at a time until enough data enables the wave structure to be clearly identified.

As of the close, my best interpretation remains an expanding diagonal. If you have been reading my posts you know that the pattern has flaws. See last Wednesday's blog post for details. As of the close of Friday's trade, the weekly chart level shows the current wave labeling. Notice this week's price bar , called a "spinning top" to candlestick traders. The small real body shows that neither the bulls or bears were able to gain control. The implication is that a spinning top immediately proceeds trend losing momentum.  If this was the case we would expect a move up for the early part of next week.

The above chart shows the bullish expectations, given the spinning top at the weekly chart level. However, when I look at Friday's session, I see weakness as price closed near the lows of the session. Add your favorite momentum indicator and you will see trending momentum to the downside that contradicts the weekly implications of the spinning top. RSI is currently 44.66 and hasn't broken the 40 level which would imply that a larger decline was unfolding.  Also note that the decline from w.iii circle has been contained within a corrective price channel; is choppy and that four waves have been completed within it. The structure SHOULD be viewed as corrective.

Ok, corrections can't end in four waves so here's what I think will unfold under a near term bearish scenario. I've only labeled the waves from w.4 red low but I want you to focus only on what unfolds from 1367.25 high. If a double zig-zag unfolds as I have indicated, then I'm looking for w.(a) of w.z to terminate near 1318.25- 1317.75 for tomorrow's trade that will be followed by w.(b) up and a final round of selling to where w.z = w.w at 1294.25. Note nearby structural support of 1290.25 and the .618 retracement of 1290.50 are nearby.

In conclusion, I've given a bulls and bearish view. What should be exciting to you if you are a bull is that we know that eventually the market will make a new recovery high under either view. Only a loss of 1290.50 would imply that a more significant decline was underway and that a more aggressive bearish posture would be adopted.

I hope you found this information helpful and best of trading.

The Market Pulse

Today's post will be brief and a supplement to the weekly edition of Heard On The Street.

The Emini S&P appear to be following the script laid out calling for an ending diagonal. Yesterday, prices rallied and RSI has so far failed to break the 40 line , a point where further bullishness would be questioned. The fact that the indicator bounced of the 50 line instead of even testing the lower 40 line bolsters my bullish view.

At the intraday level, the subdivisions of w.5 are labeling and I am expecting another up, down up sequence to complete the pattern.

I hope you found this information helpful and ...

Best of Trading

The Market Pulse

Today the market gaped up at the open after a very strong ON session, then spent most of the remainder of the session consolidating, yet by 4:15 pm est. the market bolted higher on earnings announcements.


Previously I left readers with the bearish pair of 1-2's and a bullish count. At today's open, price pushed above critical resistance of 1319.25 and negated the 1-2 pair leaving the bullish continuation count with w.4 still unfolding. To review those charts click here.


Unfortunately, the fact that the market has retraced a significant portion of the decline from 1335.75 to 1290.25 also places this wave count in jeopardy. At the time of this writing, price is already challenging 1335.75.


As I have mentioned in the  4/18/11 post, since w.2 was a sideways correction, w.4 MUST be a sharp correction to adhere to the rules of alternation. At this point, I can label the structure beginning at w.3 in a number of ways. Until the number of possibilities are narrowed to a select few, I am unable to make a high probability forecast.


What I am relatively sure of are the clues that technical pages provide. Note the vertical line that corresponds with a RSI reading that held 40. This is a signature of a corrective price structure. Also note that the ROC made a minimum break of the zero line another signature of a corrective phase.  Today's move pushed RSI just shy of 60. Bear rallies usually contained within a 60 reading of RSI. If RSI pushes beyond 60, odds are that w.4 ended at 1243.25 and w.iii of w.5 was underway.

As soon as I am able to identify a high probability count, I'll update everyone. Until then....

Best of Trading