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To say it’s been a big week in terms of market movements is an understatement. For some investors the holiday season may have lost a little shine with this recent sell-off. For traders, however, the volatility has brought some great opportunities. When you take a technical approach it’s not so much the up and down that counts; it’s making sure you are in the right spot or safely on the sidelines!
The SPI200 has been tough to trade with the swing chart over the past few weeks due to overnight gaps. You get set to take an entry in the morning only to find that the action has occurred overnight and entry has become unacceptably risky. There are exceptions, of course – this past week in particular.
Chart 1 is the split screen swing and bar chart for the recent daily action on the SPI200. Take a close look before we cover the pertinent details.
Chart 1 – SPI Daily Swing and Bar Split Screen
click chart for more detail
The first items to note – a must when trading and analysing swings – are the ranges. Leading into the 11 December high, the swing chart was clearly showing a contracting up swing of 86 compared to the previous swing of 195. This is under but close to 50%. The swing down from the 11 December high was 115 points and broke the previous swing low, giving us expanding downswings and an uncertain trend.
The higher top/higher bottom of 13 December gave us another upswing and the day closed on its low. Working under the assumption that the next day would be down – and therefore adjusting our swing chart down – it is important to look at the size of the potential ‘confirmed’ up swing. At only 72 points it would be another contracting range on the upside. This day also gave us a first confirmed lower swing top and confirmation of a down trend. At this point we prepare for a good swing entry and bear in mind my earlier comment regarding gaps. The only thing that could have gone wrong at this stage was a big gap down overnight, something that blessedly didn’t happen this time.
This is not a pure ABC trade but it is certainly an advanced swing trade. We were all geared up to go short during the Brisbane Gann Mastery last week, so I’m hoping a few of the students there jumped on board. The entry stop for the trade was placed at 6596 (one below the low of the 13th) and the stop loss at 6663, one above the newly confirmed swing top. This trade had elements of Time, but you can see that a pure swing chart reading was bearish.
The market action this week and continuing weakness is in line with my argument in recent articles about the state of the markets and their future direction. I hope you have started to batten down the hatches and brace for the storm.
Wishing all of our Trading Tutors Newsletter readers and in particular our Safety in the Market clients the very best for Christmas and a magical 2008.
Until next year…
Noel Campbell
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