Saturday Review’s recording and transcript

Yesterday, the recording”s link was placed in the comments section of the Activity Feed. Here it is again, followed by the transcript…

https://roddavid10.mitel-nhwc.com/join/jrtbrfy

10/4/2014… Good morning. It”s Saturday. Welcome to the Saturday strategy session. I have a little bit of an inset here. This, is this, and it”s right here. Right smack dab in the middle of things. Not that being smack dab in the middle of things can”t still trend, still move, still offer a lot of opportunity. But there”s the rally up, there”s the reversal down, or at this point, we think just a retracement. Just a corrective dip. Maybe corrections solely for the purpose of returning back to the high, giving that a test. There”s certainly unfinished business above. Unfinished business above in terms of the gap back to the high. There is an open on September 19th gapping up above all prior price action, and those just want to be retested. A lot can happen in the interim, so it”s not a timing mechanism, but it is unfinished business above. Just prior to that, there had been a reaction to fresh highs on the back of the Scotland Independence vote or the absence thereof. That”s a new blowback trend extreme, and that wants to be retested too. So, we give all of this context of it being corrective or at least being temporary. Maybe it”s the first leg down, and once we retrace entirely the next leg down until lower lows come. There was an opportunity for a trend change. There was an actual trend change signal. That was not too long ago, closing above prior lows. A whole panoply of lower lows in the low session, 68 within 68.50 was the lowest. That was at pre-open or overnight Sunday night low all the way up to 78, 1978 being the high of that session. That”s not as relevant as the close, and the close itself, despite closing under that range decisively, to trigger a trend change that is from this prior high, to this prior high, to actually close under their interim low, signaling a trend change.

Confirmation needed one thing. You had one job. That one job was not to retrace it, just maintain that break. The next day, of course it was late, but the next day late retracement, It was a Friday, so it”s undermined to some degree. That certainly accounts for the quick reaction down, and despite recovering it entirely, resolving down anything. Behaving, in other words, like a trend change, that first day trend change confirmation. Confirmation, unlike a breakout that is required to produce a second consecutive higher or lower close beyond the breakup point, the confirmation of a trend change signal just has one job. Don”t give it back. That trend change confirmation session gave it back, but that didn”t prevent trying to make up for it. Trying to make up for it in compensating for the delay and behaving as if there had been a trend change. So, it really doesn”t matter to our purpose of intraday trading, but if you”re positioning short there might have been an opportunity missed. In any case, we never got a buy signal. Still haven”t gotten a buy signal. All that we”ve done in the entire recovery here, including yesterday”s session long rally, all we”ve done is a trace back to higher prior lows.

Now, we will give buyers this much more benefit of the doubt considering we”re in the context of unfinished business above, a late, if at all, trend change signal that has been productive. If we”re going to give buyers any benefit of the doubt on top of all of that, that they may be taking control, or they may be absorbing sellers and preventing them from expending any more control, it”s that yesterday”s close, and being a Friday, the week”s close, recovered back above prior lows. It”s not like the week was spent lurking either way around those prior lows. There was a pretty big scoop out of lower lows, and despite having all of that ground, sellers didn”t exploit it or couldn”t through the close of the week, buyers could. So, this current week’s close back above the prior week”s lows doesn”t mean this never happened, doesn”t mean that didn”t test the integrity of support and perhaps chip away at it. It means that there”s a chance for that ultimate test to be left to another day. We know that there”s an ultimate test coming because we have oversold our side at the low. Again, not a timing tool, nothing about that speaks to timing. Nothing about that speaks to timing, that it has to be retraced on any specific timetable, but it does have to be retraced at some point, typically. Very rare is the exception.

So meanwhile, what do we have? We have from that, and it looks like a head and shoulders. It”s not a head and shoulders for predictive purposes anymore than it is at the low. Let”s go ahead and elaborate on that. It incorporates two sessions. It”s not a big problem with it, but just to point out it can”t be considered that predictive, there”s a head and shoulders at the end of Wednesday”s session using that pattern. You can try to get a head and shoulders out of that. It”s pretty sloppy, but in any case, we already had other indications telling us sellers weren”t gaining traction on this day spent largely, that”s Thursday, in negative territory. We don”t need no stinking head and shoulders. Anyway, that is support, those lower prior highs, that gap back to Thursdays close. Until we get into that range the oversold RSIs at Thursday”s low, that is both one and three minute RSIs being oversold at the low, requiring it”s retest. Until we get back into Thursday”s range, that won”t be an attraction. Now that we”ve gone back into the trading range, literally channel multiple consecutive sessions overlapping the same area. Now that we”ve gotten back into that range, without rejecting it through the close. The upper end of that range becomes an attraction and actually the 51.8% retracement of it does, which is about 1975. Get through there, and we”re heading back to the highs. Otherwise, just like last Friday”s rally, which actually was a little different. Last Friday”s rally came basically as an afterthought. Remember the session itself had fought off, successfully except for a pre-open dip, the requirement to eventually probe under last Thursday”s low, and all of that selling pressure into the weekend just got squeezed. If Monday or Sunday night, as last week, were to reject yesterday”s rally, we”ll be back into that range sooner rather than later. We”ll be leaving that alone, but an attraction from above, leaving that alone to neutralize the attraction below.

If you notice, now having spent our intro talking about a bullish scenario that continues higher, a bullish scenario that neutralizes attractions below, and then it continues higher, I don”t have a high regard for a bearish scenario. There is a bearish scenario without getting any higher highs out of the way, without extending any higher. There is a bearish scenario. It doesn”t require extending down immediately Sunday night or Monday. In fact, the most bearish scenario doesn”t extend down immediately. The second bullish scenario I listed actually extends down immediately from this position of strength where there”s so much extra room now to absorb selling pressure that by the time it”s neutralizing the attraction below it”s already been fully expended. The most bearish scenario takes it”s time. So, the most bearish scenario will possibly be the most easily spotted, and it”s therefore the most easily dismissed Monday morning. Because if this pattern from Friday afternoon is at all adhesive, if Monday morning opens, and there is low or no volatility and we”re just ranging in it or around instead of exploiting the upside momentum of the morning, instead of quickly trapping more shorts, if instead the market is treading water, spinning its wheels, hovering, and I”m out of metaphors at that point, then probably it”s running out of buying pressure to defend that rally and, more so, using up buying pressure that might otherwise defend against the decline. I don”t see that as being the most bearish scenario by being an immediate drop. It should be gradual. It should try to lure in as much bottom fishing as possible, pullbacks waiting for a resumption of Thursday afternoon”s recovery, of Friday”s rally, buying cheaper and cheaper, biting it off at support after support. So, the less volatility Monday morning, the slower the retracement throughout Monday and probably Tuesday, the more bearish the scenario as we approach the lows and more and more buying pressure is gone, more and more eyes are opened, that this isn”t just a retest. The faster that we can head back to lows, the less buying pressure expended trying to defend against the decline, the more buying pressure available at the lows. Otherwise, just extending higher gets every benefit of the doubt. That is the likeliest scenario. Until they open, that”s the likeliest scenario right now. If the open doesn”t immediately extend higher, we”ll cross that off the list, but that”s the likeliest scenario, to immediately extend higher through the open, if not already gapping higher Sunday night/Monday. One of those reasons has to do with Friday”s range, similar to Thursday. Recall that Thursday afternoon had an opportunity here with its recovery of the morning”s drop. Recall that Thursday afternoons, and I”m not going to go into the interim timing with this here. I want to finish this up on a broader market discussion in the next couple minutes, literally.

So, go back to these days if you need to. You can scroll back now in the activity feed in the Market Buy site, on Market Buy blog, or my post to the activity feed. If you haven”t saved the e-mails that contain the links to these days to get those examples, but I do want to point out the similarities to Thursday”s noon hour range, Thursday”s bias environment exit, and then the final hour”s entry. The bias environment exit was above the noon hour”s range, but here”s what happened at the final hour”s entry. It was no higher than the bias environment range. This is the bias environment. No higher than the bias environment range. Not only that, it was no higher despite probing the fresh high. That”s an important point to note. It told us not only did buyers not gain traction for their efforts, but worse yet, they had tried and failed. You”ve heard it”s better to have tried and failed than to have never tried at all? A bear came up with that. Anyway, there”s the reaction down, and of course it trended down through the night. The seller”s didn”t gain traction on the deal, buyer”s just didn”t get it. Fast-forward to Friday, similarly with one difference, here”s the noon hour”s range, there”s the high, here”s the bias environment”s exit, and here”s the final hour”s entry. Now, what”s different of course, is that the bias environment exit as opposed to Thursday, Thursday”s bias environment was above the noon hour”s range. Yesterday, it was within, but everything else, the bias environment”s higher high, the final hour”s entry back within the range of both, these are similar and they prevented buyers from gaining traction for their effort.

We just looked at Thursday. We just looked at Thursday”s setup where buyer”s failed to get traction for their effort, correct? So, having looked at buyers failing to gain traction for their effort, the afternoon”s buyer”s, how do we account for this gap up? That”s the whole point. Those buyers failed to gain traction for their effort, and on an up day or after a big recovery like that, how do we say buyers didn”t gain traction? Buyers were fully satisfied. These buyers were rewarded for their effort. The following night”s setup down here, the retracement was too much of a retracement so that it had to be about buyers. They extended it. Look at all of those buy signals, and they got somewhere, but they didn”t gain traction for their effort because they kept hitting their targets, and/or they didn”t maintain their gains through the relevant windows.

So, that begun at 4:00, and let”s make it quick. Here they didn”t gain traction for their efforts; that”s Thursday afternoon. There”s a dip, but there”s a rally overnight because if buyer”s don”t gain traction for their efforts for this leg, then the only way to extend higher is if new buyer”s come in, new sponsorship. And new sponsorship makes itself known. It has no choice by having a different character. That”s a gap, a different slope, sometimes 180 degree turn. If new sponsorship arrives, traditionally we think of that in terms of reversing the trend, but it can also be new sponsorship that”s more enthusiastic than the previous crowd. So, that”s the same potential for extending higher on Monday. Buyers gained no traction for their effort, and they sure put out a lot of effort gapping up, extending higher, a session long rally that, in every single timing window but one, probed fresh session highs. There”s the final hour, just got it in. Bias environment, barely, but did it. Noon hour”s high. Only the morning”s bias environment didn”t produce a fresh session high. That was the one exception, that there should be one exception. So, if the rally”s going to extend any higher, these buyers are done. It has to be by new sponsorship. So, the bigger picture says there”s still potential above, and here”s what gets us up here, et cetera. We already covered that. This is how we get there, by gapping up. So, those are the filters that we will be looking at the open through.