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To all my students,

Since the 16th June my Father has been seriously ill in hospital, with a terminal illness. I have spent most of my time over the last 6 weeks in hospital with him and comforting my mother by his side.  So I ask that you all please be patient with me regarding to answering your emails and posting again on this site.

With regards to the market, you will notice that it did exactly as I reported recently and then bounced back for a short time.  Note on the XJO weekly chart that it is still forming lower lows and lower highs, this is still indicating a down trend.  Consider carefully your long trades (if any).

Take care and trade with care.

David.

It is good to see the market take a breather from the most recent falls. Looking around at some stocks they are almost back to 2003 levels. This is great, maybe not for super funds and investors that did not sell out late last year or yearly this year, but great news for those that did and that are looking for new opportunities. I’ll be doing the same, keeping an eye out, but not time to buy yet, we need an uptrend first to be established. Soon on my website I’ll be updating it with a section on investing so keep an eye out for that as it will help you with finding the stocks that will be possible candidates. For now back to the current market and some analysis.

XJO Weekly Chart

We’ll look at the weekly XJO first. This move to the upside was almost perfectly timed and expected. However the down side is not over yet. The chart below shows the LH and LL pattern. If a move to the down side is to continue it will find support at about 5100, after that at about 4800, beyond that you can look for yourself where the previous lows are – scary! but possible, especially if the march low is broken.

I have drawn in two parallel lines indicating the momentum angle and the possible length of the next leg of the fall if it was to occur. Remember we never trade a forecast or we never try and predict the market. However as proactive traders we simply get ourselves ready for it.

XJO Daily Chart

What you will see on the XJO daily chart is that the rate of decline from this last fall is slightly less than the prior ones. This could indicate that the downside may not continue. Keep in mind that the key support level is the previous low at 5039, if this level is broken then the index will form a new lower low and that will increase the probability of the downside continuing.

There is nothing much more to say about this chart other then the momentum is till down, looking at the direction of the short term MAV and that there is support coming up. We will see on the hourly chart next that current move down has possibly come to an end and that we may have some sideways action until the end of the financial year ( which is on Monday ).

XJO Hourly Chart (The Crystal Ball of charts)

This is were the rubber meets the road. The hourly chart, learn to look at these charts as you will learn more from an hourly chart for short term trading that from anywhere else.

You will see below that we have a double bottom and that the open bar today has broken the neckline, the interesting thing to note is that the price action moved all the way to the 60MAV and also the 50% and has come to a stop as I write this.

So what does this all mean.

• First look at the short term MAV is has been crossed today indicating that the momentum to the down side could have come to an end.
• We have a double bottom indicating that there is support at around 5210
• There is also the 50% from the last move at 5350 and also the longer term MAV is providing resistance
• A move to the downside will take place if the lows are borken.
• we could also see a sideways move ranging between 5450 and 5250 for the next few days
• Both the Short and Longer term MAVs on the hourly chart are flattening and thus indicating a continuing sideways move.

S&P 500 Cash Charts

Below are the Daily and Hourly charts for you review and you will see that the above analysis is very similar for both markets.

Above Hourly chart obtained from www.prophet.net

Perform the above analysis on some of your favorite stocks.

Have a great weekend.

END.

There are a few ways that you can set your stops.  The most important thing is to pick one that you can stick to.  Setting a stop does sometimes depend on the stock as some instruments can “whip” around during the days trading session and cause you some grief.

Lets consider some techniques.

During the workshop I indicate that the best stop to use is the short term average (12WMAV) as it is the closest measure to the current momentum of the stock.  To set your stop at or slightly away from this value.  I normally wait until the last 5 minutes of the days trading to decide if I am to allow the stop to cause me to exit the trade.

Many times traders say that they get stopped out and then the move continues in the direction that was first entered, frustrating isn’t it.  There is nothing much that I can say here other than to stick to a technique that gives you the best results.  At the end its all about when you got into a trade.  Get in too late and does not matter where you set the stop you will taken out of the trade if the price comes back the next day.

Another good way is to use the low or high price of the entry bar if the MAV is too close on the day of entry, but not more than 1 – 1.5% away from your entry price.  The best way to determine this is to backtest the stock and see what types of pull-backs it does once a move has started.

So the simplest thing to do is to set your stops a few cents/points away from the WMAV and see how that goes.  Do some backtesting and see the results for yourself.  Remember to stick to whatever you select.

I have mentioned many times during the workshops, in the notes and also in these forums that the best trades are those taken after a pullback (coutertrend, retracement or time-period move).  I have also said that the highest probability trades are the ones that take place closest to the longer term 60 Day MAV.

Lets look at the 50% retracement rule for a moment.  This rule is there to make sure that you don’t take trades in the middle or near the end of a move.  The best trades are the ones taken near the start of the move.  This rule together with the Momentum rule of the 1st, 2nd, or 3rd Bar are there to ensure that you take trades of the highest probability of success.

Look at the handouts of the charts that you have been given, look at the momentum patterns.  There is a move then a pullback, then a move again in the same direction as the last one.  This normally keeps going so long as the pull back is less than 50% of the last move.  Once this pullback starts to exceed 50% then you get a double bottom/top or even a head and shoulder pattern forming and once that starts you have indications of a possible change of trend.

Before entering a trade look for a pullback or even a sideways move, make sure that this pullback is not just one or two bars (days), but equivalent to about 50% of the last move.  For example if the last run went for 12 days then allow the pullback to be made up of at least 5-7 days and that is pulls-back less than 50% of the range of the last move.

Watch the following video to help you set up the retracement tool.  Remember than you may not get a retracement but a sideways move, this is still a counter-trend as it is a move in TIME and not price.

http://www.davidgaltieri.com/edu/video/retracement.html

At present we are experiencing volatile time.  Markets experience this at extreme highs and lows and also nearing major support and resistance. Oil is nearing all time highs, Gold is bouncing off support and heading up again, major indicies are also consolidating so there will be extreme moves. Trade with caution during these times.