Stocks took a beating last Thursday ahead of Friday’s payroll report. This big selloff set up a Buy day on Friday; let’s take a look at it to view it through the lens of the Taylor Technique.
The early part of last week saw a series of small advances, characterized by closes that were higher than the open for Monday through Wednesday. By the cycle of the Taylor Technique, we were starting to look for the Sell short day on Wednesday, but the intraday action was bullish, so we continued to be looking for the Sell short trade on Thursday.
Thursday was a classic Sell short day. It opened around Wednesday’s high and exceeded the high early in the session. This set up the ‘excess’ that marked the end of the rally, giving the short sale opportunity. Thursday’s high also stopped in the vicinity of the high of 1/29, the day the previous swing low was made.
Thursday’s selloff continued the symmetry, stopping at the previous swing low at 1731.75. The big selloff Thursday meant Friday was likely a Buy day, as the selloff created the ‘excess’ that would mark the end of the decline.
There was more downside early Friday. This last part of the decline is where the excess occurred, sucking in traders who ‘sold in the hole’. From a price structure standpoint, the move below the 1731.75 double bottom area was the ‘tail’ (in Market Profile parlance) that marked the end of the ‘selling auction’.
As the market ran out of sellers, it rallied back up late Friday; the move over Thursday’s low was the trigger to buy. A follow through rally gave a profitable close, setting it up for a Sell day today.
click to enlarge
I drew two Fibonacci retracement levels on the daily chart. One measured the decline from Thursday’s high to Friday’s low. The 50% retracement of this move came in at 1751.38; that area (generally) served as resistance for today’s Sell day rally.
The other retracement measured from Friday’s low to today’s high. The 50% retracement of this move came in at 1732.25. I’ve been watching this level for a potential short sale today. As it lines up with previous support, a breach here could extend the selloff.
It’s late in the session today; I wouldn’t take a trade this late in the session. However, tomorrow is the Sell short day in the TT cycle, so I’ll be looking for an opportunity there tomorrow. At this time (about 15 minutes left), today has the narrowest range of the previous four sessions, so that will be an additional consideration for tomorrow.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Copyright © 2009
This feed is for personal, non-commercial use only.
The use of this feed on other websites breaches copyright. If this content is not in your news reader, it makes the page you are viewing an infringement of the copyright. (Digital Fingerprint:
f2ea78dd95959aa32f651cec20a16e23)
