Thursday, September 29, 2011


I did say yesterday that I did not have any sell signals for the SP 500, but I will get to what I wound up doing in a minute and why. First, the above chart is that of a intra day trade I made this morning. Notice the trap pattern I talk about so much in here, where the bar broke out from a ledge type of pattern, then reversed taking out the low of that bar on the very next bar. This also happened at a time when my COT Synthetic was not indicating the insiders were buying on the way up. This was a divergence in my mind, so I shorted this market when that low broke. I did get out perhaps too early, but was trailing a stop down, and that is where it got picked off.

Aside from whether or not I did this perfectly, we need to celebrate the ones we did well and this was one of those. For the most part we are never going to get the exact highs and lows of moves even if we occasionally do get lucky here and there. Also, since I was already short this market based on the daily chart, I was looking at the initial up move as a retracement. Whether or not we go back up again now is another matter, but for the purposes of the day trade, I had to view that first bounce as a retracement opportunity. As I mentioned yesterday, it is time to start considering that we will not have another leg down, and a big rally could be brewing. I think that if we are able to hold here during this heavily seasonally down bias period, that would tell us there is underlying strength in the market. It is too soon to tell yet, but I do like the fact that the indexes are holding up better than so many other markets. This is a positive divergence so far.

Next, the change of heart I had yesterday. I had mentioned I did not have any sell signals, and that is true per se, but there was lower highs and lower lows on the chart, along with the seasonal down bias, so I decided to get short albeit with a smaller than normal position. Whether or not this trade works or not, I stand by the size decision. This was a marginal setup and a very discretionary call to take this trade. I do not want to risk my full amounts in such decisions. If I am right I will make some money, and if I am wrong the loss will be about 1%. I can easily live with that. I also read something this morning that claims the seasonal down bias that occurs on average at this time is due to the Jewish holiday. I have no idea if that is true or not and it does not matter. We just need to be aware of it regardless of why it occurs.

Here is the Aussie dollar again and it looks like so many other markets right now as I go to press. What I like about this is how much weaker it has been than many others. It looks like the indexes here over the last few days, but notice how much lower it is than the recent lows where the stock indexes are still in a trading range above the recent lows. If we close higher here today, selling a break down tomorrow seems like a good bet to me. You can take your pick though, there must be 15 markets that look just like this does right here.

The next chart is that of the Dollar Index. I have been talking about this being set up as a sell on the weekly chart. However, as you can see, we have not had any type of trend break on the daily chart yet. It is certainly possible that we will just take off from here upward if stocks do decline. In that event obviously there is no trade. This is simply a setup which is basically an alert zone to look for something. It is not a go in at the market and sell situation.

I am constantly picking up new readers, and I want to make sure everyone understands this. When I talk about a setup, it is just that a setup. It is not an entry. It is an alert to look for a move in a certain direction. There always needs to be some type of shorter term trend element to an entry, that is in line with a higher time frame setup. That is up to individuals as to how they get in and out of trades. At times I show exactly where my orders are, and at other times I do not until afterwards. I do this to protect my trading interests. I have seen too many situations where a guru has called out a trade, and tons of people just plowed into it messing up the fills and everything else.

When I launch my trading service again, subscribers will get exact entry orders on trades that I do if that is what they are looking for. I have still not decided when I am going to do this again.

Thank you to all the new readers that have come in recently. I am not sure how you found me. If you feel inclined, I would love to know how people do find this blog. Drop me a comment and tell me.

You are also not going to see any political commentary at all going forward. I have watched what the government is doing to silence dissent, and until a new administration is in place where free speech will be allowed again, I am just not going to risk it. They are policing the Internet very closely, and it is just not worth the trouble. I am sure it was annoying to some readers anyway and something I really should not have been doing to begin with. I threw it in because I did think it was relevant on some level, but it really has nothing to do with actually trading anyway.

Do not worry, this does not mean the PPT is off limits, I will still talk about them when I feel I see them operating.

Good Trading to everyone


Matej Marek said...

Hi Chris,
I just wanted to let you know that I appreciate your market commentaries very much. I recently discovered your blog. I found it just accidentally while searching for a particular Larry Williams trading technique. (I am also his student)
I like that you have well specified trading plan and you stick to it. My performance as a beginner trader so far has been very volatile. That is why I hope that I can learn from you more about having a trading plan, how to interpret some price action etc.
I wanted to ask you whether you also use futures spreads as an indicator. For example, I have read that sugar is in steep backwardation now, is it anyhow relevant for your trading?

Thank you & Greetings from Prague!

Chris Johnston said...

yes I do look at premiums and discounts in markets from a larger perspective stand point

Anonymous said...

On that first ES chart, what time frame are you using. Those are not daily bars as near as I can tell. Is it a tick chart? Do you use that often instead of daily's or just for intraday trades?
Don in Virginia

ya said...

I think your site was linked to some other . As I am looking at your charts I find that I am not familair with inicators you are using. What are they please?

ya said...

Your site was linked to another financial site, not sure which one.
As I am looking at your charts, I find that I am not familiar with your indicators. What are they? Thank You

Chris Johnston said...

Don that is a 10000 tick chart. I use tick charts for day trading only.

As to the other question on the indicator. Many of the things I display here are my own proprietary creations and I do not divulge what all of them are. This one today is designed to tell me what the commercial players might be doing on a bar to bar basis. I have explained in here quite a bit that this is a work in progress, it is not fine tuned yet. I like to reference it when I think it is telling me something. It does not always, and just like many things, at times it is wrong.

There is no holy grail indicator no matter who tells you otherwise. It is how you use your tools that will help you succeed.