I prefer trading into strength. Last week though, a seven day bearish streak concluded with the worst Thanksgiving trading week since 1932. Now, I can’t just buy on that fact alone. I started looking for clues, and noticed that a few ETF longs had formed 2 gaps within the seven trading days. When Friday ended at the low, it was one more extreme to the bearish side. Usually, at least one of those gaps will get filled fairly fas,t before a trend continues. With these thoughts, I figured TNA, DIG and BGU were worth buying. This time the risk/reward paid off with a Monday gap higher.

Three drives up followed by a failed 4th pop. Short the 4th pop for a retrace.

5 minute chart.

daily at the time.

The XAU has dropped significantly the past two weeks to around it’s 200 dma.  Then price compressed for two days.  This “coiling” is usually released like a spring in the same direction of the current trend, which has been down.  The market likes to fake you out.  So when the bulls thought they were heading back up yesterday, with the higher high candle, the market set the bull trap, and took XAU deeply lower today.  The trap was sprung.

So we had the double bottom in the SPX.  We also held the long-term support line from the top.  So on Friday when I see them take the market down, I count the candles up since the last pivot hammer.  I get four candles.  Of course many believe that the market is a short, since they’re so used to getting beat up.  I hardly ever see a market top on the 4th candle of a setup like this.  If ever.  Of course anything can happen.  So when those shorts wake up this morning they try and keep shorting, and the boys slowly squeeze them all day.  You have to realize this is the 5th candle.  This could go for 7.  Options expire this month, and it’s quad witch, so the games are afoot.

We now have the SPX back over the 200dma.

SOX is over the 50dma.

TNA, USD and AEM ripped up today.  Speaking of… XAU is setting a nice base up.

When stocks, futures, or ETFs are hitting new highs, you have to expect that they will continue to do so.  This is true for all time spans. The same thinking must be used in reverse when equities are falling.  You have to expect that they will keep on going lower.

Going against that trend is the tough trade, but if you can find that edge, you must take it.

Today, the e-mini SP 500 was continuing in an uptrend.  For most of the morning if you tried shorting, you had to be quick, or get stopped out.

Finally a decent edge came.  A lower high after three drives higher was a good spot to try a short.  This one worked.  It may not have, but the reward/risk was in the trader’s favor.

Yesterday I posted some long term trendlines.

Here’s the chart I posted for the E-mini SP500.  Then below, you can see how important it becomes when it fails intraday, and acts as a target late in the day.

I thought the market might hold the SPX 50 dma, but that quickly failed.

Friday’s trade began with a breach below the SPX 50dma.  Failure to move back above the previous day’s support set up a lower pivot that should be shorted. The drop stalled at the day’s pivot low with little bounce.  Look for a trend day, because of the 50dma breakdown.

Long-term SPX 500 trendline comes into play here.

Today’s reversal is significant.  A third swing drive to a high ended today with  bearish engulfing candle.  A worse than expected unemployment report could send the index sliding.

Using different time frames to choose the best trade can really work well when you find clean patterns.  That’s basically what I’m always searching for; the cleanest pattern.  It doesn’t matter if it’s a 5-minute, 15, or hourly chart.

I was able to catch the downfall in the chip sector today by trading the clean pattern of the 2x short ETF SSG.

The buy signal came yesterday off the retest of support.  You could place a stop below that pivot, or the lowest spot of support.  You could sell some into the runup to lock in some profits.  Holding this pattern overnight wasn’t as risky for me, since the pullback near the end of day, stayed above the pivot.  The pattern still looks good at the end of close today.  The ETF has made a clean pullback.

TZA was the same pattern and caught the decline in the Russell 2000.

IYR and the reits were strong all day.

IYR is attempting a breakout of trendline resistance.

The weekly chart of IYR shows resistance at the last pivot high of 46, and prior support/now resistance at 52.

I held the ETF over because of the strong close, but I’m reminding myself to watch for the last shakeout on stocks that have been strong most of the day.  In this case, I’m bullish on the market, and expecting SPX 1100 soon.  We’re at 1090 now, and the trend is still up, so I figure I can hold for a gap higher in the morning in IYR.

At point 1 on IYR when it formed the decent red candle, and couldn’t continue up on the next candle, it was a warning sign.  The next few candles couldn’t get any higher either (point 2), and eventually that first pivot low under 42.35 gave way.  Now if I were to have a stop in on the next pivot low of 42.23, I’d get shaken out on that; only to watch it immediately move .50 higher.  I’ve got to watch these closely when two pivots are taken out, yet I believe the equity will still close strong.  Volume started coming in on the reversal back up, which helped make the decision to stay in.