SDS And MS

From Friday morning on the SPX/SDS:



"...my plan was to short the SPX via the SDS on any print in the 931's. It never got there, and it wasn't until afterwards that I figured out why.


The low of the trendline validation was 927.97 (white arrow). On the rally back to the bottom of the broken Bear Flag, the highs of the three Hourly bars (horizontal red line) were: 927.98...927.97...928.00, respectively, all within three cents of that 927.97 trendline validation low..."



Understanding that 927.97 - 928.00 was Key Resistance helped me to figure out the Friday's open very likely was a Bear Trap.



Going into Friday's open, there was a Falling Channel established, the bottom of which had been validated as support at 55.35 (white arrow). The open of Friday not only took out that 55.35 validated support, it also took out the bottom of The Falling Channel. Anyone using a stop below 55.35, or a stop below the bottom of the channel got busted on what "appeared to be" one of those scary "Take No Prisoners" openings because SDS had broken TWO key levels of support at the open.



Knowing that The Bears "owned" 927.97 - 928.00, and seeing the SPX race to 927 at the open, just below validated resistance, I played the Double Breakdown for a Bear Trap, and got long the SDS for a rally back toward broken 55.35 support, which "should be" resistance on a rally.



That worked out fine. I sold "early," at SDS 55.27-55.28. The initial rally high turned out to be 55.29, just below 55.35 resistance, and the SDS sold off for a retest of the early morning lows. Since we were trading in the SPX 910-928 Neutral Zone, I called it a day and didn't follow the SDS after I cashed it in, but the remainder of the session proved to be very interesting.



On the retest of the 54.70 morning low, the SDS held at 54.72 for a Double Bottom/"W"-Bottom. The pivot of the "W" was the 55.29 early session high, so an upside takeout would put a target of 55.86 IN PLAY.



55.29 - High of the pattern

54.72 - The more conservative of the 54.70...54.72 lows



55.29 - 54.72 = 0.57 points of upside added to a takeout of 55.29



55.29 + 0.57 = Target: 55.86 IN PLAY



The SDS broke out and rallied to 55.77, shy of the target, then did something very interesting. It sold off to 55.37 (red arrow), just above former support at 55.35 (white arrow) and held. That re-established 55.35 as support, and the SDS took off to the upside. The 55.86 target got MADE, and a bid was made to break out of the top of the Falling Channel.



The breakout attempt resulted in a Fakeout Breakout (down white arrow). Sometimes, fakeout moves like that are arbitrary. Other times, they aren't, and this one wasn't arbitrary, which we'll see in the third chart.










Going into the close, 55.35-55.37 support (the two up arrows) got broken again, but the SDS came on going for the Closing Bell. The late afternoon low established Data Point #4 for an Ascending Triangle (pattern in orange), the top of which is quite interesting, best seen if we clean up the chart.

If we begin our labeling at Orange #1 in this chart, we get a better understanding of the Fakeout/Breakout of the Falling Channel. The failure at the 56.11 high of the day was smack on the trendline connecting the first two highs, validating it as resistance. Without that third "hit" at 55.11, we could connect those first two highs, but we wouldn't know if was meaningful or not until it was tested. It's been tested, so it "should" have some significance if it gets taken out.

Since this has gotten so long, we'll explore this further before the open on Monday.

I've been so involved with playing Goldman lately, and looking at those Rising Wedge scenarios, I haven't looked at Morgan for awhile.

Before you look at the next chart (NO CHEATING), look at this "blank canvas" and from the recent high near 32.00, see if you can identify any patterns.

Have fun with it. If you find any patterns, see if Ms. Market validates your thesis by retesting any breakouts or breakdowns. See if you can find any "nested" patterns, which are smaller patterns "nested" with a larger pattern.

I shouldn't post the next chart yet. You guys are going to be lazy and CHEAT, aren't you? You won't learn anything by cheating. You gotta woik!

Okay, do you promise NO CHEATING? Alright...alright, I'll post the chart. Geez, I just was kidding. You didn't have to throw those erasers at me! LOL.

Pattern #1: Head & Shoulders Top (in white)

Pattern #2: Symmetrical Triangle (in yellow), "nested" within The Head

Pattern #3: Another Symmetrical Triangle (in blue), "nested" within The Right Shoulder

IMPORTANT: Notice that after the DOUBLE nested H&S Top broke down, there was a quick retest of the neckline at the white arrow that lasted for three hourly bars of trading. When that failed and Morgan went down to a "lower low," Ms. Market told us, "Yep, your neckline is valid. The breakdown is confirmed."

Pattern #4: Bear Flag/Rising Wedge (in red). We don't know yet which it is, or if it's something else. The outcome is yet to be determined, but roughly 25.10-25.20 still is IN PLAY from the H&S Top breakdown.

An upside takeout of 28.88 where the neckline was retested, and failed, would put the breakdown in question. That's now validated resistance, and it "shouldn't" get taken out before the downside target, or some reasonable approximation, gets MADE.

If anyone cheated, I want names in the Comment Section. LOL.

Gain: $700