Trading Pivots Offer Interesting Perspective

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All  4 market watch charts (SPY, QQQ, DIA, IWM)  came into Thursday with similar bearish conditions. Bearish phase, last close below both 10 and 20 day MA's last close below 3 pivot low, and negative pivot stack. The only positive was the daily trend line from the lows of last week and the highs of 9/23 and 9/24 as support. So my conclusion in last night's Focus List was sell strength or weakness.

A gap up open into R1 levels across all market watch made looking for shorts below the 5-min O.R. a pretty easy, low risk trade and that was in fact what we did. Today was a layup in terms of patterns you should look out for - swing trading or day trading.  Fade the gap against the main trend against the short term pivots!

Friday is not as easy. The longer term measures are still all bearish but the markets bounce off support tested the trend line and held on a closing basis in and some cases we have positive pivot stack. More interestingly, I could argue that today was a consolidation day!

How could such an ugly day be viewed as constructive for the bulls? Quite frankly I would not really believe it either if I did not see the image below, to force me to reconsider the day's action.

The image below is a custom set of indicator I wrote for my Trade Station to track pivot patterns.

Here's how the columns work:

• "gb/Pc" = where a stock is trading in today's range (like the HotScans "Pct Off High" column") where a 0 is a the high of the day and 99 is the low of the day. Note KRE, therefore closed at the high of the day!
• Pivot" is the Floor Trader Pivot for tomorrow. If it is green then today's close is above it. Note 6 of the 10 closed above tomorrows FTP.
• "FTP Pat" is the pivot pattern as defined by the Pivot Boss. The important thing here is that *In* in yellow indicated that tomorrow's 1 day pivot range will be inside today's 1-day pivot range. This is just like an inside day in terms of identifying compression. Note, 5 of the 10 have this inside pivot pattern. This is why I'm saying today was very much a consolidation day.
• "Stack" is simply the  relation of tomorrow's FTP vs today's. Note tomorrow we'll have 4 of the 10 with positive stack and if I didn't have GLD in the list it would be 4 of 9, with 2 of them being the financials.
• "Stack-1" is the stack condition we started today with. So you can see that coming into today (Thursday) was a very different condition than how we'll start tomorrow!

Now that you've seen that perspective, go back to your daily charts and consider the price action in these same instruments. For the most part they gapped up big but did not take out the prior day high, sold off with only some of them taking out the prior day low, and then rallied into the end of the day with 7 of the 10 closing above the midpoint of their range, and as noted above, 7 of 10 above their current day FTP.  Sounds like a big nothing to me.

And a big nothing means trendless. Trendless is not bad. It's good. It means a rest and that's exactly what these markets all need to be able to set up the next trades.

Since today was not your typical "rest" day I'd look for a tighter range day tomorrow (Friday), in other words chop. It markets diverge intra-day, don't follow them, but...

If the market watch 4 break all together in one direction or another then today's rest may have been enough to create a trend day. With positive stack in the financials I'd be especially vigilant of them breaking to the upside and surprising the market.

Make sure you have your trend line down from the 9/27 highs in all your charts.

As for individual stocks I'd favor OR reversals long or short when the stock is extended, and breakouts when taking out or leaning against daily inflection points.

Unless we have big news that creates a catalyst for markets to take out the 2 month range then we're really playing in a range bound market. Don't get greedy and be content to wait for the right set up.

P.S. If you are interested in learning more about pivot trading…
1. Make sure you register to get this blog by email as there will be more here

2. To learn the pivot patterns I showed in the image check out the course we offered with the Pivot Boss called “Pivot Range Secrets & Tactics”

3. For Opening Range strategies that leverage the pivots checkout The AM Trader

4. For swing trading strategies that use pivots check out the “Complete Swing Trading System”

5. For advanced Floor Trader Pivot Patterns check out “Fixed Line Trading” in our Strategies & Tactics series

6. If you are a Trade Station user and would like the eld to create the radar display shown here call 888-241-3060 or email [email protected]