Book: Kane Trading on: Entry Techniques
February 19, 2004 Commentary-
Today was another fairly boring day for intraday trading. Until the late day sell-off the market basically just traded around in a narrow range. It's a tough time for intraday trading when the action is like this. My solution is to just sit tight and wait for opportunities.
In the meantime, let's look at something very interesting in AMAT. This stock recently completed a bullish pattern on the daily chart, and has been rising nicely. My question was: is there anything shaping up to put pressure on that run, or perhaps imply a reversal? In other words, were there any clues that could have been spotted beforehand to hint at today's strong reversal?
Let's start with a look at the daily chart, showing the gap and trap action.

Chart 1
That was one big gap up and sell-off, I'll tell you that. I was looking at a few things that I had on my chart before the open. Let's take a look at what I saw.

Chart 2
There was a nice pattern setting up at a tight grouping that had quite a few significant numbers in it. Not only that, there was a trendline from the last two significant swing-highs coming right in at the same area. And look what happened.
I also went up to the weekly chart to see what that showed me. Let's look at that.

Chart 3
The weekly chart had a very significant trendline that came right down to the area of the recent swing-high. And not only that, the .786 and .886 retracements from those two swing-highs that formed the trendline fell in the same area. This is what I mean by context. The weekly chart pointed out that this area might be some serious resistance. But there's something else. Let me add that to the chart.

Chart 4
There is a nice 5-point pattern on the weekly, hitting right at that trendline. From an Elliot wave perspective, this has all the look of a wave 4 in here, though, implying another thrust up, taking out that trendline and weekly pattern completion point.
A smaller pattern that 'tested' this recent swing-high weekly pattern completion point is a pattern that I would consider for a bearish trade. There are some interesting things to note in here, though. First off, this recent price action had formed a very nice bullish 4-Point Continuation Pattern. The issue, though, is did I consider that pattern for a trade? The answer is no.
As a part of my context viewpoint, I don't buy at resistance. The weekly chart clearly shows that the pattern formed at an area that was just too significant for me to consider a long trade right there. But that also leads to my second point. We have a series of patterns forming here.
There was a bullish 5-point pattern that formed and triggered in the second half of that bullish 4-Point Continuation Pattern. That was followed up by another 5-point pattern, this time a bearish pattern, right at the trendline. And all this is happening at a large weekly pattern completion area. But this is an area that really looks like the area of an Elliot wave 4.
There are a lot of things happening right in this area. This doesn't mean, though, that I'm looking for a longer-term short, since AMAT is in a very strong uptrend and the weekly resistance, although pointing to an area where I wouldn't want to get long, has enough factors to make me wonder about the short side (Elliot wave and 4-Point patterns).
What does that leave me? A short-term intraday trade on the 15-minute today, and a possible failed pattern trade setup, if this area is taken out to the upside. The latter is what I'm really watching carefully.
This market seems to be really struggling in here as far as making a decision on what it is going to do. It's just acting to me like it is about to fall off a cliff. That probably means one of two things. It is going to fall off a cliff, or they are getting ready to blast it off again.
This is of no help, as far as my trading, it's just an observation for the fun of talking out loud. I just wanted to mention that it sure seems like something is about to happen, and I'm going to be ready to move quick in here if the volatility kicks into gear.
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