web’s weekly roundup february 7, 2015 twitter: @marketwebs presenter: web begole

Web’s Weekly RoundupFebruary 7, 2015

Twitter: @MarketWebs

Presenter: Web Begole

Web’s Weekly Roundup -- Saturday January 31, 2015

• Past week’s events

• Analysis of /ES (S&P 500 Futures) and forecast

• Analysis of /CL (Crude Futures) and forecast

• Analysis of /GC (Gold Futures) and forecast

• Trend Lines: Fundamentally Substantial or Self-fulfilling Prophecies?

• Q&A Time

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Overall Market this Past Week

• Most Significant:

• Greece – Likely to default on loans issued by European governments and even major

banks.

• Less Significant:

• Baltic Dry Index near 30 year lows.

• Market chatter of Fed raising rates. Yellen may remove “patience” from language in this

month’s announcement.

• Questionable jobs numbers: the ratio of civilian employment to population still 4% below

2006.

/ES Futures (S&P 500) Week of Feb 2 – Feb 6

5

Opening Price: 1990.50Closing Price: 2056.00

High: 2068.00Low: 1973.75

O/C Change: +65.5ptsH/L Range: 94.25pts

Notable Pattern:New value establishedoverlapping to bullish into next week.

Next Week Forecast:Resistance at 2065, support at 2023.Hi-Low range expected 1974.5-2091.50.New all time highs possible.

/ES Futures (S&P 500) Month of February, 2015

6

Opening Price: 1990.50Current Price: 2056.00

High: 2068.00Low: 1973.75


Notable Pattern:Breaking above value Thursday, pulling back from key level 2068.5 but closing above value. Bullish.

February Forecast:If 2048 can hold as support, expect upside continuance. Key resistance levels:2068.5, 2091.25, 2100

/ES Futures (S&P 500) YTD 2015

7


High: 2068.00Low: 1970.25

O/C Change: +1ptsH/L Range: 97.75pts

Notable Pattern:Top of yearly value area has continued to act as support. Essentially unchanged on the year.

Forecast:Should buying continue look for upside resistance at 2093.75 and next at 2179.25. Both would be all time highs for the /ES.

/CL Futures (Crude Oil) YTD 2015

8


High: 55.19Low: 43.58

O/C Change: -1.5ptsH/L Range: 11.61pts

Notable Pattern:Bullish departure from 15 year up trendline.Feb spent above value.

Forecast:Expecting upside resistance at 57.31 in

Feb and 65.33 during

the first quarter of 2015.

/GC Futures (Gold) YTD 2015

9


High: 1309.20Low: 1168.70


Notable Pattern:Bullish departure from 3 year down trendline.Feb spent in value and closing this week at value area low.

Forecast:Expecting 1231 to hold as support and for /GC to return to 1285.7 and up to 1309.3 in Feb.

Looking Ahead

• Overall:

• /ES is still fighting against the beginning of a bear market, and given this past week, we

may see new all time highs first. Outlook is cautious.

• /CL has departed to the upside from the 15 year trendline and while this week was volitile,

a sharp upward trend may be expected. If inventory numbers show a draw down at any

point, rally is expected.

• /GC closed on the lows for the week however the trend still looks bullish. However, a

return to the trendline may bring further selling.

Trend Lines: Fundamentally Substantial or Self-fulfilling Prophecies?

• Have you ever said to yourself something like the following?:“If XYZ gets down to $x.xx, I’ll buy it!”– If so, why?

• Trend• Time• Price

• What if XYZ gaps down some significantamount below your $x.xx price point?– Would you still buy it?

• What if you buy it are your price and it goes up but spends months never getting back to the levels that made you interested in the first place?– Would you hold it?

11


• What is a trend line? – One of the oldest methods of technical analysis.– In a bullish trend, a line connecting important lows to mark where buyers tend to come in.– In a bearish trend, a line connecting important highs to mark where sellers tend to come in.

• What are the components of a trend line?– Time (the X axis)– Price (the Y axis)

• How are they used?– Buying/Selling opportunity prices– Signal changes of trend when the line breaks

• Why are they significant?– In a mode of price discovery, the trend line will

provide guidance to the individual trader as wellas the market for buying/selling opportunities.

– The more time is spent on one side of a trend line enhances its strength.

– The further away from the trend line price action is happening, the stronger the line.

• But if everyone is looking at the same trend line… isn’t it only significant because everyone is looking at it?– Well….

12


• You’re not the only one!• These questions determine the “strength” of a trend line.• Understanding/determining a trend line’s strength can provide the trader an edge.

• Components of a trend line:– Price– Time– Price/Time determines the slope– The longer price trades above a trend line,

the stronger the line.– Therefore: the smaller the slope,

the stronger the trend, the stronger the trend line.

• But how do we know if it’ll hold?– (Warning: Web the Mad Scientist ahead…)

13

Price

Time

Trend


• But how do we know if it’ll hold?– Intrinsic vs. Extrinsic trend line strength– While intrinsic strength remains constant, extrinsic strength is dynamic.– Extrinsic strength is added to intrinsic strength.

• Intrinsic Trend Line Strength = 1 / (Price / Time) – The inverse of the slope of the line.

As the slope approaches zero, the intrinsic strength nears infinite. – Near zero slope is strong because near all price action is spent away from the trend line.

• Extrinsic Trend Line Strength = Since last touch: Average(AbsVal(Price-Trendline))*Time– Extrinsic strength is added to intrinsic strength.– As the average price divergence from the trend line between

touches increases, so does the line’s strength.– As the amount of time between touches increases,

so does the line’s strength.– As the average price from the trend line decreases

between touches, the line gets weaker…– As the amount of time between touches decreases,

the line gets weaker…

• Alright Web…. Do I really have to break out the calculator for every chart?• Nope!

14Time

Price

Trend


• Intrinsic Strength:– Simply put: – The more vertical the slope, the weaker the line.– The more horizontal the slope, the stronger the line.

15Time

PriceTrend

Time

Price

Trend

Time

Price

Trend


• Extrinsic Strength:

16Time

PriceTrend

A

BC D


• Extrinsic Strength:

17Time

PriceTrend

A

BC D

A B C D


• Alright Web…. Do I really have to break out the calculator for every chart?• Nope!

• What’s the strength of the following trend line?

18

Price

Trend

Jan MarFeb Apr May


• That one was strong.• How about this one??

– Why? What are the clues?

19

Price

Trend

Jan MarFeb Apr May


• And what about this one??– Why? What were the clues?

20

Price

Trend

Jan MarFeb Apr May


• But what about this one??– Why? What does that say about the market?

21

Price

Trend

Jan MarFeb Apr May


• Again, isn’t it a self-fulfilling prophecy that price gets bid/sold at the trend line?– Not necessarily. Remember, you’re not the only one thinking what you are!– Have you said “I will buy XYZ if it gets down to $x.xx” without knowing where the trend line was?– Have you changed your mind about buying it for some reason without knowing where the trend line was?– Because trend lines take into account how long a price stays above a certain level, and track the changes of that level

(slope) it actually is significant even in a market blind to it.– Some only count the touches of a trend line and expect the third or fourth to break the line… but being able to judge the

strength of a trend line with more accuracy can give the trader a forward-looking edge.

• How do I draw them?– Start on the Monthly chart – primary trend line.– Move to the weekly chart – Secondary trend line (less time)– Move to the daily chart – Tertiary trend line (least time)

• Let’s look at some examples…

22Time

Price

Trend


• Recap:• The individual trader is not alone in the market

– One’s own thoughts have a high probability of being shared by countless others.

• Trend lines are a way to measure the market sentiment of a trend, buy/sell points, and potential trend reversal moments.

• Trend Line – Intrinsic strength (inverse slope) = 1/(Price/Time) [or simply Time/Price]– Extrinsic strength (between touches) = Average(AbsVal(Price-Trendline))*Time– It’s good enough to simply eye-ball this, it’s simply a measure of relative strength.

• Examining the length of time and average price away from the trend line can help the individual trader determine the strength of the trend line and thus prepare for breaks/reversals.

• So are trend lines just self-fulfilling prophecies? Well… what do you think?

Q & A With Web

Follow me on Twitter:@MarketWebs

Live YouTube channel with /ESLevels and Market InternalsEvery Day the Market is OpenFrom 9am EST – 5:15pm EST

Other videos include a further discussion of value area and a demystification of the “VooDoo Lines”

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web’s weekly roundup february 7, 2015 twitter: @marketwebs presenter: web begole

Documents

futures trading

opening price

current price

pts notable pattern

low range

es futures sp

closing price

crude futures