:: actio-et-reactio ::
amg's market charts and blather
I got an email from a friend who wrote
"I'm trying to learn about Keltner Channels - there are a few sites on the net but what I'm searching for is parameters I can use at Stock Charts that would 'substitute' or act as a Keltner Channel indicator."
Keltner bands use True Range (H minus L of each bar) and Average True Range (H-L average of # of bars) to calculate the bands. Like Bollinger Bands, a typical cycle length is 20 bars.
Also like BBands, volatility is what is being tested. Keltners use the TR and ATR as a measure of volatility whereas BBands calculate the statistical deviation of # bars from the average. Both methods use touches of the band to signal "something is afoot".
The thing to remember about ATR is that its direction doesn't directly match price direction. A rising ATR just means the bar H/L is widening (bigger volatility). A flat ATR means the HL hasn't much changed. So a flat ATR is followed by a rise, and following a large ATR move is a period of decreasing ATR. It is the CHANGE in this rate that is of interest and what Keltner strategies exploit.
One way using to simulate Keltners is to a 20-bar ATR as an indicator. Because Kelter bands use the change in ATR to draw the bands, you can use Trendlines on the ATR to indicate changes. I like to draw TLs across peaks/troughs as well as rising bottoms and falling tops. Where a horizontal line stops the movement and reverses, you drop a line down to the price. Where the ATR breaks a TL, you drop a line. Sounds like fishing.
I marked up a weekly COST chart to show what I mean. I added a BBand on the price and a couple of indicators, not that you need them, but one of them might provide another measure of confirmation.
I've marked the inflections (ATR breaks, reversals) with red dashed lines. You can see some are BBand touches or even MA touches, both useful to enter or exit positions. In addition to the clues from the BBand, you can also use CCI crosses of +/- 133 (or +/- 100 or even +/-200 when *really* OS/OB), Sto5 cross 20/80, or the MACD 3/10 cross, as further confirmation and/or entry/exit aides. Notice that the CCI on this chart is using 14, so the signals will look "early" relative to the ATR20. You can adjust one or the other or both and study a combo that works for you.
Not all of the ATR signals pan out as reversals, but even the ones that seem wishy-washy signals ended up as continuation signals. Like all methods, the more you use it, the more you'll see its particular nuances. I will be following this post with a comparable chart using Keltner Bands created with Ensign Software.
Today was in some ways a close repeat of yesterday in terms of "The Play Book". The bisects placed for today bear this out: the major black one uses the gap open and first H and L, just like yesterday. The remants of yesterday's forks (Green, Salmon, and Red) then provided points of reference.
For a different view of the price action, I've faded out the bars and overlaid a line chart of the 10m close. What is interesting in this view is, like before, the role of the Initial Balance H & L and the fib extensions as S&R. Also shown in this chart are the final Point of Control (thick blue lines) and Upper and Lower Value Areas (dashed blue), which are remarkably coincident with the fib extension S&R points.
I think today's price action provided a number of good opportunities for selecting non-standard bisect pivots. As a reminder, I call Andrews median lines bisects (click if you don't know why). Traditionally, one looks for "market structure highs" (or lows) for pivot sets, which makes good sense, in partic. for longer time frames (daily and up). Intraday, however, is more influenced by momentum and, during chop, by local support and resistance (S&R). Today's chart shows some ideas for exploiting common intraday S&R points.
Black Bisect: The first bisect uses gap down open price as Pivot 1. Pivots 2 and 3 are the first Low and High after the open. When it makes sense, I prefer High Pivot bars that close high, and Low Pivots that close low. The first thing to check with a bisect is whether price is above or below, ie, the 50% balance. More on this bisect in a bit
Red Bisect: This is similar to the black, taking the first 60 minute Range (*) High and Lows as pivots. Again, the candles close high or low. The second rebuff by the 60m H suggests a decent short opportunity with a stop 1-2 ticks above the 60m L. Various target opps, using lower time frames, are presented: the red bisect itself, 50% parallels of the black bisect, and 60m range fibonacci extensions.
White Bisect: The volume spike as price hit the confluence of the 1.62 extension with the red bisect proved a rebound point and allowed me to draw the third bisect. This is too big a bisect for the range, so....
Lime Bisect: a mini-bisect became obvious on the 3m chart, which I then place on this chart. Mini's can be used as potential trajectories and are useful for price objectives only in a lower time frame. Price moved quickly into the white bisect and a reversal was indicated by the spike volume bar, also confluent with a white bisect 25% parallel.
Salmon Bisect: The volume spikes, accompanied by CCI reversals (the black/white iMojo indicator), are like bookends and provide natural momentum pivots. The origin, however, is slightly unusual in that it takes the prior bisect point as its pivot. It initially projected a move lower, but price first moved to test the now-old green bisect. It then reversed a few ticks above the open, and closed towards the 1.27 range extension, confluent with the white bisect lower parallel. There is likely pressure on the open as price is still below both the white and salmon bisects. However, best to review the higher time frame where the odds are clearer.
(*) While 30m and 45m are other intervals used, I've settled on 60m due to the increasingly popular CBOT Market Profile program, which calls the first 60 minutes of trading "initial balance". So, a good start is to standardize to something likely in use by more people. In time, no doubt it will shift as traders try to get a jump on each other (that's maybe a joke).
I asked myself that as I updated the 30m Vold chart. The longer green lines showing the SPX is slightly lower on the close than it was on Jan 4, but still has a net higher Vold. The orange lines are negatively divergent, shoing more volume in the decline today relative to Vold on the 13th when the SPX was lower (but in a congestion zone). What to do, what to do.
The weekly ES is on a weak sell signal, with 1163 an interesting support point. A reversal between here and 1163 would likely qualify as sufficient enough a pullback for another run up. Short of a catastrophe, this looks the likely scenario to me.
Following up to the earlier posts (1st, 2nd) on using VOLD for volume divergences, here is yet another instance of a positive divergence in Volume, ie, Net AD Volume was higher for a comparably lower (or in this case, near equal, price.
I am including this chart showing Total Volume. You can see that total volume was in a general decline over the past few days as the SPX tested lower levels. However, yesterday's volume was very robus. The little horizontal lines are for times, the green being noon. You can see volume pace was also running faster. In case you wonder, the "pink" or "blue" bars are nothing special. They are pixel artifacts: overlap of RGB colors.
Doing the micro-chop shuffle. The 5m doesn't show it, but it's glaringly obvious and out in the open on a volume chart (both shown below). The 11:40 bar on the 5m is a fully predictable corrective move on the 3000V chart. I gotta remind myself that the playbook is thin and "they" will run the same plays over and over and over again, no matter how obvious it looks. And it's done at the micro-chop level.
After a long trip hugging that bright green fork (was "white" in earlier charts), price didn't quite make it to the upper black median line and has since made a solid correction, breaking a minor trendline along the way. As long as that + divergence holds, there is a shot to (1) tag the little yellow trendline underside (2) creep along the main black bisect and (3) move back over the green bisect. There is a negative divergence on the monthly which bears watching, but the weekly isn't particulary weak. This chart is the ES (e-mini) without Globex.
Today's action is one for the daytrading diary regarding pivots. The move was a retrace of yesterday's low-hi move, conducted in two campaigns: the first move a retrace of final swing into the high, and the second campaign a more dramatic completion of the remainder of the move. The projected retrace was in place yesterday once the high was in place.
The first set of chop meandered in stages, tagging fibonacci and the OP/YC (open price/yesterdays close) cluster and was complete once the 62% was tagged (the lower red line). No doubt stops were being run and inventory offloaded throught the whole process. 
The resistance at the OP/YC cluster was, as will be seen in the next chart, a strong clue to the real intent. What interests me most is the expando type move off the 62% in the early move, and then over the OP/YC cluster. That it was a head fake should have been apparent on the touch and rebuff from the white fib line at 1188. A confident trader would have made the final sell here. A less alert trader (me) was by then lulled into a stupor by the earlier chop. Too bad, as the last part of the day was a dramatic end to a "day for the books".
Chaikin is indicating good money flow and the Mojo oscillators are only mildly weak. The last wave extended to 1.618 (top red line, or see the daily chart on the HNY page, which is still up) where price peaked and fell to break the wedge. So far, the correction has managed to stay above 1172, a retrace sweetspot. While this 135m doesn't inspires an aggressive long, neither does it say shorting is in order. Patience.
There are traders out there who turn things inside out, reminding us there is sense in nonsense. For instance, the idea of trending and catching trends. Sounds great, until one remembers that the market trends only 20-30% of the time. Tepid, a trader posting over at avid, mentioned this other day, turning the idea around to say, pay attention to chop, esp. if you plan to stay a trader, adding that floor traders are, in essense, "bracketeers". This is of course, trading support and resistance, of which the past five days are excellent examples. Taking the day off is also an option.
Blogger has recently implemented easy commenting-- both to the user and to the blog html needed for it (they do it in the background, yeah!). So, if you are so inclined, just click the little red comments link below the post you want to comment on. Thanks for visiting!
This updates the image below with the latest Advance-Decline Volume data. So far, the Reversal Divergence is holding. It's tenuous, however, in that price is still in the lower range of the retrace (see the daily). 
:: happy new year! :: and charts at that link for those interested. I'll probably keep updating that page at least through January.
2005 isn't living up to bullish expectations just now, as the ADVol study in the prior post, and recent price action shows.
There are some positive divergence, indicated on the chart below by the blue lines. There is also short term support from the black bisect.
What I don't care for is that marubozu-like candle test of the bisect. A longer tail would have been more bullish. An inside day tomorrow wouldn't surprise me. The wedge has stared at boatloads of traders for quite some time, as does its trendline break.
The question is, what will ensue: the terrifyingly delightful plunge long awaited by famished bears; a shallow pullback and delirious new highs for crazed bulls; or rewarmed left-over 2004 hash (choppy test of recent highs and lows).
Here is a chart of the ES e-mini without Globex (click for full size):
John Wooden, and no doubt other basketball coaches, say to watch a player's hips, not their heads. This sound like the likely origin of "head fake". Well, volume is to price as hips are to head. They are both connected, but volume will tell you where the player is moving. Price is always "right", but it will move where volume takes it.
But enough of basketball, here is a study using $VOLD (Esignal), which is the difference between Advancing Issues Volume and Declining Issues Volume. Divergence studies are never exact, that is, there are often time lags. Those who use RSI or Stoch are familiar with that. So, with that in mind, shown below are various divergence signals using $VOLD vs. $SPX. There is a potential for a Positive Reversal Divergence, in play just now. But that means price must reverse, and stay so, with a corresponding rise in $VOLD. There are clues in the daily chart that indicate a potential rest point or short term reversal also. Time will tell. 
The simple "Average Monday during the last 440 days" predicted the 10am high and 3:30 low (there were 90 mondays in the sample). The herd likes to run in their rut. Uncanny how predictable so much of the market action is, yet how the "crack in the cosmic egg" (at a very mundane level) is the wrench in the works. Is it any wonder survivor-traders emphasize having and playing your edge, but with the safety net of money management (stop, size, etc).
click for full size
|
moon phases |
At last, over the rim
of the waiting earth
the moon lifted with
slow majesty
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows
blather: nonsensical talk.
At times my analysis log, at times sharing what I've learned. Always my own work and views.
Content: amg
Basis: glish & bluerobot
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