Friday Intraday Reversal – What does it mean?

by birtanpublished on August 29, 2020

Hey traders david frost my strategic forecast you're here for another episode of common sense market analysis this is a weekend update for the week ending july 31 2020. we're looking at a daily chart of the spy or spider which is the

Proxy for the s p 500 oh boy we have a lot of stuff to discuss on the docket today the trick trap fool and frustrate crew was out in full force the market was all

Over the place and here's what we do know the important thing is how they close them up at the end of the day guess what they closed them out on the highs we're going to read into that we're

Going to peel back the onion pick apart the markets we're going to look around the horn we're going to discuss things that will a make you scratch your head and

B make you think about some more things we're going to have a few aha moments today what's the first thing two or three that jump off the daily chart when it populates the page well

The first thing is what's the horizontal line what does it represent it represents 322. why is that 322 and obviously it could be plus or minus whatever but the general zone around 322

Is our pivot when we get down to some of the intraday charts you're going to see and i'm going to reiterate why just why was 322 so important how do we know it's important

How do we read the market how do we read the tape what do we look at to find out what numbers are important guess what we're gonna go right inside my head and we're gonna do that

What's the second thing that jumps off the daily chart well guess what it's the trend you know what comes next the trend is your friend until it's not what's the duck what do i mean by that

If it walks like a duck and talks like a duck it's generally speaking going to be the duck what's the duck as it relates to the market higher the duck is the gap now we've done this before that line

That gap has been on the board before and if the market starts falling away from the gap we take it off but if the market is edging up toward the gap we have no choice but to put it back on

So where are we we're about to get into as long as they have a positive day on monday and that's not written in stone we don't know what's going to happen

Sunday night leading into monday we're just dealing with what's on the chart how they close them on friday what's in front of us what can we read not what we

Can't see or what we want to read it's what can we read if they have a positive day on monday and they close above these highs over here for example 327

23. we've dealt with that number before you start closing hourly above there daily above there they get into no man's land and just what does no man's land represent it represents the spot between

The most recent high that they're about to eclipse assuming they do we're not in the business of assuming just for the purposes of conversation assuming they clear these highs over at 3 27

23 they get into no man's land which is the space in between these highs and when they fill the gap there are some areas obviously of resistance inside the numbers members will have those areas

Monday tuesday when and if we need them but for all intents and purposes the objective would be the gap or higher but the gap for argument's sake something else that we need to address because there are some emails coming in

Which are misstating some things that were discussed in a couple of recent videos and what is that what it is is when we began discussing quote unquote we're looking for a top

Toward the end of july now we had a couple of things that we discussed the other day one was the 90-day cycle deal there was some misinterpretation of what i said or what was intended about cycles

So i think some traders took it to say i'm expecting a hundred day cycle coming up or a hundred trading day cycle coming up that may or may not be the case but that's not what was said

I'm not expecting that but that is always possible neither was said the other day i think what was said was we were using a hundred for argument's sake as just a number for the conversation

The other thing is when i say things like we're looking for a top and those of you that have been around a while know this because we've done this before we've been here before

We've been looking for a top before we've looked for bottoms we generally have a beat on either one we're not going to catch them all but we catch most of them so let's talk about this one what i said

Was we're looking for a top beginning the end of july what some traders heard was the top is coming in at the end of july now sometimes we hear what we want to

Hear but not necessarily what was said i can assure you that what was not said was a top is coming in at the end of july again it may maybe today was the top meaning friday's close we won't know that till next week but

What was said was we're looking for a top and how we do that and this goes right back to the course lazy emini trader how we do that is we look for signs

And signal of a trend change to occur they first occur on short-term charts they morph into larger charts a daily chart a weekly chart and so on so we're able to identify a trend change

Pretty early on confirmed as time goes on by the longer term charts case in point was actually on friday friday morning the first candle of the day right here is

A reversal candle it's a gap in crap what they did was they went up to fill the gap that we were eyeballing from inside the numbers they didn't do it on thursday they did it after hours if you remember the

Reporting of the earnings from the big tech giants come friday morning they have a gap in crap now this is an hourly chart so some of the shorter term charts looked even

Worse at the time however when i talk about confirming by the larger charts the larger time frames here's a good example the hourly chart was a chart reversal it's a market reversal in

The making but did the daily chart confirm the same reversal that took place between 9 30 and 10 30 am and the answer is of course it did not so to package that up and put a bow on

Top we're looking for signs and signal of a trend change beginning right now could have began two days ago but it's right now because the market finished at the highs

So we don't know what's going to happen going into monday and beyond but we're on the lookout remember what we said a couple of days ago the perfect scenario and they rarely ever give us

The perfect scenario but we start with a plan and the plan is price and time match up perfectly rarely ever happens perfectly but that's the plan where would that take price

To fill the gap if they fill the gap at some time over the next let's say week several days two weeks isn't that in the window that i'm looking for

Let's just say the window was the end of july into the first part and maybe even all of august who knows it's hard to say but we're looking

For a turn and if the turn comes at the gap and it happens over the next several days you have to have your antennas go up this is one of those awareness things

That you have to just file away when it feels really really wrong it's generally right when it feels really really right it's generally wrong now you can't pinpoint that

To the minute and certainly when you're looking at a daily chart you can't necessarily pinpoint that concept to the day but it's an awareness how many times have we seen the market

On a runaway train everybody gets uber bullish price targets get raised up to the moon everybody wants to hop on the pony the guy driving the uber or the shoeshine guy at

Grand central station all of a sudden is an expert analyst he's telling me what stocks to buy that's at the point when you know the top is imminent just at the point in

Which apple will reach 450 maybe 475 maybe even 500 that's at the point when my mother-in-law will call asking me if she should buy some apple

That my friends is the best short on the board waiting for that phone call what about the guy in blue we have to be the umpire calling balls and strikes

What happens if friday was a fluke and they pull the rug out sunday night there's some kind of black swan that swoops in it's a wake up red and they start selling the market

How do you know below 322. that's it that's the line in the sand period full stop back to the hourly chart for a moment this is a chart that was posted for inside the numbers

Earlier in the day a picture is worth a hundred words i know it's a thousand i like to use a hundred i just wanted to make the point so i did one of these why is 322 important and you start doing

This and when you do this and if you've been around for a while and you know me enough you know it's not my number you know what i say it's the market's

Number it's the market telling you each and every time that it runs up to 322 and gets rejected or runs down to 322 and finds support it's the market's way of telling us

That number is important is it 321 91 is it 322 21 i have no idea this is the general area i'm using 322. one more thing remember this gap 3 18 92 you'll see it inside the numbers

From friday's notes remember this is an hourly chart so friday's activity is just all the way to the right and you'll see here they were weak they had a reversal candle they started to go lower all they had to

Do was crack 322 and as far as i was concerned that was going to be enough to put 318 92 that gap that elusive gap that is yet to be attended to it was enough to put it squarely in

Sight you'll also see in the notes it was always about 322. until and unless they were able to close candles below 322 no dice

So they also leave me no choice but to look at today's activity and say they had every opportunity under the sun to go anywhere they wanted in the southern direction they had a

Full stack on the board the transports were getting killed at the time the iwm was getting killed at the time the financials were down the markets across the board were down they had a reversal candle the first

Hour of the day it was a gap in crap what more can you ask for enter trick trap fool and frustrate crew so if anybody's wondering did i succumb to the trick trap full and frustrate crew today

As it relates to either the es or spy and the answer is absolutely i did everything i wasn't supposed to do and i'm gonna tell you exactly what it was so that you don't do it

I tell you all the time everything that i did today not to do what exactly was that well i was focused on 322. everything i just talked about in terms of the reversal candle

The whole nine yards the gap and crap i'm reading the tape and i'm saying the writing's on the wall they're gonna do it today it's friday they'll start talking about who wants to hold into the weekend

You bring all the guns out and my thought process was and i didn't put this in the notes or anything i'm just telling you what was inside my head my thought process was they're going to kill them into the clothes

Today here's your 15 minute chart this candle here closes at 322.02 all right so it's a cat and mouse game i'm looking at the hourly chart and i'm thinking to myself mark it's symmetry i'm looking at the gap and crap

I'm seeing this thing run sideways eat some time off the clock for a while and then the next candle closes below but here's what i've got i've got in my face selling in the hole and here's what i did i took everything

That we discussed all the reasons why the market was going to go lower and it all made sense except for one thing i sold them in the hole what does that

Mean look where the market was earlier it was all the way up here 326 and change now i'm gonna sell it at the lows i have yelled at people for doing that

Why am i even telling you that i did it in the first place so i don't do it again it's like a form of torture having to tell you about it okay so i sold him in the hole

I'm gonna get a pie in the face you already know i got a pie in the face but where was i wrong isn't that what we want to know where am i wrong how can i minimize the loss

If i have to lose it all i want it to be small and fast enter inside the numbers 104 is an example back above 323 on an hourly close would be considered a fumble for the

Bears where's 323 check this candle out right here 14 45 in the afternoon closing price 323 29 see you later now you might say hey you didn't wait for the hourly close

You're darn right i'm not waiting another 45 minutes for three more 15 minute candles to close when i can see the writing on the wall what do we have here

Here's a breakdown candle did they close above that high yeah it's friday afternoon i just sold him in the hole getting a pie in the face i'm cutting and running i'm not waiting for the

Hourly close trader's choice could i have been whipsawed and had the market gone back down i would have kicked myself you're right however at that point in

The day in the week i'm done not taking any more i'm out i made a mistake and i want to rectify the mistake and guess what you learn this at some

Point if you haven't learned it already in the business of trading your first loss is your best loss doesn't always work out like that but when it does you're thankful what

Happened in the afternoon was and this is unique it doesn't happen all the time the character of the market changed as it did this okay as it got above certain prices that it wouldn't normally

Be able to get above in a normal garden variety market using the 80 20 rule well this didn't apply this was the 20 percent so in the end what they really did was

They recaptured the gap that they filled remember in the after hours on thursday market opens they have a gap in crap they filled that gap around 325 and change there it is i got a lot

Of questions on this this morning friday morning where's that gap again it's right here hourly chart is probably one of the easiest places to see it but you can see it on a multitude of

Charts so here's the way i look at this little journey inside my head again they work to go fill the gap that took work they fill the gap they crap out but then

They come back to close above the gap now had all that not taken place but if they just closed above the gap you know what i would say that's bullish closing above the gap

First even hourly if it's a daily gap or in 10 or 15 minute candles on a hourly chart gap those are bullish signs so for me recapturing the gap at the end of the day that was a big deal

You'll see that inside the numbers as well let's check out what was discussed inside the numbers pre-market we're focused on where the market's going to open to be more bullish versus less

Bullish we talk about the gap i have a picture it's like where's waldo where's the gap got just the string of emails early in the day and i figured let's just put this up on the board

And then just like magic the emails stopped coming in asking where the gap was funny how that works why would your chart be incorrect i say here if your chart doesn't look like this it's not right or it's

Incorrect why would your chart be incorrect well off the top of my head i could think of two specific reasons one is your hourly closes are on the top of the hour not the bottom of the

Hour why do i use the bottom of the hour because the market opens at 9 30 eastern standard time the first hour closes at 10 30 every hour after that is another hourly close nothing more nothing less are the closes

On the top of the hour important yeah on a 30-minute chart and some might be extremely important and you can always point to something that was important one day but not

Another doesn't make it important or not important what i found works is the hourly closes on the actual hours the market operates the other reason why your chart might look

Different is it includes after hours pre-market type of trading activity don't include that it really doesn't count it's fun to talk about sometimes but at the end of the day

For the real analysis don't even look at it moving right along so here you'll notice something bright and early right this is like pre-market stuff

Already we got an eyeball on the iwm so stuff was weak just filing it away at that point in time but that was like nine o'clock in the morning we've got some numbers posted obviously these are the early thoughts

We're setting the table you don't know exactly what's going to happen after the open but you've got to come pre-prepared you've got to show up in uniform ready to go bright and early

They start the shakeout operation so we're just observing at that point 324 24 is a southern gap now just a point of interest even if it's for a short period of time

Support should provide support even if it's going to give it up at minimum of for a short-term bounce 324-24 was a number i had you'll see that there's a gap lower than that so you might say well

How come your number was at 324.24 and the gap on this chart happens to be 323.98 how come your numbers different and the market went to your number and bounced off your number and didn't fill the

Other gap until later one might ask that there are different numbers based on different charts and typically the market will handle them one at a time not always but

We've got the 80 20 rule in our corner now wasn't a great bounce it was about five s p points good enough for a scalp let's talk about that for a second how would you scalp trade an area like this let's just say for

Argument's sake we're using the e-mini contract or the micro contracts it doesn't matter but you have to be able to have more than one it's the same concept we use

For stocks on the move so if i'm buying a thousand shares i'm selling 500 or 350 or some number like that when i'm up an amount a predetermined amount for our purposes for stocks on

The move we use about one percent the rest of it we hold for the rocket ride you never know when you're going to get it but we don't let the rest of it ever go negative

So what we do in that case is as long as we get the bounce we get a risk-free emotionless trade on our hands most of the time of course there's some wacky stuff that happens

But the majority of the time that's the way it is so in this case let's just do simple math so i've got two es contracts i'm gonna buy two around that number whatever the corresponding

Es number is to that i'm buying two contracts and maybe i don't buy both at the same price maybe i spread it out a little bit either way i'm buying two contracts and what i'm doing is

I'm taking one off up let's say three points two and a half points four points every day is different it's traders choice but it's somewhere in that neighborhood

I've found that off an important area you're generally going to get a 30 cent sp y bounce three s p handle bounce that's the way it is a lot of times you get a whole lot more not a lot of times do you get

A whole lot less unless that number is failing unless i was wrong in the number you can do it in thirds you take one off and you have two left over

And you take profit along the way inside the numbers members are accustomed to me saying that we take profit along the way a pro trader will never have their full position

At final target it's just not part of the business it's not how it works let's get through the commentary so that you can read the notes you can pause the video any time you want

Read the notes go back to the charts see what was going on we know it was about 322 today here you go 10 19. remember the iwm from the pre-market now remember this was when the market was

Reversing i emphasize ing it was happening so i'm comfortable with the fact that the iwm certainly was one of the things probably among a lot of things

That was a tip off forget the stuff from joe's indicator shop 322 is really what they're after and that was at the time obviously before they got there and here it is the bulls must play defense around 322

If they stand a chance 10 19 a.m just to put it in perspective that time is around here that's where that time is we were up at 323 322 is the line in the sand in uniform

Ready to go even though i sold them in the hole i still had my uniform on i will be paying a visit to the kangaroo court for those of you that don't know what a kangaroo court is it's when you do

Something stupid you have to come before your teammates and take what they give you moving right along go ahead and pause the video read the notes think about what happened

Go see what happened the whole nine yards do the whole shebang if you're at all interested in seeing what's going on throughout the market during the day active trading in the market during the

Day this is an absolute way to get a handle on the tape there's that chart i mentioned before 322 is the pivot it's like a broken record by now but guess what it is the pivot

Stocks on the move let's take a look at what happened look how many hit their entries today we had seven up on the board six hit their entries they didn't all do it the way we want it

However we're going to take a look at them anyway the good the bad and the fugly by the way remember the weekly chart remember the weekly chart tail candle we didn't get above there

But look where they are they keep you guessing it's not bearish but i'll give you some food for thought this was the first close above the huge big time breakdown candle

What's the high 325 85. closing price today 326 52 and that included an end of the day jam session to get there no accidents no coincidences

Last couple of minutes of the week they run the market up to close right above the breakdown candle high i can't see it another way back to stocks on the move the first one on the board was chevron cvx

You see what's going on here i'm gonna run through these rather quick i realize this video is getting long in the tooth it's obviously nothing more than a base hit you can see what their target really

Was was the second number 8164 a couple of pennies below that that's where the reversal came and they ran them up into the end of the day if you paint by numbers it's a base hit

Next one on the board xilinx now this isn't really what we like to see yours truly didn't take this trade why didn't i take this trade because the market came pretty close and had a

Pretty big bounce or rally away from that number 104 98 was on the board bright and early that was the trade that we would have been looking for so the low here you could see is 105 and a quarter

On a hundred and change dollar stock is 27 cents too close well let's do it like this if it was a 50 stock with 13 or 14 cents be too close and the answer is probably

And here's the way you need to do it a it's an awareness right we're not saying the number's not going to work we're just saying the trade isn't the same the probabilities aren't the same since they just had the

Type of rally away from that number we're looking for so we're not sure as we were early in the morning when they came down here i want that trade i wanted that to come down another 27 cents here

I'm not so interested because i don't know whether they're failing and they're going to another destination that could have been and that's the reason why we don't want it the second time around

But here's the way you can look at this thing if you have to think long and hard like is it too close i'm not sure whether it was enough is it too close is seven cents enough is 13 cents enough is 20 cents enough

Depends on the price of the stock right on a thousand dollar stock a dollar is too close if you have to think about it too long and you have to ponder it and you're wondering then the answer is it was too close move

On the trade should be obvious meaning stuff like this it's obvious they already did the thing that we wanted them to do i'm not gonna take it down here but what's the takeaway it worked anyway

The numbers work not every time you'll see that later but the majority of the time they work team 172.86 you see what's going on don't focus all the way to the right at the end of the day focus right here

This is what you wanted 10 45 candle the high was 176.69 even if you're looking at a 10-minute chart a five-minute chart a 15-minute chart it doesn't matter just for point of interest when you see

Something like this and you see one of these long candles the market's going down or a stock is going down it finally finds support turns around goes back in the other direction

Starts going higher is it going to get through the high of the first candle of the day just like that is it just gonna waltz through the high of the first candle of the day

And the answer is the majority of time no it won't sometimes it will but the majority of times it won't it'll get rejected first they'll have a pullback first maybe they eat some time off the clock

Work on it later but the majority of the time that's going to be a pretty good exit before the high of that first candle just saying what about zendesk this was one of those it kind of did the

Deal but not for anybody that was able to trade it you couldn't really trade this unless you got lucky how did some traders trade this they didn't buy the first number they bought

The second number and they got their fill on the rocket ride back to the first number but if you're buying half at the first half at the second you were unlikely to get out in time

When it spiked back up to 95 66 or whatever that was i think the high at the time was 95 63 95 63 think i was watching think i was interested yeah so this one we're gonna have to

Classify as a burger didn't work they had another destination i was wrong expedia second to last one on the board you see what happened here 7808 7720 split the difference

Takes off to the upside how you doing it's not this stuff down here because nobody's sticking around for the retest of the second number it's this that's where you are out there's nobody

That needs to stick around for this because you're already in a profit you wouldn't let it go negative so the high here was 79.55 average was 77.65 was really two bucks but if you just

Want to take a holistic view of this and say hey how do the numbers work just look at it from a hourly chart perspective and you say all right once the market found or

Expedia found some stability took off to the upside period end of story how about the shack didn't work i had this one wrong too it happens it's a function of the business we don't like it it

Stinks where was the out here 10 30 is the hourly close the close happened to be 49.90 the hourly close stop was 50 and 3 cents that was it

Out i stayed in a touch longer but net net that's where traders should have been out what about camp iwm what's going on here so they dipped down into the moving

Averages popped back up didn't finish at the highs of the day didn't even have an update puzzle piece on the table no question about it and again as a leading market

Indicator or my favorite market leading indicator as i like to say it it's not going to be same day all the time one day removed all the time this is one of those things where we

File it away it's a puzzle piece that's on the table sometimes it's going to lead you to an intraday trade other times it's going to diverge for a week or so we don't know that's why we talk about

It every single day in the end net net they're doing the same thing they were doing all week or for the last couple of weeks they're eating time off the clock above the moving averages

Now we can also say they ran a quick test and came right back above the moving averages that in and of itself is bullish despite the fact that they closed down

Almost one percent on the day as long as they're in this position above the moving averages you can forget about where they were on friday you can say above the moving averages eating time

Off the clock they're building energy to run a test of 153 154 or even possibly higher what about the folks down at the transportation department same routine above the moving averages ate some time

Off the clock this was a canary in the coal mine the other day remember we talked about it look at this intraday turnaround that's where the character of the market changed 3 30 in the afternoon this thing

Just went on a tear the trend is up the trend is your friend until it disappears it's bullish how about the folks out in silicon valley check this out

Run a quick test on the crap out right remember the market was gapping up it failed ran a test of the 20 period moving average ran right back up to close near the highs and of course

Above this last breakdown candle high 265 24 to 65 79 on close should we take that as bullish and the answer is yes this won't come as a surprise here we have a move down

And we have a bearish wedgish pattern working and what we always say because this is always the case until it fails right it's the pattern the pattern plays out to the downside in

The southern direction unless unless it fails and when it fails if it's going to fail it releases the same energy that would have been released on the downside in the other direction in the northern

Direction in this case so under normal garden variety market conditions was today's move the entirety of the move in the other direction or the northern direction

And the answer is no it's not the financials this is interesting the financials were down most of the day they finished flat up a penny is a rounding error

But they finished above those two or the converging moving averages the 50 and the 20. so what we can say is no change but what we also have to say and we have to realize is

Without participation from the financials whether it's up or down the market's not going to get very far in either direction so for example let's say everything's up on monday tuesday wednesday whatever it is and the

Financials are up that's fine but let's say the market's up monday maybe tuesday and the financials are flat again we're going to take notice that's the way the market kind of is

Hinting to you we'll see what the transports are doing the iwm obviously look around the horn but we always look at the financials they have to participate

If all of a sudden they start to participate they get bullish all of a sudden the bank stocks and the rest of the financial sector starts climbing higher you can count your bottom dollar they're going to fill

The gap in the sp why smash mouth uptrend no change we don't have to spend any time whatsoever there's absolutely no change hey have i told you how much i appreciate

Each and every one of you without you these videos are not possible true and accurate information we're gonna pull the rip cord here today i'm david frost my strategic forecast thanks for tuning in to another episode

Of common sense market analysis

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