The Gap Up North Is On The Table

by birtanpublished on August 25, 2020

Hey traders david frost my strategic forecast you're here for another episode of common sense market analysis today is tuesday august 4 2020. we're looking at a daily chart of the spy or spider which is the proxy for

The s p 500 let's set the table what do we have on the docket today the trend is up the trend is your friend until it's not that's the first thing that jumps off

The chart when we look at the daily chart moving averages are headed up you see a horizontal line it's at the gap 333 48 is the number that is the target we don't know that

They will get there for sure but it is the target we're going with the duck says and what's the duck if it walks like a duck and talks like a duck it's gonna be a duck the duck says under

Normal garden variety conditions they're gonna run up and fill the gap they may go higher but the gap will be filled how they do it and what trick trap fool and frustrate crew does along the way

And how they shake traders out along the way remember it's their job to make as many traders and investors look like fools as possible as much of the time so how they do it and how they shake

Traders out along the way is a whole other story they may just gap right up there on wednesday morning they may take another day to do it but under normal garden variety conditions

From here minus or absent a black swan event they're gonna fill the gap let's use logic for a second this really has nothing to do with the market it's not technical analysis we're just

Talking about common sense logic at least the way i look at things are they doing this are they creeping higher all this time riding the moving averages

Really in what looks to be more of a parallel fashion are they doing all this for all this time for weeks to miss the gap and the answer is they may be doing this all this time

To go higher than the gap but they're not doing this all this time to come up short of the gap and fall away that may happen but that would be in the 20 camp of the 80 20 rule

It's unlikely at this point that they don't hit the gap was it likely or unlikely that they would have gotten to the big fat round number what's the big fat round number

3300 in the es contract and 330 in the spy it is by definition a big fat round number and the answer is it was likely they were going to get to the big fat round number

We've been talking about it for a couple of days it wasn't a matter of if it was more a matter of how and when they were going to hit the big fat round number they did it today right into the closing

Bell during an end of the day jam session that's what it looks like on a five minute chart all the way to your right 3 30 on the button

Into the closing bell the high of day happens to be 3 306 closing interestingly enough above the big fat round number by three pennies 330.03 and when you drill down to a one minute

Chart this is how it looks like into the closing bell just seven minutes earlier it looks like they're not gonna do it seven minutes earlier they're all the way down here and then they start higher and then into

The closing bell magnetic as it is she pulls the market in who is she the big fat round number and don't misunderstand i'm not calling her fat that would be

Suicide i'm saying she is a big fat round number no thy numbers let's have a different discussion using a five-minute chart everything to the right and you know this

Is today's activity right of what right of the vertical line on a five-minute chart it looks like there was some market activity today we go up they come back down later for an afternoon shakeout

Up into the end of the day it still all in all was a rather narrow ranging day from high to low however on a five minute chart it looks like there was some movement

But we have to look at the market from a multitude of perspectives now there's a method to the madness because we're going to talk about if you think the market's going to get to a

Specific target however they go up they go down they don't necessarily go there in a straight line how do you trade for a specific target yet

Stay in while they run their shakeout operations pretty good question isn't it let's view the market from a different perspective and then we'll tie how you approach the situation

After the fact here's an hourly chart so inside the numbers members saw this again today they saw it yesterday as a reminder of what the market was actually doing what the market was actually doing was

Eating time off the clock building energy for an ensuing move higher so that's what may have begun at the closing bell today so let's talk for a second about what is that up there

So we like to call that a bullish flaggish type of pattern let's just talk about the flag for a second so up here is a range it's a channel in the channel the market goes up

And the market goes down top of channel bottom of channel top of channel bottom of channel that's all they're doing is working the channel eating time off the clock

That's it back to the five minute chart traders that are only focused in the short term and they start to see this in the afternoon they think the market's going to collapse

They think that the sell-off has begun and they start hopping on the short side not all traders but there are plenty out there that do this on a regular basis they lose sight or they never had sight

Of this fact when you look at the longer picture the bigger picture the longer term chart that all they were doing was going back and forth in a channel here's a 120 minute chart

Same channel it's a bullish flaggish type of situation all they're doing is going up and down within the channel in order to create the channel they have to go up and down that's the point traders many traders i

Should say don't necessarily think of things that in order for the market to do certain things it has to do other things you may not like in order to do the thing that creates

The environment to do the other thing which is higher prices that you're ultimately looking for what's that in english in order for the market

To eat time off the clock and create a bull flag type of situation it has to go back and forth in that flag in that channel to do it while it's going down if you're playing on the long side for

The move higher you don't like to see it going down but if you recognize that all it's really doing is creating the thing that creates the environment

To make the move then you have a different outlook you have a different philosophy or different understanding of what's actually going on in that scenario

You know that below the low of day and whether we're talking about yesterday's low or today's low their pennies apart below that and you start closing below that that's trouble it opens the door

For the gap left open from friday and these moving averages are at least the 20 period moving average however as long as you don't breach the low the low of yesterday and today

On a closing basis all they're doing is two things a running a test b creating said channel and by default there's your answer how you trade for the higher prices is a

Buy the lower portion of the channel and stay in the trade until and unless they breach on a closing basis whether it's short-term candles or hourly closes that i prefer

Whether they breach the lower the channel other than that you stay in the trade waiting for the flag to actually break up to create the ensuing move in the northern direction sounds easy on

The surface but it's not by the way one more thing as a reminder go back to last night's video monday's video and recall what we discussed was one of

The hypothetical scenarios for tuesday morning what's a hypothetical situation a hypothetical is a situation that might happen we don't know that it will happen but understand this when i bring stuff

Like that up and i create a hypothetical situation what i'm really telling you is i've seen this i've read this book before understand that there's a probability and who knows what the

Percentage is some probability that this is going to take place tomorrow morning that's kind of what i was saying yesterday but i can't come out and say i know this is going to happen

Because that's bullshit i don't know it's going to happen nobody knows anything's going to happen i suspect it was going to happen it had a probability how much of a probability

I don't know throw it dart nobody can know what the probabilities actually are when somebody tells you hey the probabilities of this happening are 67.2 percent where did they get that from they made

It up what exactly am i talking about in last night's video we said early morning don't be surprised if you see a little bit of a shakeout it's turn around tuesday we saw a little bit of a dip they never

Breached the low of yesterday and then they also therefore never opened the door to fill the gap left open from friday so therefore now we have a two day bull flag pattern working into the close

They start to break to the upside we'll see if we'll get the follow through tomorrow the big fat round number was the objective near term the longer term objective for now

Is the gap and by the way remember the second part of that discussion from monday's video was and then by about 10 30 in the morning they'll be popping back up right where they came from

And here we go 10 15 in the morning popping right back up where they came from the moves were small but the concept holds true sometimes the moves are bigger sometimes the moves are smaller

But the concept and how the market works is what's important we can't control how much the market is going to move on any given day inside the numbers pre-market commentary turn around

Tuesday we just talked about this stuff you can read the notes pause the video start and stop it anytime you like but we were prepared for the early shakeout from the night before we know about turn around

Tuesday market turned around from monday and then halfway through tuesday turned around from tuesday morning so early on this is before the opening bell we're already positioning for where the objective is on the downside we don't

Know that they're going to get there but if they do for example here's 3274 that's an area that we're eyeballing everything pre-market is all about the layout you don't know exactly or at all what's going to happen right at

The opening bell right after the opening bell so you come prepared you show up in uniform with your gear for either direction moving right along now you'll see here

948 the north gap at 328.78 isn't the same resistance as it was when they made the first attempt if you read the earlier notes they were going to make a first attempt

Once they make an attempt which on the first attempt were expecting a reaction after the first attempt it's not the same trade that goes for stocks on the move that goes for the spider trades

That goes for anything as it relates to the markets that's the way the market works there's your 328 78 you get a reaction a little bit of a spike through then a reaction again

The range was small but we're going on the mechanics moving right along i urge you to read the notes go back to the charts see what happened and this is for the folks that are a

Active in the market during the trading day want to be active in the market during the trading day if you fall into anything that sniffs those two camps then this information is certainly

Helpful if you understand how to read it study it you can use it to your advantage every single day look at the 10 11 post the next area of resistance this is

After they get through one we cite another 329 25. there's your 329 25. this is no joke folks the numbers work if you know your numbers you're worlds ahead of most everybody

Else moving right along again just pause the video read the notes go back to the charts double check my work and you know what happens as we get into

The late morning session early afternoon lunch time the market quiets down doesn't move a lot gets into a chop shop formation and here comes a reminder with an image

Keep it simple they're doing the same thing we discussed monday morning obviously until they're not we're just re-emphasizing the fact that this is a bull flaggish kind of formation

They go back and forth but at the end of the day what they're actually doing is positioning for another move or a continuation move higher moving right along and you'll see as we go into the end of the day market

Was quiet most of the day not a lot of activity the volume was extremely light and by the way what about stocks on the move well before we get to that the 4pm post they did the thing right

Into the end of the day the jam session what thing 3306 that's the big fat round number 3 30. and by the way i did get a lot of emails at the closing bill because a lot of

Traders were watching them do the thing into the end of the day it's pretty cool stuff sometimes isn't it how about stocks on the move we had six opportunities on the board as you can

See four say yes to entry hit let's take a look at those four charts see what happened let's go over the good the bad and the ugly first order of

Business virgin galactic s-p-c-e space you saw the number on the board 20.71 cents what was the low at 9.45 20.71 cents lo and behold traders got filled at that

Number so it didn't even have to go below in order to get filled at the number and guess what here comes your rocket ride a high of 21.70 for argument's sake we'll call it a buck

What's a buck on about 20 bucks it's about five percent in minutes how you doing second one on the list diagio this one happened late in the end of the day this isn't

The type of trade that's really the same trade as if they came down early in the morning and had that rocket ride this one's a creep lower a drip lower it's riding over the number it looks

Like it wants to go to another destination looks like it was stopping off for a cup of coffee up here going somewhere else so we don't want this type of trade at the end of the day

This isn't the primo type of trade however what's the takeaway it still worked anyway the numbers work here's a 15-minute chart and the ideal situation is

On this gap down for it to come into the number in the first 15 20 30 45 minutes of the trading day not to say it doesn't work later on but look what happened

You basically traded right over the number after coming close too many times then it finally gets the number and then has a bounce that's not the trade we're looking for but the takeaway is

The number worked anyway aig not the ideal trade but here's what happened half at the first number half at the second number average in between i actually and if you read the notes i posted the fact that i got out with a

Small gain on this one when it popped up not because i knew they were going to come back down or anything i didn't want to sit there anymore had a nice trade in space had a nice trade in the sp

Y didn't need any more aggravation from aig the takeaway and you may have not seen but the stop on aig happened to be 29.75 that's not a hard stop it's based on an

Hourly close so look what happened at 9 50 in the morning nowhere near the close of the first hour the low was 29.73 why do i point this out

Because the stops are meaningful i'm not picking a number out of a hat and saying ah the stop's about a buck that's not the way it works i'm putting the stop in an area

Where the market shouldn't close hourly below if it does then i was wrong in the whole trade fine i can accept that but running a test of an important number bouncing off that number

Is added evidence that that stop wasn't gonna happen at least early on so net net for me it was a bunt for base hit technically speaking it worked not what we're looking for but

It worked rl here's another one of those situations where they came too close the low was 64-15 against 64-10 why does this happen too many front-runners therefore

I don't want the trade when they come too close and bounce away look where the bounce went up to already at a high of 65 57 so it was almost a buck and a half then they came back did the number and

Then took off so again not the ideal trade in the manner in which they did it focus on the numbers we do this over and over and over again they're not all picture perfect

But understand and focus on what we're actually doing stocks are gapping up or down in the morning they have a destination we find the destination at the destination

They're either going to hang out for a cup of coffee and go on to another destination or have a quick turnaround and go back in the other direction as long as you have the destination

Right you're generally going to have positive trades period full stop what's going on in camp iwm do we have any new information they're above 150 it's not a magic number

They're doing the thing that we discussed they're headed toward 153 give or take no change they're just doing the thing second favorite market leading indicator what's a number one the iwm we just

Looked at it now the transports any change no are they doing anything different than we've discussed no are they my a number one canary in the coal mine absolutely

So far we have a bullish chart in the iwm we have a bullish chart in the transports we have a bullish chart in the spy we have a bullish chart in the qs we

Didn't need that line anymore that was over and so with all these bullish charts we have to say okay the duck again with the duck but yes the duck if it walks like a duck talks

Like a duck all these bullish charts are saying what that higher prices are the probability going forward what would derail that black swan event overnight something

Overnight that you wake up the market's getting hit not hit like this morning not 10 points or something like that in the s p 500 you got to have a character change in the market until

Unless that happens the duck is pointed higher instead of worried and that's where the wall of worry comes in right the market's always climbing the wall of worry instead of being worried about what can

Happen what might happen what the market should be doing what the economy really should be doing all that stuff instead of that just take everything at face value and

Guess what if you do that and you just go with the duck a hundred percent of the time you're gonna be right the majority of the time why because the majority of the time the

Market is doing the thing that it looks like it's going to do what about the financials so they weren't up today they were down another half a percent

So it's interesting they're above the moving averages at least the 20 and the 50 that they're riding and the 100 is below so they have one moving average above they're riding these moving averages

But they're not really participating in the rally remember this is a warning sign type of chart this is not a healthy chart this is not going anywhere even if we go a little

Higher even if they did get into these moving averages that we've discussed about before this is still a chart that has severe damage

And there's lower prices coming over the longer term the financials are a pretty good tell of what the economy is doing long term this is an ugly weekly chart this is a lower high situation high

Lower high you got trouble in the financials longer term doesn't mean they can't come up here and if and when they do if they're doing that the whole market is bullish

That's what's happening at the time doesn't mean that it's a complete repair job in the xlf weekly chart a little bit of struggling going on puzzle piece on the table xlf smash

Mouth any trouble here other than the fact that they'll shortly be over extended once again for the hundredth time how do we measure over extended you

Can't that's why i hate that term overbought oversold there really is no such thing even though the market does get overbought and oversold we can't really identify a measurement

To say when it is when it's not how much and how much is enough hence the market can go a lot higher or lower than most traders ever believe that it

Can at the time in real time but all that being said it's bullish there's nothing wrong with the smh take it at face value it's another duck have i told you how much i appreciate each and every one of

You and that without you these videos are not possible true and accurate information we're going to 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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