They closed above the gap [Now What?]

by birtanpublished on August 23, 2020

Hey traders david frost my strategic forecast you're here for another episode of common sense market analysis today is thursday august 6 2020. we're looking at a daily chart of the spy or spider which is the proxy for the s p 500 we have a lot of stuff on the docket

Today we need to get right into the action i have a full page of notes and i really do want to cover everything it's uber important so let's start out with the daily chart where we are we're above the gap the

Infamous gap was at 333.48 they reached the target the gap was always the target we talked about the creeping market and we talked about beware of a creeping market so the market was

Creeping it creeped into the gap and now it creeped over the gap and closed above the gap that's not uncommon it's not a surprise it's a creeping market and what we said

Yesterday was did the market do all this all this kind of activity over the last couple of weeks did it do all that just to stop at the gap and turn around and go back in the other direction

And the prevailing thing is if the market came from afar and hit the gap in one fell swoop over like two or three days from 10 12 15 s p handles away something like that

That's a totally different situation than a creeping market into the gap that's why it wasn't necessarily a short trade on the board at the gap what we said was we look for

Signs and signal of a trend change we're in the zone where from a time perspective we can expect the market to find some kind of a top and make a turn

However we don't know where that top is going to come in and we don't know precisely when it's going to come in so how do we handle that and what we've been saying all along

Is and this is right out of the course lazy emini trader we wait for signs and signal of a trend change they first begin from an intraday perspective and then they morph into

Longer term charts they start somewhere and they end up in another place you have to wait for these things to materialize otherwise what happens otherwise you get a conveyor belt of pies in the face

Now let's try an exercise raise your hand if you tried to short the gap today now i know a lot of you who did try and short the gap still didn't raise your hand

But nevertheless the ones that did i understand the trade i understand why you try it because you don't want to be in a situation where if i'm wrong and i don't necessarily think the gap is a great

Short and this goes to inside the numbers members because inside the numbers members were privy to they can go higher than the gap quote unquote we'll take a look at that later you'll see but even at that i

Still am aware it's an awareness not my first rodeo i'm aware that a lot of traders still nevertheless tried to short the gap i understand it all in all it was probably

Worth a shot as long as you understand and were willing to assume the risk okay so they close above the gap and by the way the first hour they reached the gap they closed above the gap

That's another tell in and of itself while we're on the hourly chart we know this routine we've looked at this before we look at this all the time you have a flagpole on the way up you had another one back here

And the market was stair stepping its way higher in a bull flaggish kind of formation so do we have another one on the docket is the market going to peter out is it going to have

Another short squeeze to the upside we talked about that yesterday as well remember what we said if they start pushing above the gap you're going to get a lot of traders that go short at the gap

They're expecting the market to turn around lo and behold the market starts pushing higher they have to cover buying begets buying panic buying all that stuff

And it pushes the market higher well guess what what do we have on the docket friday morning the phony jobs number what a perfect excuse to either send the market a lot higher or

Pull the rug out and drop it through the trap door we don't know which if any of those two things are going to happen following the phony jobs number but we know and this is another awareness

It's the perfect excuse so it comes out at 8 30 a.m eastern standard time and therefore we do what nothing we're watching we can trade a reaction as a result of the phony jobs number we can trade based on how the market

Reacts and how it's trading during that day but there's nothing you can do before the phony jobs number in anticipation that they're going to either jam the

Market higher or drop them through the floor it's nothing other than a coin flip at that point can they jam it higher yeah we just talked about

A short squeeze i moved the chart over here's the old high the old high comes in at 339.08 is the gap magic it's not magic but under normal garden variety conditions you get a reaction at a gap but if the

Destination is somewhere else and the trend is so powerful that they're really just headed to the destination come hell or high water can the destination be new highs

It can can the destination be the old high or right around the old high it can can they fail at the old high they can everything is on the table anybody that tells you they know exactly what's going

To happen next in this circumstance or many others for that matter they're full of bunk here's what does happen so here's another awareness i'm a trader that says the market is

Going to trade up to 335.50 and then turn around and head back in the other direction let's just say that's the case that's a hypothetical i'm not saying that so in this hypothetical if that happens

I can come over the top for days and weeks or months even and say look this is what i did now follow me and see this buy this do all that and by the way it works

But if i'm wrong and the market goes to a completely different number everybody forgets about it i just don't bring it up again so when you see traders marketing a specific trade

Saying look what i can do come by my stuff just be aware that you have to look at the whole picture not just a point in time that being said and there's always a method to the

Madness there's a reason why i told you that because i'm in the other camp i am absolutely as far as i can be full transparency every night with what's inside the

Numbers and obviously as much as i'm willing to tell you about what i'm thinking about the market in these videos every day i'm trying to give you as much as i can without giving away the entire store

That being said we're over inside the numbers and the reason why i brought all that stuff is it was a tough day for stocks on the move no doubt about it but

In the spirit of looking at the good the bad and the ugly we're gonna do it whether certain traders were in certain trades or not or just watching the point is this this is a

Real trader's life these were real losses today from me or maybe i should say for me but there will be lessons learned and it's part of the business it just is what it is but we're going to

Talk through all the stuff and i'm going to answer some questions that i know certain traders have first we'll start with the commentary overnight the futures were up they were down

So there was no telling which way they were really going to go right out of the chute but that being the case and that is really always the case we come with numbers we know about the big fat

Round number es 3300 spy 330 sounds like a broken record but they're important as long as the market's above those numbers she's in pretty good shape a test a slight dip below as long as

They remain closing hourly and daily above the big fat round numbers she's in good shape moving right along early on we have the spots we have just below the big fat round number represented a former breakout

Area and then as you'll see as the notes go on and what i urge you to do is read the notes go back to the chart double check the work 332 was the bogey 332 was the pivot

332 was the important number 332 was it routine vertical right of it 332 is this line down here and you can see the market is rotating around 332 once it gets above convincingly

She runs a little bit but guess what happened look at this so the first hour of the day closes above 332.46 then trick trap full and frustrate crew come out and they drop the market below

The next hour 12 30 closes at 3 32 07 any accidents or coincidences out there i think not from that point forward she did nothing but go higher so what you'll see is as the

Notes go on 332 is required for the bulls this is early on we've got it pegged early it didn't really change from yesterday after all they were in a

Bullish flaggish formation the duck is the breakout moving right along still 1040 332 is our pivot it's a broken record but it is what it is the market dipped lower 331

18 is a line in the sand below and the door is a jar for the gap at 3 30 03 which is the big fat round number short term candle closes below 331 18 and they head toward the gap

Different chart same routine today's activity right of the vertical 331 18 is that number they never closed below it they looked below it the low was 331

13 turn right around went back in the other direction that is running a test that's why you have to wait you have to wait for candles to close below the number

You sell the break by a penny or two and you get a pie in the face moving right along 332 here's a chart we know this one now this is where they started to dip they started to create a bearish

Flaggish thing after a breakdown candle so we know that that could certainly point things toward the gap but we also know a couple of things where does it turn back in the other direction

332 and you'll see the 332 number is really in between the two gaps so the market's gonna make a decision is it gonna go for one or the other that's the pivot above is bullish below is not and that was basically the theme

All day long now once they're above it you have some other resistance points along the way but bullish was bullish and we knew that the target or the prize was going to be the gap at 333.48

And once they got above the gap that was really it as long as nothing crazy happened they were just gonna float him out into the end of the day which is pretty much what happened

Anyway stocks on the move so here's the list we're going to take a look at each and every one of them that hit their entry targets x-ray roku sono t-w-o-u wdc

Wix was a different kind of debacle in and of itself i took the real number off the board as it came close to the opening bell i thought it was going to dip to another number

Didn't want to trade that number it was too close to the opening bell it's too high price of a stock they have a spread it wasn't something i meaning me was willing to take the trade at the prior

Number based on the pre-market activity if i'm not willing to take the trade it comes off the board it was basically putting a cherry on top of the perfect day for

Stocks on the move at least for this trader cwh is the last one we'll look at maybe not the last maybe we'll do it first cwh what are all those lines let me explain

It's a little bit different than we're normally going over but i want to do this because i know some traders had a difficult time with this trade today yours truly included the number on the

Board was 38.85 the 3820 number was the stop that's on the board now we run on hourly stops causes a problem sometime for some traders i get that but what i also know

And what is necessarily hard to wrap your head around until you prove it to yourself is that the hourly close waiting for the hourly close works in your advantage more than it doesn't it doesn't feel

Like it on the day it doesn't but it does i have the numbers in fact you have the numbers because each and every trade is posted here in these videos and we see it all the time so what do

These represent the vertical represents 10 30 a.m so 10 30 the closing price is 36.50 against an hourly close of 38.20 that was the problem look what happened this is the issue

The market or cwh tried to rally back it came right to the number right to the stop look at the high 3819 does anybody think that in and of itself is an accident or a coincidence a bad

Trade doesn't change the fact that the numbers are still right it was not right today in terms of the trade but the numbers are the numbers there was a different destination in mind today for camping world so i had

The destination wrong but the numbers i'm telling you are still important case in point now i don't know whether this is or isn't the case but this is what happened

I saw it happen and it looked kind of sneaky when it happened so the market came down at 9.45 right to the number 38.85 in fact it was at 38.89 low we're looking for 38.85 as soon as that

Candle closed and the next candle opened at 9 46 the market dropped cwh dropped more than a bread box this was the problem here is the 950 candle what time does it

Open 9 46. so instead of trading to the number and bouncing away they traded to the number they stopped the next candle opened and they fell through the floor that was

The problem that was the ultimate problem period it was the wrong number but it looked like they were going to recover look what time this is 9 55. i'm thinking we're going to be okay as

Long as they're inside of the stop by the hourly close no problem the hourly closing price wasn't that far below the entry price to begin with but then you see what happened it traded

Away and so much for losing small and fast guess what sometimes this happens once in a while we see this and each and every time it happens i say

It doesn't happen that much but it does happen and it's going to happen again whether it's as a result of one of my trades one of your own trades or joe schmoe's trades it's going to

Happen again there are times for whatever the reason is you're just caught in a trade the power goes out the internet goes out you made an error in entry anything goes that's

Going to happen from time to time cwh result shitburger by the way here's a side note i have to circle back to this because i should have done this last week there was another shit burger

On shake shack and i should have made a big deal out of the case of that was the real shit burger will the real shit burger please step forward it was shake shack is the real

Shit burger these are imposters x-ray so 4313 was the number and you can see here it just didn't do anything for the most part other than this spike up to 43.95 now traders

Should have taken profit when that spike occurred notwithstanding the fact that it ate time off the clock all day long when you think about it if the philosophy is

At one percent you take something off the table and then you don't let the rest go negative on you then it becomes a positive trade bar none net net it's not the type of thing we're

Looking for but it still gave you the deal takeaway 4313 or something in and around there was in fact the number roku so roku 154.79 that worked until it didn't but it

Worked enough where traders should have taken profit that from entry to the high here early in the day represents about 2.75 cents or 85 cents

Something like that dollar fifty and change is your one percent didn't give you the rocket ride didn't give you the double but it gave you the base hit the number was right sono this is one of

Those deals where they came too close bounced away they did the deal with the front runners instead of at the number so the low here was 1485 then they ran all the way up to 1530 that's doing the deal

When you consider the price of the stock then it came back in when it comes back in you don't want it you know that already so this became a no trade two this became a theme today

The first number works for a while then it fails it gave the deal but then it failed it gave more than the deal it gave more than two percent but it still failed came down to the

Second number and bounced off the second number goes to show you the numbers were working what wasn't working the trades really weren't going in our favor they were giving little

Gains what i should really say is not sustainable gains we have to take what mrs market provides each and every day we have no choice we can only control what we can control wdc ate my second shit burger of the day

First hour closed below the hourly close number out see you later wrong number it stinks it hurts it's ugly i get it it's part of the business forget it and move on just to add insult

To injury this is wix this is the one i pulled off the board because it was down here near the opening bell too much risk didn't want the trade it opened i believe it opened above the

Number that i had on the board i don't remember the exact number but it basically took a dip took off to the upside and look what happened might as well add insult to injury and just to put the cherry on top

I didn't need to tell you about that but i did it was a tough day for stocks on the move specifically for me when it goes bad it goes bad we all know how it works this is a trader's life this is my life kids

Don't eat tonight be lucky if they get a bologna sandwich all right back to the sp why so here's a weekly chart and the week closes tomorrow closes friday we need to really see where the weekly

Close is are they going to close above that gap on the week or not are they going to make a new high in the week are they going to close the week at a new high are they

Going to fail at a new high anything is possible we're on the lookout we're on the lookout for a number of things not to forget at some point we will see a sign

And signal of a trend change and when we leave this chart i'll leave you with this may i remind you and we can't pinpoint a day or time to this but may i remind you when

It feels really really wrong it's generally going to be right and when it feels really really right it's generally going to be wrong so somewhere in here we're getting

Pretty close to the sentiment just flipping all out total uber bullish and that'll be the end it's interesting the email indicator just isn't there yet the iwm

Flat day so this is a puzzle piece and it's on the table little doji candle do we make anything out of it not really it's in an uptrend daily chart just stalled out at a double top

Area we're not going to make a federal case out of that it was a quiet day for the iwm pretty narrow ranging day they still closed at a new not a new all-time high but a high compared to

This high here 153 39 is the high and you're still closing above that high today so there's really no problem in the iwm still a puzzle piece that it was flat certainly not leading the market in the

Upward direction so that's of note and then on the other side we have a divergence because we have the transports leading the market in the upward direction number two favorite indicator leading

Indicator that is not from joe's indicator shop just an indicator or indication of what the market is doing generally leads us to believe that another or other markets will follow suit

We use this as a canary in the coal mine are there any problems with the transports and the answer is no there aren't weekly chart look where they're headed a they're

Above these moving averages that's important on the week isn't it b the weekly breakdown candle high is all the way up at ten thousand six ninety eight are they gonna get there by the end of the week

I don't know i don't know whether they can they will or they won't but what i do know is that the highs of these breakdown candles in many cases most of the time act magnetic the closer price gets the

Closer they climb to the top the more magnetic they pull price in that's the way it works silicon valley people any problems no anything change no is it still bullish of course it is

Is it extended doesn't matter uptrend the trend is our friend until what until it's not until it's over until they pull the rug out the xlf now it's interesting also we don't get

Any participation today from the xlf on the upside however they're still riding the moving averages and they're still trying to formulate some kind of a bullish flaggish pattern for another

Ensuing or continuation move where would they be going well they could be going to this breakdown candle high it's an area where there's a gap window the spot between the gap that was left

Open one day and where the market opened the next and it looks like these are about the same but there's about a five cent spread in between the gap that creates

The gap so can they shoot up to the upside here they can if they get below the moving averages that's trouble about smash mouth now here's a canary in the coal mine as it relates to the tech

Space now it was flat down 30 cents on a market that looks like this or a chart that looks like this this is a daily chart that's a rounding error but understand

Yesterday they make a high they put in a doji candle at new highs go back to the course lazy e-mini trader it's different than when there's just a doji candle can they go higher of course they can if the

Market gets sucked up by the phony jobs number and everything's rising everything's gonna rise but here this has to be a puzzle piece today because it was not participating

With the qs it was not participating with the broader market any technical problem with the smh right here no no technical problem yet but everything starts somewhere which is why

We look at the charts every single day and we put the ones that deserve to have puzzle pieces on the table we put them there for a reason because they're beginning to tell us something

Or they are telling us something maybe it hasn't materialized throughout the other markets yet however we need to know because when they do materialize will generally have a

Jump on things that's the concept that's the way this works if i told you how much i appreciate each and every one of you without you these videos are not possible that is true and accurate

Information we're gonna pull the rip cord here today i'm david frost my strategic forecast thanks for tuning in for another episode of common sense market analysis

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