Time to [Start] lookin’ for a top in the market…

by birtanpublished on August 23, 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 friday august 7 2020. we are looking at a daily chart of the spy or

Spider which is the proxy for the s p 500. what do we have on the docket today well what we have on the docket is a very strong close to not only close the day but to close

The week speaking of week we're going to focus a little bit on the weekly close today there's a lot of stuff going on so what we have to do is focus on two things and these are my

Two favorite things is price and time as we know time is more important than price we're going to look at both because we may be in the midst of a convergence

At a very important price and a very important time we've been discussing of late the fact that and we have to do the air quotes we're looking

For a top the term or the word lookin means we're on the lookout we're looking for signs and signal of a trend change how do you notice those how do you identify those those are found in the course

Lazy emini trader there are many of them so we'll use one as an example let's just say at some point over the next few days we see the market gap higher crap out finish on the lows create a daily chart

Reversal candle that would be a pretty good indicator that we might have found the top that'll do a couple of things a first we'll be able to identify it from an intraday perspective while that type of

Activity is unfolding secondly we'll have something to trade against because if we want to take a short position if we're expecting a turn if we're expecting a top then we want to

Take a short position knowing where we're wrong we have to have a spot where we're able to cut and run and it has to be reasonable enough to where if we have to lose we lose

Small and fast these trades when they do occur and we're looking for a turn that's going to be more than one or two percent so we're looking for

At minimum of a multi-week type of corrective move to begin doesn't have to be a crash doesn't have to be tremendous in percentage or points but a correction is what's on the docket

What do we have when we look at the daily chart we have a market in the sp y that basically finished at the highs we closed well above the gap that we were eyeballing at 333

48 and they also closed above another important number i want to go back and forth a little bit between the spy chart and the es chart today in fact the es chart you see a line at the very top of the screen

That's the es's important number and they closed above that as well so not only did the spy close above an important gap but the es the futures contract closed above its gap which was different

From the spy gap so it's even more bullish yet going into the weekly close that being said remember when it feels really really right it's generally going to be wrong

And vice versa when it feels really really wrong it's generally going to be right at the onset we said we were focused in price and time so price is what we just discussed the market closed

Above a couple of important prices depending on which market you look at now since it's the weekly close we revert to the weekly chart and we see the same gap and we see we are approaching the

All-time highs we're basically a stone's throw away a chip shot a walk in the park maybe the market challenges the old high maybe it comes up slightly short and turns around

Maybe it makes a new high reverses back down and fails one of those three things is likely in the cards there's a fourth thing which is making a new high and it keeps

Going in order to avoid a pie in the face in that scenario you can't take a position until the market gives you a reason and something to trade against

Now on a side note could somebody take a short position and say well from here i don't really care what happens as long as they don't close above the high for let's just say at least one day but i'll even give it

Two or three days i'm not saying this is the ideal scenario and i'm not advocating this i'm saying this is a strategy in that scenario you're basically saying i'm just gonna

Put a stake in the ground and i'm gonna say within a couple of months the market's going to be lower than it is now not higher and therefore i'm taking the short position

There are a lot of ways to spread risk around it depends on how much risk a trader is willing to take i like my way waiting for a sign and or signal of a trend change until

And unless one of those occurs you're unlikely to find yourself in a short position and the market making new highs and going higher now let's talk for a second about time those traders that have taken the course

Lazy emini trader will recognize that we're coming into an important period in time so we understand that since this is a weekly chart we have to wait for a weekly close to determine

Whether something is actually taking hold or not and intro week between monday and friday a lot of stuff can happen in the market it can travel a lot of points in both directions intra week

So a weekly chart we have to be aware that while from a time perspective the weekly chart is setting up a lot of stuff can happen while it's setting up what if i brought up a monthly chart

And we talked again about time would you also recognize that we're coming into an important period in time the trend is clear technically speaking there's nothing wrong with the market

It was until they did a repair job the trend is up period full stop doesn't mean we can't have a correction case in point here's a monthly chart look where the 20 period

Moving average is comes in at about 298. 37 spy points 370 s p handles the market doesn't even have to come down to the 20 period moving average to still have

A pretty significant corrective move let's put it in perspective once again it's somewhere right around where this line represents 298 299 300. again it doesn't have to get there if

The market were to correct and again this doesn't happen overnight doesn't happen in two days barring the crash scenario which obviously can happen it has happened two crashes

In the same year i don't think so leading up into the november 3rd election this year i might take that back you never know what's going to happen but look what we

Have here this is also interesting so we have a low this is an important low over here it's a reversal and then we have a higher low and what happens if the market comes down in this vicinity

Won't they want to try and put in a higher low first before giving up the ghost if they were going to do that in that hypothetical scenario that they are coming back down and just so happens there's a 200 period

Moving average right here now this is kind of flattened out so it's not going to move much off of 305 over time maybe it gets flat maybe it still creeps up a little bit but 305 is around where it is so what

You just saw was a you were inside my head that was all done in real time no preparation i didn't do that this afternoon and then do it again in the video that

Was absolutely unpacked in real time on live tv but what that also was was way out over our skis remember the market's still going up this daily chart just like the other

Charts we've looked at it's in an uptrend we're approaching the all-time highs what i'm saying is they're unlikely to just keep going if we look back on the daily

Chart and we see what was going on here at the all-time highs there's not a lot more going on above this gap you have the last important pivot the pivot high on the 19th of february that high is

339.08 does the market get to 340 3400 big fat round number in the es spike through by 10 20 30 points and then fail from there that's

Certainly a possibility up in that neighborhood you're gonna get everybody in the boat who can be who wants to be who even understands what it means to be bullish

Once the last guy gets in the boat what happens once it gets off the dock they sink what does the flip side look like what happens if we wake up monday morning sunday night they start to fail wake up to a big gap down what's the

Line in the sand first order of business is the gap that they closed above 3 30 3 48 next order of business and here's a 60 minute chart next order of business would be back to the former

Breakout area which they paid a visit to the top end of today we'll get to that in a few minutes and then you have the gap which is also represented by the big fat round number 330 and slightly lower this would also

Be considered another former breakout area so coming down to 329 328 in that neighborhood would also represent a viable area of support since we brought it up inside

The numbers the pre-market commentary right out of the gate we were focused in the phony jobs number at 8 30. i'm sitting here at zero dark 30 had not much to say waiting on that number so that's all i had to say will it be a

Drop pop or dud already focused on where they closed the week relative to the same gap is really important same meaning 333 48. then they goosed them a little bit at 8 30 then they dropped them after that

Let's see what happened as the day started to get underway check out the early thoughts all right where's the spot the former breakout area is a zone around

33 24 to 33 19 it's about five points give or take spy 330 250 down to 332 give or take again it's a repeating area under normal garden variety conditions this is where the by the dip crowd

Should show up remember that comment because we're gonna look at exactly what happened you know the routine right of the vertical today's activity five-minute chart

And there in blue 330 250 down to 332 what was the low 332 30. now this happened in the afternoon rather than this morning so unfortunately in the afternoon towards the end of the day

Into friday you don't know exactly what's going to happen taking a position is not the same as taking it in the morning when you have all day to maneuver around the position

Running out of clock is obviously traders choice nevertheless we're focused on the numbers and the takeaway is the same area that was supposed to be support this morning

Ended up to be support anyway why because it's a former breakout area and the market loves to do what come back and test former breakout and former breakdown areas moving right along early on the market

Goes back to test after it opened below runs back to test 333 48 and then if they get above we want to know where they're going where were they going 333 96 is a gap to be filled up north back to the chart there it is up top in

Blue 333 96 and you can see here the market ran up after opening below the gap to what to an area that should be overhead resistance number one should be magnetic when they get close because

It's a gap and gaps tend to be magnetic they pull price in to fulfill the gap and as noted early on should provide some overhead resistance what happened they came right down to run a test even

Below of the same 333 48 or that general area and right back up again so you can see what was going on all day our pivot was 3 30 3 48 and you'll see that

In the notes that was always going to determine the bearish or bullish stance for the day was above or below the pivot below the pivot opens the door for what the former

Breakout area where was that 332.50 down to 332. know thy numbers and then obviously what happened into the end of the day they found support and they had an end of the day

Jam session and also interesting and this is how they try to get everybody out try the shakeout operation right here you can see in this candle here where they run up to get above that

Former gap and then look like they're going to collapse all the way back down only to have an end of the day jam session that is absolutely without a shadow of a doubt

Courtesy of the trick trap fool and frustrate crew that was after three o'clock in the afternoon and we always say after about three o'clock anything goes from this point forward what i'd like

You to do is pause the video whenever you feel necessary read the notes and go back to the chart to see what happened double check the work what you saw was the

Broad brush or the summary if you will of what happened through the trading day but you have to read the notes you have to see what was going on and decide whether or not you are comfortable

Having a tour guide through the market each and every day because that's exactly what this becomes now here all of a sudden midday it's kind of quiet we need to be thinking about the weekly close

Where are they going to close the week above or below even the futures gap 3338.50 constant dissemination of data constant education this is the ticket i'm not feeding you

Every single day i'm teaching you how to fish for yourself so that you can eat for the rest of your life with the combination i like to call it the three pillar approach

The combination of the lazy e-mini trader learning the foundation of how markets really work these videos each night that's really like a review session of every day a review of certain components of the

Course it's continuing education and then you get your phd with inside the numbers you can see at 356 so into the end of the day what did they do they went back to test the former

Breakout area and went right back up again it's like a broken record because they do it all the time the trend is your friend until it's not market hasn't given you a reason yet to

Say the trend is broken to say the uptrend is broken or a reversal is at hand we haven't seen that yet how many people shorted that gap yesterday and are still short right now and by

Chance if the market gaps up on monday they're going to have to check their shorts stocks on the move we're going to take a look at twilio says jump target we have to look at it anyway

Baba datadog and ayx twilio twilio opened below the first number never got to the second number missed the second number by 21 cents and it went on a little excursion or

Rocket ride i put it in the notes and i got faked out because traders send me emails all the time and i got a lot of emails this morning thanks for twilio i wasn't in the trade and then when i was

Writing the notes when i was updating inside the numbers i just had a brain fart and i put it in there anyway for getting it open below the first number never get to the second number

Why do traders jump in anyway you'd have to ask them that's not following the rules obviously anybody can do whatever they want sometimes and we know this sometimes these stocks

Open below the number and they shoot right back up sometimes they open below the number and they shoot right down and that's what i'm avoiding by taking it off the table but

It's always traders choice everybody does whatever they want to do what i'm doing is telling you what i prefer to do i teach it to run it as a business trying to minimize

Risk smooth out the returns by being consistent baba hit the first number getting a haircut at the open look at the low here the low was 250 408 low in this candle 254

10 against 254 20 on the board bright and early has a nice ride up to a high of 257.76 so they did the deal in terms of a minimum we're looking for and then they came back down so once

They came back down that's it nobody's in this trade anymore and the second number just didn't work until it did later in the day these are the trades we want we want the ones early in the morning

When the market's running when we have the volatility when we have the most participants we're going to have during the day it's going to be in the morning in the first hour

In the first 90 minutes beyond that the volume tends to dry up and things change it's not the same trade in the afternoon not to say they don't work they do but it's not the same

Case in point how about datadog what a great name 7459 bright and early look at this haircut by the way look at this haircut by the way stock closes at 89.95

Plus shipping and handling now it's trading and opens up the day around 82 83 dollars i'm all the way down at 74 and a half in the morning i don't think this thing has a chance

Starts to bounce i'm not even watching it later on i noticed this thing's just creeping creeping creeping and then obviously i notice i know where it's creeping it's creeping to what

It's creeping to the number 7459 or thereabouts plus or minus and then what happens turns around goes back in the other direction but you see in the afternoon this one happened

At let's see this is at 14 30 in english that's like 2 30 in the afternoon so you got to bounce but you never got a rocket ride it's not the same in the afternoon made a high of 76.14 anything wrong with

That absolutely not the number was magnetic a xy we're not going to give it the classification of a burger but it was a loser but here's what happened opens below the first

Comes into the second and then it basically treaded water right underneath the second number and basically floundered around all day long well here it is 10 30 in the morning your closing price

Is 1 23 24. i'm out have a nice day i don't want to be in it anymore had a nice trade in baba and had a couple of nice spy trades today camp iwm

Where did we say the iwm would find overhead resistance didn't we say somewhere north of 156 or we said 156 to 156 and a half i'm pretty sure it was something in there well guess what there it is

One day closing above could go either way in this case now we've closed three days above this pivot high and they're going higher revert to the weekly chart

Look what they closed above this week this is pretty important stuff right here look at these moving averages this is all this week look at this breakdown candle high

All this week that's not bearish behavior but that's bullish behavior obviously i don't mean to be captain obvious but if you had to say based on that based on powering through the moving averages

And getting above that breakdown candle high if they're going to continue higher where are they going well they're going to the next breakdown candle high right over here this is the crash high

The high is 162.91 can they get all the way up there we don't know if they can or they can't but they're making an effort for it the transports second favorite market leading indicator

Iwm is a number one but this is the first favorite canary in the coal mine look at the day the transports had up over two percent almost 250 points didn't we say yesterday that they could get up to ten

Thousand six something whatever whatever well guess what that represented this breakdown candle high ten thousand six ninety eight so somewhere up in this vicinity is obviously where they're

Headed can they go fill the gap at this point they certainly could they did the same routine with these moving averages now under normal garden variety conditions

You would think that the market would get rejected at these moving averages at least for a while have to eat some time off the clock to build energy to get through those moving averages but that's not what happened

They basically went up there a couple of weeks later here we are at the breakdown candle high so we're gonna go with the trend is your friend until it's not we've got all the things

We talked about earlier that's fine but at the end of the day in your face is taking the market at face value not guessing what might happen at some point in time

At some price that we took a guess at that's not how this business is run about the folks out in silicon valley here's our first puzzle piece of the night q's down three bucks one percent

So here's what happened when the market sold off in the afternoon everything sold off so the queues sold off and remember the spy chart it sold off but the spy had a jam session

Into the end of the day the qs did not they bounced off the lows but they're nowhere near their highs from earlier in the day so that's interesting it's a puzzle piece it's on the table remember what we said

Earlier we're looking for signs and signal of a trend change this may be the first sign not necessarily something to take action on just yet however it's a sign

Nonetheless these are the things that represent the reasons why we look around the horn at a lot of different markets at a lot of different charts you never know what you're gonna find

Until you look you don't have to be looking for something specific let the thing find you conversely to the cue conversation the financials had a great day up two percent and here we go

Above the moving averages it was fine we talked about this they were basically eating time off the clock but they hadn't been getting going now today they got going objective 2512.

Also up to 25-19 give or take that's the gap we talked about it yesterday here's the gap and here's the breakdown candle high so somewhere in that neighborhood is a where they're headed and b where

They're likely to find some at minimum of from an intraday perspective of what say it together overhead resistance what about smash mouth well we're going

To put this in the same camp or bucket as the cues same move at the end of the day same bounce different from the spy puzzle piece on the table if i told you how much i appreciate each and every one

Of you without you these videos are not possible that is true accurate information we're going to pull the rip cord here today i'm david frost my strategic forecast

Thanks again for tuning in to another episode of common sense market analysis

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