Wednesday, October 15, 2008

Opening Range Breakdown - Flowserve Corporation (Public, NYSE:FLS)

There was virtually no retracement off of the open as many names gapped lower, consolidated and headed south. The only problem was the noticeable lack of volume especially on FLS.

The NASDAQ futures trade below, carved out a choppy bearish flag pattern and broke down after testing resistance three times and failing. We fell into some sideways action and I grew anxious to take a profit so I partialed out a S1 (thin blue line). A second bear flag and then things really picked up as we finally closed the bullish gap from Friday close to Monday's open. That was followed by a 62% retracement of the last leg down and some wild swings before the last swoon into the close.

Outlook for tomorrow:

Not too good for the bulls as you can see from the chart below, a 38% extension of today's slide is a retest of Friday's lows. The Nikkei is down 666 pts. now and the NASDAQ futures are well below today's close, currently trading at 1220. On the bright side, today's sell off was on much lower volume.

7 comments:

yr said...

Jamie,
You have a rule abt not entering after 2 consecutive red bars for short (green bars for long). This rule applies to longer time frame of 15min or 5min chart? For FLS, on 5min chart, your entry was after one red bar. But if we look at 15min, its 2 red bars.

YR

Jamie said...

YR,

Okay, it's three bars, must have been a typo on that post.

I won't enter after three consecutive red candles on any time frame. That means that the bodies don't overlap and each bar makes a lower low, but it excludes inside bars. So I can have two consecutive WR red bars followed by two inside red bars as I did on my last futures short and it is a good entry. The point of that rule is to avoid jumping in after a big thrust or decline in one direction because price usually pauses to consolidate. Inside bars or NRIBs are considered as consolidation.

Hope that is more clear.

Jim said...

Hey YR,

If I may comment on Jamie's FLS trade: Notice that the 2nd 15m bar was an inside bar (IB) and thus did not make a lower low.

A very fundamental characteristic of market movement is that range contraction alternates with range expansion. An IB represents range contraction (whether red or green) and should lead to range expansion in the BO direction.

Additional bearish signs for the FLS trade were:
1) The body of the 2nd 15m candle was "in the tail" of the 1st 15m candle.
2) The BO of the 2nd 15m IB coincided with a PP per Jamie's horizontal blue line near the round number $64.

Jamie said...

Thanks Jim!

Well said. I should explain in more detail, but just too busy these days.

bl said...

Jamie,
Are those 5/10/20/50 ema's on the chart?
Thanks

Jamie said...

BL,

Yes, except the 50 is the SMA

yr said...

Thanks guys. Crystal clear now!