Friday, October 22, 2010

Technical Picture - Minor Gains

The markets opened on a positive note and quickly broke above resistance on the heels of some favorable earnings reports from NFLX, EBAY, CAT, MCD... However, there was a clear loss of momentum as depicted by the negative divergence of the RSI to higher prices on the 15 minute chart below.

As the $USD found support and started to bounce, equities succumbed to some profit taking into midday and early afternoon. GLD was also very weak and acted as a leading indicator.

In the last two hours, the bulls were able to regain control and pushed prices back up to the unchanged line, plus a smidge, to end the day in the green.



AMZN is a good example of how I use Esignal's RSI price bars to help guide my trades. AMZN was basing at intraday support $164.00 and had printed two NRIBs on the 15 minute timeframe. I took a short position on breach of support as depicted below.

RSI 14 did not confirm lower prices on the breach. In fact there was slight positive divergence on the lower low, so I expected the trade to fail and scratched the trade before it cost me.

About an hour later, AMZN setup again at the base. This time it carved out a perfect handle before breaking and the RSI price bars confirmed right away. I covered the short when I noticed positive divergence to a lower low, and shortly after, entered long. The positive divergence to lower price foreshadows a reversal in trend.

5 comments:

M said...

How would you use the RSI for the head fake in AMZN on 10/20 on the break of $157 support in the morning.

Jamie said...

M,

The RSI is not a perfect system. It printed a green price bar on the 1 minute chart on the initial break of $157.00. I was short AMZN and got stopped out for a small loss.

DittoTradeBlog said...

Jamie,

Do you think the USD is setting up to bottom right about the time the US has elections?

Jamie said...

Good question Brian,

Unfortunately, I don't have an opinion, but I did publish a weekly chart of the $USD technicals in my latest post. The levels to watch are the lower trendline and the $74.00 pivot point.

I also linked your blog to my blog list.

Good trading!

M said...

Thanks Jamie. Appreciate your reply.