FuturesTechs Blog

Yesterday’s low was 1135.50, which was more or less a hold of our S1 support at 1136.50, and was most definitely a hold of our first bold support at 1131.75.

We are still bullish then, and still hoping that 1150 will be taken out soon to see the market getting over this current bout of nerves.
Once through 1140 we can gun for 1174.75, the highest print we’ve seen in this one since May’s “flash crash”.

Below are today’s support and resistance levels, the importnat ones in bold type.

R7  - 1166.25

R6  - 1159.50

R5  - 1153.75

R4  - 1149.75

R3  - 1146.75

R2  - 1144.50

R1  - 1141.25

S1  - 1136.50

S2  - 1134

S3  - 1131.75

S4  - 1127.25

S5  - 1120.75

S6  - 1117.25

S7  - 1114.25

For our full report, including Automated levels, Chart, and our unique “SkewBar”, clearly defining the current trend, please ask for a Free Trial using the buttons above.

The market looked damp right from the start yesterday, in fact even before the FTSE had opened the DAX and Stoxx had failed to hold gaps that they’d created with strong opens, so you could argue that the bulls had lost control of the impetus even before the FTSE opened.

But it never felt like it was going to be a big nasty down day, and sure enough we only sold off to 5545. We had bold support at 5548 as this is the Marabuzo line of the large green candle that we posted on Friday. So this has held, but may come under pressure again today.

We turn bearish below 5435; last week’s low.

We think the market is edgy and nervous for now. There is lots of volatility but little firm direction, which is the sort of thing one often sees at turning points.

Below are today’s support and resistance levels worthy of note.

In what may become a weekly feature of the blog, here is a summary of our coverage of the FTSE futures for the week 28th June - 2nd July.

Monday, 28th June

We said:

“The bigger picture clears things up a bit. On the line chart plotting daily closes we are shaping up to give a big “Head and Shoulder” sell signal if we saw a close below 4966… Hence we are siding with the bears, and looking for a test of these key supports below”

What happened:

We got the sixth red candle in a row with the market failing short of R1 (through not reaching 4966).

Tuesday, 29th June

We said:

“…it looks increasingly like we’re going to retest 4970, then 4883.5, then 4801… 4897.5 is “the big one” as far as the longer term skew is concerned.”

What happened:

The Futures closed at 4862.5

Wednesday, 30th June

We said:

“We think a break of 4897.5 (already done) and 4852.5 (not yet done) will trigger further selling, but we are tempering our targets to 4620, or at worst 4342.

What happened:

There was a low at 4811 and a close at 4814.

Thursday, 1st July

We said:

“Unless we get back above 4851.5 and 4897 a bit sharpish things could deteriorate very quickly, and we could be in for a couple of weeks dominated by bears”

What happened:

The market failed at 4858 and sold down to 4757.

Friday, 2nd July

We said:

….we’re still below the Neckline of our Head and Shoulders pattern, and unless today’s US employment numbers can craft us a close above 4850 we’re going to get a close that doesn’t look good from a chart point of view.”

What happened:

With the jobs data it spiked briefly up to a high at 4852.5. As of 14:45 the market is threatening to test this level again….

FuturesTechs celebrates 10 years in business this year. Back in March 2000, exactly as the NASDAQ 100 peaked above 4800, I set up FuturesTechs to provide analysis for Caboto Securities, the firm I had just left, plus any other ex LIFFE traders who were interested. The LIFFE Floor had recently succumbed to the rise of Electronic trading and the “Locals” (traders who traded their own money) had all moved up to a number of offices dotted around London and the home counties. These guys were struggling. They needed an edge, as their previous edge (awareness of the ebb and flow of orders in the trading pits) had completely disappeared. These traders were the bread and butter for FuturesTechs for many years to come, and it’s only in recent years that we’ve branched out to offer our services to a host of other traders, brokers and market participants.

The Locals-turned-arcade traders traded The Bund, Bobl and Schatz spreads, as well as Euribor and Short Sterling Futures, again mostly spreads, so these were the first reports we wrote. Below is one our early reports from that era.

Bund Report from 2000 - Click here

In the early years I moved to Australia, then back to the UK, I had several stints with trading firms (alas day trading and writing analysis didn’t prove to be a good mix), and I wrote the reports from all manner of different locations. It wasn’t until 2007 that the business’s growth forced us to “grow up” and get our own premises.

By this time we were up to 4 staff, and writing around 25 pages of analysis per day. We were writing more and more reports,  covering Commodity markets in response to demand from a new swathe of traders leaving Futures Floors like the IPE. We then decided to “branch out” and build a website to offer the reports to a wider audience. We employed the services of Silkstream, a fellow Southend-based company, and they did a fine job, and we now have a growing band of Private Investors and Individual clients who find this to be an essential part of their daily trading routine.

We’ve been able to add lots of functionality to the website as we’ve gone along,  making it something that is constantly evolving; becoming better value for money by the day. We have recently posted our first Video on the Members Area, and this Blog continues to grow and grow, particularly with our “Tutorial” blogs that many have found useful when starting their journey in Technical Analysis.

2009 saw us add “Skew-Bars” to all of our reports, and this colour coding of the support and resistance levels has proved a real hit across the board.

2009 also saw our client base expand even further afield, offering trade recommendations to UK Equity traders, money managers and brokers.

We have recently added another layer to this product, also available within the members area, with our “Trade Signals” report, using our in depth knowledge of Technical Analysis to provide a daily list of things to watch that may be of interest.

Click here to see a sample page from this report.

If you’ve stumbled across us for the first time then why not request a trial of our service.

Professional clients: click here to see what we can offer you.

Private Investors/traders: click here for a website trial.

Here’s to the next 10 years!

Cheers,

Clive.

Let’s go back to basics: technical analysis is the study of market action, i.e. the interactions of buyers and sellers. Rather than the merits of what is being bought and sold, we analyse these interactions in search of patterns and trends that will identify profitable opportunities.

But the information available to the technical analyst does not need to consist merely of price movements; technical data is anything related to market action. The level of participation in the market, then, is also an important component of this data. We measure it by the number of stocks or futures contracts which are traded over any given period, and call it volume. The reason for the name is fairly simple: in a trading pit, it would be directly proportional to the noise!

Volume is available for nearly any market, except for Forex, whose decentralised structure makes a measurement impossible!

So what’s useful about volume?

Volume tells us where the majority of people are taking and covering their positions, so has big implications in terms of market memory.

For example, suppose that during a rally in a stock we notice that there is a price range where volume is particularly high. What does this mean? It means that there are particularly many positions originating and closing here. Going foward, then, there are lots of participants who have a “stake” in this particular price region.

If the price gets back here, people who bought in the first time might use this as an opportunity to pick up more of the stock at what they still consider to be good value. This is manifested in the price finding support here instead of falling back down.

On the other hand, what happens if sellers do come out in enough force to take us through this region? In that case, anybody who went long there is now offside and may be tempted to exit their positions. Lots of stops can get triggered, resulting in an acceleration of the decline.

So that’s the significance of volume: it tells us where most people are taking their positions. You could almost say that the market “remembers” levels in direct proportion with the level of volume seen when it trades around those levels.

Volume has long been a key component of technical analysis. One of the tenets of Dow Theory is that “Volume must confirm the trend”. High volume demonstrates mass participation in a move, and hence widespread acceptance of the new price levels. Price moves without volume were subject to suspicion, since it was possible that only a small number of rogue traders were moving the price. In that case the price  would revert back to where it came from as soon as they stopped participating.

It should be noted that sometimes, volume will be so light that the relevance of the price levels becomes negligible. This is true, for example, in the overnight session for the Agricultural commodities. Here’s a sample:

While the overnight price action will be visible to traders, some of whom may give it some small consideration, the volumes are so small that the levels can generally be ignored.

One common way in which volume is used is in the confirmation of price patterns. This is in the same spirit as Dow Theory: just as volume should confirm a trend, it should equally confirm a reversal or continuation pattern.

For example, consider the famous Head and Shoulders pattern. This begins with a series of higher highs and higher lows, a classic Dow Theory uptrend. But then we get a high below the prior high, and then a fall through the “Neckline” connecting the previous two lows.

There are definite patterns in volume which we may seek to accompany the Head and Shoulders. These may not always appear, but that’s ok: volume is only an additional piece of the jigsaw, and not the most important piece of evidence we look at when analysing the markets. Volume is always secondary to price. That said, we are encouraged when we see volume acting in a way that confirms the price action: for a Head and Shoulders pattern, that means cooling off as the market runs into resistance, and then expanding as the market decisively changes direction.

The above Head and Shoulders pattern for Silver shows volume declining on each successive peak, and then expanding as it completes the pattern with a severe breakdown.

Volume can also be incorporated into momentum indicators, usually in combination with some price information.

For example, “On Balance Volume” (OBV, see below) is a type of running sum of the volume. The trick is that we add the volume when the market has gone up, but subtract it when it goes down.

We can treat the OBV like any other indicator: adding moving averages, trendlines, etc. The trendline added to OBV above illustrated how the market was struggling.

So that’s an overview of Volume: as a core componenent of technical analysis, it confirms trends and price patterns, and can be incorporated into momentum indicators. An essential tool of the technician and trader!

Graham Neary, MSTA (graham@futurestechs.co.uk)

The latest appearance by Clive on CNBC:

Bar charts were the most popular way of depicting price movements until Japanese candlestick charts invaded Western technical analysis during the 1970s, but are still as useful as they’ve ever been.

They depict the same information as candlesticks, merely presented in a different way. They have their own terminology, and are most commonly used in conjunction with classical chart patterns like the Head and Shoulders and Triangle (though candlesticks are equally adept at displaying these).

In this article we’ll take a look at some bar patterns and see how they compare to the candlestick patterns you’ll find in our daily reports.

First, the basics: what do they look like? The show the day’s range with a vertical line connecting the high and the low. A little bar to the left of this line is shows where we opened, and another little bar to the right shows the close. Graphically:

With this understood, let’s compare how the same information looks in bars and candlesticks:

It should be clear that the only difference is in the presentation. Any pattern in bars or candlesticks can be expressed equivalently in the other format. Now for some patterns:

Ringed Highs and Lows

These are simple reversal patterns used to identify entry points. The Ringed High is formed when a sequence of higher lows is broken with a lower low, whilen the Ringed Low is the converse: a sequence of lower highs is broken with a higher high. They work across any timeframe.

Example of a Ringed Low:

We buy when the latest “lower high” is broken to the upside.

Example of a Ringed High:

We sell when the latest “higher low” is broken to the downside.

Note that the open and close (little bars on either side of the vertical line) are irrelevant when it comes to this pattern. We’re only looking at the highs or lows.

Reversal Day

There are competing definitions for this term, but we’ll accept the one found in Technical Analysis of the Financial Markets by John J. Murphy (New York Institute of Finance). A top reversal day is formed in an uptrend when we get a bar with a higher high but a lower close. The bottom reversal day is formed in a downtrend when we get a lower low but a higher close.

Here’s an example of top Reversal Days in Bobl futures. The first one wasn’t followed by an immediate change in trend, only a day of weakness. The second one, though, was fully confirmed (demonstrating this this pattern, like all others, is not infallible!)

The pyschology behind this pattern is fairly simple: market participants saw the trend continuing intraday with an expansion of the range in the direction of that range. This wasn’t followed through, though, and the close was actually lower than the previous day’s (or higher, in a downtrend).

Key Reversal Day

This is a more extreme version of the Reversal Day mentioned above.

In passing, let’s say what the Outside Day is. This is a session whose range completely surrounds the range of the previous day, i.e. we have a higher high and a lower low. Similarly, the Inside Day has a range entirely within the previous one.

The Key Reversal Day is an Outside Day with a lower close when we’re in an uptrend, or a higher close when we’re in a downtrend.

Equivalently for a downtrend: the open is lower than the previous day’s close, but the close is higher than the previous day’s high.

(Note: some sources have slightly different requirements for the Key Reversal Day, but let’s leave this confusion to one side!)

The following 2-bar pattern would a be a Key Reversal bottom in a downtrend:

The idea is that the market started out in line with the prevailing trend (the above second candle even gapped lower than the first one). This early positivity is reversed, though, and we end up closing the day in the opposite direction, finishing past the extremes of the previous session.

The Key Reversal Day is related to the Bearish Engulfing candlestick pattern and it wouldn’t be very far wrong to say that the Engulfing Pattern was the candlestick analysis equivalent of the Key Reversal Day.

This market topped out with a Bearish Engulfing Pattern that also qualifies as a Key Reversal Top.

Summary

Let’s summarise all of the patterns explained in this article:

Ringed High: sequence of higher lows, broken by a lower low.

Ringed Low: sequence of lower highs, broken by a higher high.

Reversal Day (Top): day with a higher high but a lower close (in an uptrend).

Reversal Day (Bottom): day with a lower low but a higher close (in a downtrend).

Outside Day: a higher high and a lower low than the previous day.

Inside Day: a lower high and a higher low than the previous day.

Key Reversal Day (Top): Outside day that closes lower (in an uptrend).

Key Reversal Day (Bottom): Outside day that closes higher (in an uptrend).

We mostly focus on candlestick analysis in our research, but also try to take note of significant bar chart patterns formed in the markets we cover. As with all techniques, bar charts are not infallible but, with some experience, domake it easier to read the markets  To read our daily research of the futures and FX markets, please sign up for a free trial.

Graham Neary MSTA (graham@futurestechs.co.uk)

Here at FuturesTechs we are constantly evolving our product, and in recent years we have added a merry band of private customers and ‘at home’ traders to our following via our website members area.

One request from a good few of our less experienced members is for a bit more clarity as to our current thinking about short term trend, and preferably something visual. So we have devised the coloured bar that you can see next to our levels on the left. We will release this new innovation on Monday 16th November.

You can see there are three colours on display: Green, Grey and Red.

If we are in the green zone the market is bullish technically. In the grey zone the technical outlook for the markets is neutral or uncertain. In the red zone the technicals are bearish.

These “skews” are short term outlooks. The medium and long term pictures may differ. We have decided that the profile of our average customer is short term, so this is the most useful timeframe for a tool of this type.

So let’s think about how different looking SkewBars should be treated.

To the left is an example of a SkewBar that’s more or less all green, with only a dash of red at the bottom. This means that the market is very bullish, and that you probably want to be buying it! We suggest that you trade “to the long side”, looking to try and buy dips to support levels, or buy breakouts through resistance levels. If you were scanning through each of our reports looking for something that might be worth a buy this is the sort of SkewBar you’d be looking for.

Stops can be placed below any support level, of course, but it’s only when we move out of the Green area that the short term skew changes from bullish.

In this case there is no Neutral Zone, the market flips straight to bearish below 120.98.

In this SkewBar the market is pretty neutral, only turning bearish if we break below bold support at 121.63. The neutral skew stays in place until we get all the way up to 123.04. It is only above here that the bulls regain control of things.

In Neutral markets you should can trade in either direction but don’t hold too much conviction. Many traders like neutral conditions as they can do plenty of lower risk “range” trades, trying to do more trades but take smaller amounts of money each time.

You may want to try and “play the range” by buying at the bottom end of the grey band, selling if and when the market gets near the top.

If we then break out of the range by moving into the red or green zones then things have changed and playing the range is no longer the game in town.

Our last example SkewBar is a bear market, and this doesn’t change unless we get above 123.04. Even above here the market only turns neutral. There is no green portion on our SkewBar at all, which means the bulls don’t even get as look in!

We hope this new innovation is a helpful visual addition to our reports. It has been suggested to us that sometimes the reports can be a little ambiguous, and while we try not to send mixed messages sometimes that’s just what the market conditions are. Hopefully the SkewBars will give a little more clarity.

To all our long term readers we’d like to point out that nothing’s changed with this innovation with respect to how we analyse the markets, we’ve just added a bit of colour, if you like!

As always your feedback would be most welcome. info@futurestechs.co.uk