vsa with Malcolm

Ah yes muppets... Well all of the muppet callers over in the other thread have most likely been seeling the whole way up. I saw one poster over there on Friday calling a top because of their fib extention tool told them so and they saw a 40-70 pip drop coming... Too bad price went up another 40 pips after.

Up over 1600 pips since Jan... Must be time for another bear picture posting.

Well the muppets made their creator very rich so call me a muppet as well... VSA is my Jim Henson.

Hello Malcomb,
Do you any retrace for next week or do you think it will keep on going up?
Thanks
Marc

A quick look at a 30 min UJ chart is showing tells that the run may have some steam left in it. I want to see a break north of 85 with volume increasing on up bars to get long for a 86 test. The strength in the notes high volume bar has not gone away and may stop any further downside testing for a time.

Looking left to trade right. In Volume Spread Analysis we use the term BACKGROUND.

I am not going to argue over whether the background means multiple time frames or not. I will let the reader make up his or her own mind on that one. I will, however, say that I believe that a chart never lies. If a chart never lies, then we can say that any chart is telling the truth. Well if any chart is telling the truth, why do we need to look at more than one?

The Background.

Take a look at the chart on the left. What you do not see here is what was happening on CNBC. The CNBC anchors were all smiles as if the world was nothing but rainbows and lollipops because the S&P was up in the pre-market (prior to S&P cash open). Never mind that this is a zero sum game, which means that for every winner there is a loser. Never mind therefore that when the market is down, there are still people making money. Bill Williams is fond of saying, "CNBC stands for Can Never Be Correct". And as VSAers, we know to ignore the news. Bill and Tom have more in common than just a last name (more on that later).

I am going to talk about the trigger zones in another post, but for now I will say that I still hate lines on my charts but they do seem to help.

To begin our looking left to trade right, we are going to start with what happens in the After Hours/Pre-Market.

1. Ultra High Volume on an Ultra Wide Spread up bar that closes off its high. This bar comes after an uptrend and is a Buying Climax. If all that volume was bullish, then the close should not be off the high. Moreover, the next bar should not be down. This is a clear sign of weakness and it will set the scene for our understanding of what is going on.

Again, note that the Buying Climax is coming amid "bullish news". This will become important later.

2. We see a 2 Bar Inversion. The first bar is of particular import. It is an equal range bar on increasing volume. Now from the technical definition we know that any bar with increasing volume is either a green or squat bar. We are not interested in green or go bars, so for us, any bar with increasing volume is potentially a squat.

Did I just blow your mind? That Buying Climax takes on a whole new meaning. We can see that any VSA SOW or SOS that comes on an increasing volume bar is potentially a squat. Like I said, Bill and Tom have much more than a name in common.

Note that the close of this first bar is equal to the close of the Buying Climax, our trigger level (c).

3. This is a very interesting and subtle bar. It is a narrow range bar with an equal close that closes on the low of its range with volume less than the previous two intervals. It is No Demand. This interval does not make a higher high and closes equal rather than up. That makes it a bit hard to see. But look at the bar's construction. The only way this bar can be formed is for it to first trade up and then close to be pushed down to its low. In other words, supply would have to swamp demand on the upper portion of the bar and push price down to the low. It did not take a lot of supply because there was even less demand. Hence the volume remains low.

Note also that the high of this bar is no higher than the close of our Buying Climax.

Because of the time of day, this is not a good entry signal. Any other time of day it would be. Rather then telling us to get short, it is telling us that the market is weak.

4. Price did fall but has come back into the range of the Buying Climax and now we see the second of two Tests. This Test does prove to be valid as the next bar is equal and the bar after that is up and neither of those bars make a lower low than the Test bar.

The key here, however, is that the Supply on the Buying Climax doesn't just simply disappear. That is, the market is still being "ruled" by the weakness on that interval.

5. Another important Squat. Notice that this bar closes in the middle and the volume is greater than average. So whilst this bar is confirming the Test, it is show us that more supply is actually entering the market.

How can this be? What is going on here? Are you trying to play both
sides? No.

The Test has a purpose that will be fully evident once the cash market opens. For those paying attention to the background, we see weakness. We don't predict the market; we react to it. Our bias, however, is for further weakness.

Take a look at the next chart.

6. Okay, the news is bullish, and there seems to have been a good test. The herd hears the good news and is ready to jump aboard on the long side. Those that can read a chart but ignore the background see only a test and are ready to get long as well.

The opening bar is an outside bar. Meaning it makes a higher high and a lower low than the previous bar. These bars are a bit harder to read. But look at the close. We close in the middle of the range. Whilst we expect volume to increase on the RTH open, we know it can't all be bullish volume. Especially since the next bar is down. Also note that the high of this bar did not exceed the high of the Buying Climax. This is important. We can not be in an uptrend, if we are not making higher highs.

7. Wide Spread down bar that confirms the hidden selling on the first bar. So the BBs were selling into the artificial bullishness that was created by both the news and the test bar.

This bar again fails to make a higher high than the Buying Climax. But take a look at the low and the close. It not only trades lower than the Buying Climax, but it trades lower and closes lower than the two previous Test bars. Therefore, where there was once no sellers now there are. We might even call this bar a Trap Up Move. Since it is 2-5 intervals after the Test, it is also No Result From a Test. Simply put, it's weakness.

8. A narrow range up bar on volume less than the previous two bars. This is No Demand. Although the volume is still high, it is nevertheless, less than the previous two intervals. Unfortunately, this bar makes a lower low and not a higher high but it is still No Demand after we have seen weakness.

Upon father inspection, a few interesting things come into view. First, the close is equal to the High of our high volume trigger zone from yesterday's opening range (Initial Balance), and also equal to the low of the first Test bar. The high of the No Demand is equal to the close of that same Test bar.

9&10. These two bars are interesting as the relate to the "2 Bar Entry Rule" concept of my last post. #9 is a nice narrow range up bar on volume less than the previous two bars. If you placed an entry just below the low of this bar, #10 does not bring you in. It closes equal to #9 confirming it as No Demand. However, #10 does make a higher high. It is not uncommon for No Demands to be preceded by Up Thrusts, so this should not be of much concern. Tests don't have as many Reverse Up Thrusts after them as No Demands have Up Thrusts. So when the interval after a Test trades lower, it may mean more than when the interval after a No Demand trades higher.

Ultimately, #10 did not do anything to change our opinion of the market. In fact, we can actually move our limit order up a bit and consider the next interval the first interval of 2. That next interval would bring us in.

The key to this whole thing is the weakness we saw on the Buying Climax. Amidst the Bullish reporting and the natural tendency for the market to move up, we were able to look at the background and detect the true intentions of the BBs. This market was not going up and if you had looked left to trade right, you would have known that.

It's all about the background.

let the markets decide.

If we see any form of testing on a daily time frame then we can expect a 300 to 350 pip up week into 1.4890 area.

I found it interesting that the news out of portugal this week had NO bearish effect on the euro at all.

I am looking to get a break above this 1,4500 area and then see if we get a test for entry. I do not see any signs of weakness so far

That's where some get confused too... A retrace is that a retace in a bull or bear market and does not mean we are seeing a trend change or in the case of the eur any real weakness at all. 1600 pips up and every time we retrace a few hundred pips eveyone sells the farm. Retraces are an intregal part of any trend... We never move in a straight line and SM uses retraces to test, SO and build their longs while the retailers are all selling into losing positions.

Trade the trend which in the case of eur is up and if you trade intraday profit from the retraces as well... Just be careful to see them for what they are.

Thank You , Sir ....

Great post, thank you !



( HG = Hidden Gem )




___________
michael

too true!

And below there the supply ended.

See the selling climax. Simply no supply after that.

es is a beautiful thing .....

watch the 1330 handle this is the key support / resistance area.

I am overall pretty bullish on the us markets ....

Mal, You just looking at 1330 because thats an old top from which we broke down?

I see you mention is once this week, coudlnt work out why?

yet another VSA thread opened in the TS section, see how this one pans out.

the 1320 to 1330 is a critical area as you can see form this monthly chart.

As you can see last month was a rather nice high volume test.... almost a shake out of the markets. That candle should lead to 1405 at least . I am MUCH happier buying es even intraday.

Absolutely. That bar creates my Trigger Zone (D). As it is the highest volume bar for the day session excluding the OR and the CR. The blue zone is the highest volume bar during the CR-closing range. Which I view as 15:30-16:15 est time.

Do you take the long when price closed above or when it spikes above?
And where do you determine your stop?
thanks

I think there may be some testing of that 1300 area in the 1st 2 trading sessions of the week.

Seems like no buying interest monday of last week , some definite selling coming in Thursday (reaction seen Friday) and now a test of that 1324 area.

I made my money on the down side, so I was very content to call it a day.

I do not like to initiate a trade after 15:30 hrs and I want to be flat by 15:50-16:00 at the latest.

I just wanted to put that out there so you know that what follows is not what I did, but rather what could have been done as I see it.

In a perfect world, the best place to get long would be for price to trade above the high of the Selling climax and then come back and test that level. This is the type of entry Gavin talks about.

#2 is a No Supply at that level. It would be text book if it closed on the zone rather than just above it. Nevertheless, one would have to see this as a reasonable entry.

#1 is a more aggressive entry. This is your typical low volume sign within the range of the High volume bar. Tom used to talk a lot about this type of entry. In this case, the Test is hidden as it closes up and that would make this a bit harder to see.

Stop placement is area of trading that is the most difficult to advise another trader on.

Let's start with trade location #1.

The ideal place to put your stop is just under the close of the trigger bar @ point B. Why? Because if this level is broken then we know something about the condition of the market. We are reading and trading the chart here, not our account size.

Alternitvely, you could place a stop @ point A. You would be looking for a low to use as the stop level and this represents a good one. It is not as telling as point B, but it could be used.

For trade location #2, point A' is a better example of why we would choose A. It is a recent low. Point B remains a better stop level as it is just under the trigger level close.

If you want closer stops, then you need to move down timeframes. You should still base your stops on the same logic. The points just may turn out to be easier to handle.

Hello Malcomb,
Do you have the time to post an analysis for for Russell 2000 FUTURE (not the index)?
How low do you think this future can go next week?

Thanks
Marc

There is support at 83018 and 80463.

As we are at the all time 2007 high they may have to bring price down a touch to dry that supply up before moving it higher into 950 area.

The news will read ... markets drop due to renewed egypt unrest