Tom Alexander

All forms of technical analysis use the terms “Support and Resistance”. Very few traders look into exactly what that means. Why is a given level support, or resistance? What makes it support? Do I sell resistance? What can I expect when a market trades to support? What if support turns out not to be so “supportive”? What does that mean? What is that telling me? Why is it telling me that? Is it magic? Is support and resistance derived in some objective and consistent fashion? Is there any statistical validity to determining support and resistance in a given way? How many ways are there of determining support and resistance? Does my method of determining support or resistance help me to determine whether or not to take a trade? Can I effectively trade my way of determining support and resistance?

If you are a trader ask these questions of your favorite method of determining support and resistance. It will be a very illuminating exercise.

In my work that focuses on using auction market principles and the profile graph to analyze markets and make trade decisions, I make an effort to stay away from the terms “support” and “resistance”. Instead, I use the term “Key Reference Areas (KRAs)” (link to Jan 5 article). These are areas that can be both consistently and objectively identified. They are more accurately described as inflection points as opposed to support or resistance. They are not “magic”; there is a logical reason they are inflection points. Also, unlike typical ways of determining support and resistance a consistent if/then approach can be used in formulating trade decisions from these areas that have a valid edge.

Each individual completed day has KRAs. A group, or composite, of days has KRAs. KRAs are where there is a valid edge to consider entering trades. It helps open to define the trade selection process. It helps to eliminate randomness from one’s trading. It helps to eliminate overtrading. It assists in determining logical targets for one’s trades.

Below is a chart of the March S&P mini. There are two composite profiles that comprise trade activity in the ES since January 13. The ES is trading in Globex on Monday evening as I write this near the mid-point of the range (the current price is highlighted). There is no edge at present; it is a coin flip as to which extreme is reached first – upper or lower. A trade with an edge is taking a trade from either near 1143-1144.50 or 1128.75-1127.50. “Edge” in this instance refers to the probability that a trade from either of these two areas has a reward to risk that is much greater than random (1:1). It does not matter if the trade is a long or short – the edge is derived from knowing where to attempt the trade.

This is obviously a much different way to analyze and trade markets than the techniques the overwhelming majority employ. But then again, why would you want to be doing what everyone else is doing if 95% of them are losing money.

We are proud to have partnered with Tom Alexander to continue offering you the best of breed investing/trading tools available in a market full of junk. Click here for a special Wall St. Cheat Sheet 2-week free trial of Alexander Trading’s Live Update Room, or check out Tom’s book on Market Profile, his Daily Report, Mentoring Program, and more, by clicking here to visit Alexander Trading.

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2010 Market Outlook Report by Jordan Roy-Byrne, CMT

Tom Alexander

There is one statistically verified edge trading “Market Profile”. That edge is derived from identifying a Balance Area and taking one of two trade types, either a Responsive trade or an Initiative trade.

Auction market principles are robust; they affect the market in all degrees of time. This fact allows the trader to use the same concept to trade any degree of market development he wishes. The concepts are just as valid intraday on a one-minute or five-minute chart as they are in a swing trade scenario involving multiple days or weeks.

Responsive Trades fade the range extremes:

Initiative Trades go with extension outside the range extremes:

In my next post, I will provide you with a Glossary of terms you’ll need to continue advancing with Market Profile techniques.

We are proud to have partnered with Tom Alexander to continue offering you the best of breed investing/trading tools available in a market full of junk. Click here for a special Wall St. Cheat Sheet 2-week free trial of Alexander Trading’s Live Update Room, or check out Tom’s book on Market Profile, his Daily Report, Mentoring Program, and more, by clicking here to visit Alexander Trading.

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2010 Market Outlook Report by Jordan Roy-Byrne, CMT

The Weak Hands are Heavily Long the US Dollar

Tom Alexander

I am going to begin the New Year with a brief analysis of the S&P. Next week I will be providing you with a short primer of basic “Market Profile™” trading concepts accompanied by a glossary of terms for future reference.

S&P

Auction market principles use a simple, consistent and objective method for determining Value. Value is defined as price over time. In other words, the amount of time price trades in a given area determines the relative value for that area. The area in which price spends the most time trading is the area of greatest Value. The migration of Value determines the trend of a market. These principles hold true across all degrees of time. The initial signal a trend may be changing is when an area of previous relative high value (High Volume Node on the graph) of a degree smaller than the one being analyzed is taken out.

In the twenty-five years I have been trading I have never seen more disbelief in a rally in the stock market. Technicians and fundamental analysts alike have been “left in the dust” by the rally from the March low. “Pick the top” remains the predominate game among gurus and most traders. This is a waste of time and a fool’s game if you are a trader. The path of least resistance is up until the S&P (and other indices that are in very similar positions) does something objective that signals the trend may be changing. In the S&P, as of January 5, that signal would be a close below 1080.

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Interview with Jordan Roy-Byrne CMT from The Daily Gold

The Edge: 7 Interesting Comments About Markets in 2010

Tom Alexander

From the perspective of Auction Market Analysis the US stock indices remain in a bullish position. The initial signal something could be awry regarding the immediate bullish case would be closes below the December lows to date that coincide with the High Volume Nodes (Value) from the November profile view.

Dec. Russell 2000

Dec. S&P mini

Dec. Nasdaq 100

Dec. Dow

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Market Profile Helps Us Trade Around Massive Events Like Dubai Default

Market Profile Gives You the Message of the Market

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Tom Alexander

Well, if too much turkey, dressing, cranberry sauce and pie wasn’t enough for a severe case of indigestion lets throw a little sovereign debt problem onto the plate. Get used to it.

Over my 24 year career trading and analyzing markets there have been periodic “events” that popped up here and there that got the financial world all in a dither for a few days, or maybe even a week or two, and then conveniently faded into the past as normalcy returned.

Well, this, my friends, is the new normalcy. The incredible securitization of anything that can be securitized and the leveraging of anything that can be leveraged have led us into a brave new world where we are probably only beginning to understand what will be normal volatility. The nice sanguine periods of months and even years between “events” are likely a long way into the future.

Markets are volatile when they cannot determine what value is. However, auction market principles are dynamic and robust, and more immediately relevant, they are fractal. This is a from of analysis that tells us in the present tense where value is, and if we know where value is, we can know where value is not, and we can form a trading model around that concept. Auction markets have been following the same principles as long as auction markets have been around, and as nutty as things presently seem, this is still a valid, reliable lens through which to view market behavior. Perhaps most importantly it is uniquely objective.

Below is a quick update of several key markets from an auction market/profile perspective.

Dec. Russell 2000

The Russell 2000 is in a Balance Area that began forming last August. It has refused to join the up and away party of the other three US primary trading indices and the 64k question is which way this divergence is going to be resolved, and it will be resolved, one way or the other. Drilling down, the High Volume Node (value) near 592-598 must be exceeded to restore any bullish outlook, and a break down below 544 is a bearish intermediate-term signal.

Dec. S&P mini

It is clear from the profile structure the S&P has a completely different auction underway from that of the Russell 2000. The present phase of development in auction market terms is vertical, or trending, as opposed to the horizontal phase of development we see in the Russell 2000.  The late October-early November lows are critical to the intermediate-term bullish case of this index remaining intact. More immediately 1101-1109 must be exceeded to the upside. There is very little between where the ES/S&P is presently trading and the Oct-Nov lows that offer much potential “support”.

The ES/S&P is presently trading in a phase of horizontal development (balance) of a smaller degree than the Russell. As I am writing this it is testing the low extreme (1075-1068) of the BA.

Dec. Nasdaq 100

The Naz is in a similar position as the S&P.

Dec. Euro FX

The Euro has to close below the 1.4790 area (basis Dec.) as just the initial signal something significant to the downside may be brewing, and that something significant to the upside in the US $ may be in its early stages. Immediate potential resistance in the Euro is the HVN at 1.5054-1.5096.

February Gold

Gold is trending higher (duh, right?). There is no objective reason on the planet to sell it. Selling gold and playing “pick the top” is imbecilic. On the other hand, if one is not already long gold there is no objective way to measure the upside potential against the yet to be determined downside risk.

We are proud to have partnered with Tom Alexander to continue offering you the best of breed investing/trading tools available in a market full of junk. Click here for a special Wall St. Cheat Sheet 2-week free trial of Alexander Trading’s Live Update Room, or check out Tom’s book on Market Profile, his Daily Report, Mentoring Program, and more, by clicking here to visit Alexander Trading.

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Market Profile Gives You the Message of the Market

Market Profile Trading Update with Tom Alexander

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Market Profile expert Tom Alexander has been contributing to our site for several weeks. His firm, Alexander Trading, is offering Wall St. Cheat Sheet readers a free two-week trial of their Live Update Room. This service includes the following:

The Daily Briefing and Strategy Analysis (formerly known as the Morning Briefing and Strategy Analysis) provides detailed Market Profile™ analysis of the present state of Market Development and Market Structure of the primary US stock indices. The briefing includes the important support and resistance levels for the day. This is analysis that is valuable to both the intraday and swing trader. In addition to providing timely analysis, the Daily Briefing and Strategy Analysis is an invaluable educational resource for the serious Market Profile™ student.

The service includes:

• A daily video recording
• A daily written report giving the important Key Reference Areas (support and resistance) from an Auction Market perspective
• Intraday updates
• Free webinars (at least twice monthly)
• Special reports; and,
• Video Trading Lessons.

If you are interested in taking advantage of this free trial of Tom’s industry-leading service, simply click here.

Tom Alexander

One of the unique features of auction market analysis is that it provides a totally consistent and objective means of valuation in any timeframe. As long as Value as determined by the behavior of market participants is trending in one direction, that is the past of least resistance for a market. The visual artifact of “Value” is reflected on the profile graph as a High Volume Node on the profile chart. Until a market begins forming lower lows of Value the path of least resistance is up and long trades should be favored.

One cannot peruse the blogosphere without encountering countless blogs and articles whining, pouting and figuratively jumping up and down about how stupid, ridiculous, unfair, conspiratorial and just plain wrong it is that the stock market is going higher. I am daily thoroughly entertained by the vast amount of time and effort that is going into the efforts to point out how ridiculous it is that the market keeps going higher.

However, it will not make you, or me, one cent. If it is your job or aspiration to make money in the market, you better pay attention to what the market itself is saying. Right now it is very simple. The initial signal something may be changing is if/when the levels highlighted on the charts below are breached. Until that happens you have to be long, looking for longs, or flat.

We are proud to have partnered with Tom Alexander to continue offering you the best of breed investing/trading tools available in a market full of junk. Click here for a special Wall St. Cheat Sheet 2-week free trial of Alexander Trading’s Live Update Room, or check out Tom’s book on Market Profile, his Daily Report, Mentoring Program, and more, by clicking here to visit Alexander Trading.

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Market Profile Trading Update with Tom Alexander

Market Profile of the Continuing Market Rally

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Earlier this morning Market Profile expert Tom Alexander gave us an analysis of the market rally. However, given yesterday’s big moves, he has provided us with these updates:

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Market Profile of the Continuing Market Rally

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Tom Alexander

The week beginning November 9 is a very important week in the on-going puzzle of the relentless rally from the March lows. The downside Key Reference Area for the S&P highlighted in the article posted here last week proved to be strong support and the lows into that KRA were accompanied by extreme oversold reading in our market internal work. Each time similar readings have registered in our market breadth work the market has rallied within a day or two and the indices have within a few days regained the prior highs of the rally to that point. If and when this pattern fails it will be a signal of a change in character in the rally and be an initial signal of something more significant to the downside that may be developing. Next week has the potential to see a failure in this pattern.

Both the S&P and Dow are perched just below Key Reference Areas. The S&P closed Friday just below single prints beginning at 1072.60, and if there is much strength into the immediate area above Friday’s close there is likely to be at least a short-term acceleration higher into the next Key Reference area at 1094-1099 that is a High Volume Node and the last potential “resistance” below new highs for the year.

The Dow closed Friday right into the last potential resistance prior to new rally highs, the High Volume Node at 10,630-10,920.

A key tell for the coming week is that if the Dow, S&P and/or Nasdaq 100 trade to new highs is to monitor where the Russell 2000 is trading at that time. As of Friday’s close the Russell was severely lagging the other three US primary trading indices. It is typical at intermediate-term turns for one or more of these four indices to form a divergence by failing to confirm a new high/low formed by the others. At the March low it was the Nasdaq 100 that did not trade to a lower low against its November low as the other three indices were taking out their respective November lows.

If there is any significant strength left in the rally the Russell 2000 will soon have to join the party and begin to quickly play catch-up.

If the Dow makes a new high market internals will need to expand over the lackluster levels of the past week that have characterized the rally off last week’s lows. Specifically, the breadth (NYSE advancing vs. declining issues and Nasdaq advancing vs. declining issues) and volume of the market must expand.

Key Reference Areas for the S&P are highlighted on the chart below.

Here is a link to Monday’s Daily Briefing and Strategy Analysis. For those that are interested among other things it provides KRAs for the four primary mini stock indices futures contracts.

We are proud to have partnered with Tom Alexander to continue offering you the best of breed investing/trading tools available in a market full of junk. Click here for a special Wall St. Cheat Sheet 2-week free trial of Alexander Trading’s Live Update Room, or check out Tom’s book on Market Profile, his Daily Report, Mentoring Program, and more, by clicking here to visit Alexander Trading.

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Market Profile of the SP 500 at a Critical Juncture

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Join our partner Tom Alexander for a free webinar on Market Profile. This is a preview of a comprehensive three-day webinar including a day of live trading.

<< Click here to sign up and join the webinar now >>

Tom Alexander

Topics:

What “Market Profile” is  and What it is Not - It is imperative to understand this distinction. Without, the trader is missing the value of the concept and is lowering it to the level of oscillators atomhjnd magic.

Understanding the Auction Market Process – This is the basis for the value of the concept. A thorough understanding of this concept is the critical first step in using the auction market process to develop an edge.

The Profile Graphic and the Auction Market Process – Many popular approaches to trading that are based primarily on the profile graphic are simply not valid. Some of the popular trading myths surrounding the interpretation of the profile graphic will be exposed, as well as how those myths became so popular.

The Profile Graphic – You will learn how to identify the most important areas of a profile graph.

Volume -  The difference between volume on the vertical scale and volume on the horizontal scale will be explained. Examples and practical applications will be shown.

The Importance of Understanding Time as the Key Component of Market Development -  Understanding the importance of time as a component of Market Development often helps cure trader ills such as overtrading and taking profits too soon.

The Importance of the Integration of Bar Charts in Auction Market Analysis - A complete understanding of the auction market process enables one to view bar charts with a completely different perspective that can at times offer an advantage over the typical profile graphic.

How to Read and Interpret Stock Market Internals – A simple yet profoundly powerful way to interpret market generated internal information will be discussed in detail. Examples of how and when to use Volume, Breadth and TICK, both in intraday and swing trading will be shown.

Putting the Above Together to Formulate Daytrading and Swing Trading Strategies