July 29, 2014

Anatomy of a Trading Day in the NQ + TWTR Blows the Doors Off Earnings

Yesterday I discussed how technical analysis does work within any market that produces a price chart.  Today, I wanted to again stress that without the Elliott Wave principle I would have been in a deeper quandary as to why the markets started strong on Tuesday – then nose dived – ran back towards the highs and tumbled again into the close.  I don’t believe there were any consistent or changing news events that would of feed the markets today – not the way they were moving – but yet they did – so what was in control?

Surfer on Blue Ocean WaveYesterday I discussed the various Elliott patterns in play that gave reason to what might of seemed unreasonable market action.  So let me today take the NQ – the future on the NASDAQ-100 index.  First let me say, the NQ is as close as you can get to being in the “wild wild west” of trading.  This index takes no prisoners in fact I have often thought the NQ’s motto is shoot first ask questions later.  At least it sure feels that way when out of nowhere the future jumps or falls $15 to $20 or more.  At first glance the NQ might seem impossible to trade, but the reality is that it is a very profitable trading vehicle and can be tamed without too much trouble.  Does this mean the NQ doesn’t toss out a knuckle ball more often than not – no because it does with regularity.

So, let’s pick it up by looking at the chart after today’s trade.  I’ve updated the Elliott wave count from where we left off at yesterday’s close and have taken it up to Tuesday’s afternoons action after TWTR reported.  Expectations coming into to Tuesday’s trade were for a continuation of the intervening “B” wave rally.  This is labeled a-b-c on the hourly chart and then “B” at its completion point.  From there the next leg down begins.  Remember overall the pattern in progress off of last Thursday’s high at 3991.25 will ultimately form a corrective A-B-C decline, whereby waves A and C will be down and wave B will be an intervening rally.

elliottwaveDelving a bit deeper into Elliott structures.  Corrections are “3-wave” affairs against the trend, which will be a “5-wave” structure.  Without going into greater detail, the premise of Elliott Wave is that each of the structures forms a building block for a larger pattern in progress as these repeating structures of “5 and 3 wave patterns” form.  Thus Elliott wave pattern can be identified within a tick chart and will follow the same rules and guidelines as would be applied to a monthly chart.

Back to the NQ – Tuesday’s trade had expectations for an initial up start to the day as wave “B” unfolded.  True to form that is what we got after a somewhat lower opening which put the finishing touches on the internal “b” wave within the a-b-c “B” wave.  Check the chart below for details to follow along.  I added Fibonacci retracements to get an idea of what the limitation of wave “B” should be .  The most common retracement would be 50% of wave “A” – our example though shot all the way up to 78.6% of wave “A” reaching $3977.75 in the process.  At the time this raised the possibility that the larger pattern in progress an A-B-C  (decline-rally-decline) would take a more “flat” shape – whereby waves A, B, and C would be basically equal in length.  In any case a sudden downburst of selling announced the beginning wave the “C”- wave decline.  A rule of Elliott is that all “C” waves will ultimately for their own 5-wave structure.  Therefore if you check the chart again it appears that within wave C down we can count the internal waves 1 and 2 as complete.



Checking the updated NDX (cash) chart also included today shows the completed waves A & B with wave C now in progress.  A common relationship between waves A and C is that they are equal in length.  If this proves to be true within the current move we can now capture a first level of support to complete the larger A-B-C off the 3997.50 high (basis the cash) and that support level would be 3921.90.


I also use Fibonacci retracements to assist in working intraday support and resistance levels that would be expected to come into play if the move is being correctly interpreted and labeled.  There are relationships between waves A & B, A & C, within a 5-wave structure there are relationships between waves 1, 3, and 5 – as well as waves 2 & 4.  Used properly they provide insight as to what can be expected and also add to what is happening when there may be a lack of news or other trading information that will aid trading.


twitterlogoTWTR reported earnings on Tuesday and basically blew the doors off rallying a measly 1.75% during regular trading and adding an additional 28% after hours.  The stock zipped to $52.48 before settling back to $49.80.  TWTR reported strong revenue figures that basically doubled expectations.  The company reported Gross Margin expansion being driven by leverage from infrastructure investments.  The company also reported that the US, UK, and Japan contributed disproportionately to growth in absolute dollars.  Guidance was favorable and we’ll see what the company actually produces moving forward.  For now it might be safe to say social media will continue to rule somewhat for the near to mid future.  Advertising continues to build within social media and that has contributed strongly to the bottom line for Facebook, Twitter and others.  In any case look to TWTR for some strong volume and hopefully solid 2-way trade.  This should break up the summer doldrums somewhat as traders flock to TWTR to participate.

Steer the course and don’t compare yourself to everyone else.  You are not they and they are not you.  Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves.  Don’t be swallowed up by the chaos and false emotions swirling around.  Remember it’s just a number.

opportunityTrading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.