The theme for the past couple weeks has been to look for entries off of fading 30-minute ranges, and to look for a return to the Nasdaq 100's 1760 magnet level as a profit target. For the most part, this allowed for good profit potential.
Granted, last week was the first week of a new year, a time when volatility tends to be greater as the market becomes more liquid and traders begin to position their portfolios for a whole new set of benchmark strategies. The Santa Claus rally, January effect and window-dressing all are just ways to try to put some sense of predictability around an unpredictable animal. I prefer to stick with price-volume relationships around what is happening vs. trying to explain something that has already occurred.
When I find the markets volatile, I try to find one or two factors that tend to occur a greater percentage of the time and milk those until they no longer ring true. Right now, taking the five- and 30-minute range setups with an ultimate guide of NDX 1760 as my target level is yielding fairly good results. Ideally, the five-minute setup allows for a quick trend movement in the direction of the break of the five-minute range. A break of that range and a return to the opposite end of the range will yield stop-losses.
I like the 30-minute ranges for fade entries. That is, if the Nasdaq 100 is moving higher in the first part of the day, look for distribution pressure to push the price back to the former range. Taking an entry just above the 30-minute highs looking for a move back to 1760 had been the approach. I noted on Friday, however, that I didn't expect a push this low and that taking faster profits off the 30-minute range would probably fare better. Other than on Thursday last week, these range setups offered fairly good profits.
I plan to trade the same setups on Monday, looking for a 3-to-5-point move from the five-minute range and for a fade of the 30-minute range to yield a move back to 1760. I suspect we'll see 1760 at least once this week. Any distribution pressure near 1790-1795 should allow for a fade entry with short exposure. Any sharp spike back to 1760 should allow profit-taking. Should the index break above 1805 at any time this week, the 30-minute range setup will yield more losses than it has in the last two weeks.
P.S. Will you be there when Cramer makes his next move?
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Technical Analysis Tracking the Market's Top 1/5/2007 7:04 PM EST One is in place, but it's probably not the definitive one.
At the time of publication, Schumacher had no positions in any of the stocks mentioned in this column, although holdings can change at any time.
Chris Schumacher is a financial trader, speaker, writer, co-author of Techniques of Tape Reading and and contributor to TheStreet.com Short Advisor. He has delivered seminars throughout the U.S. and is a featured speaker at trading expos. He is a graduate of Ohio State University and has served as a guest lecturer at Ohio State University's Fisher College of Business as well as the Center for Entrepreneurship. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.
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