Thursday, July 10, 2008

Tracking the pivots

If you've followed me for a while you know I use the pivots as a basic building block for my daytrading. Hairy tops and bottoms at the pivots are surefire tells that a break is coming and wide range bars that blow through pivot lines (especially on unusual volume) are also great tells of coming strength or weakness.
I've also mentioned the value of watching the NYAD (NYSE advance-decline line) and the IWM for pivot signal confirmation and yesterday's action was a fine example of why.
I often gauge the probability of moves by price proximity to the pivots, so when I see a trend suggested by the 10&20 MAs or the parabolics, I put on my risk management goggles and look for the nearest pivot.
Without getting into the details of yesterday's technical action, the moves around the pivots were clearly sloppy and not the typical clean turns on the pivots that occur about 70% of the time. The IWM displayed a similar ambiguous pivot pattern for the first few hours, perhaps reflecting the wariness of traders who listened to all the talking heads the Monday night, saying the worst was over (at least temporarily) and a good rally was beginning. Don Worden of Telechart (whom I greatly repsect) offered such a bullish opinion, and although I was tempted to cough up a hair ball when I read his market prognosis, I held off. (I held off any long positions also).
What yesterday's chart said to me by failing to get to R1, was that the odds of the rally following through were extremely limited.Where the notion of a failing rally really became apparent was by looking at the NYAD, which did make it to PP at the open and then again 2 hours later before beginning a slow, gradual descent for the remainder of the day, closing relatively close to S1, with a swoon in the last 25 minutes. With the 10&20 MAs crossing down at 12:30, prospects for the bulls became very dim.

Even when the Qs don't hit the pivots precisely, the IWM and NYAD pivots provide a great visual tool to help you define probable turning points as well as impending failures of support and resistance levels. If nothing else, tracking the NYAD & IWM pivots should keep you on the right side of the trend and help avoid premature entries and exits in the Qs, which tends to be more "jumpy" than either the IWM or NYAD.

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