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Wednesday, March 21, 2007

OEX Chart Full Of Trading Patterns


This is a 5min chart of OEX. Yesterday was a trending market all day. I noticed there were so many technical analysis supporting the day's action with pockets of opportunity to trade that I wanted to highlight it here. Other than looking at trading patterns, the point I want to drive home is also NOT to chase a stock if you've missed the boat, wait for the next opportunity to surface, they are plenty!

Before I start, I must admit the chart is kind of messy. The orange lines are the weekly pivots which I draw in at the start of each new trading week. I do this for SPX as well because I like to day trade OEX options, but the SPX tends to lead action in the market before OEX. The white line is a resistance from previous day high. The rest of the lines are the daily pivot points that are auto-plotted by quotetracker.

(a) Previous day high acted as a resistance during the early part of trading. However, it was developing a higher low and forming a ascending triangle. The 1st opportunity to enter for the day would have been a break of this resistance, with about 2 point potential to next level of resistance at R1.

(b)OEX took off and then pulled back near R1. It then formed a U-shape like base. Not a perfect base because of the bearish engulfing candle, but the next candle, a bullish engulfing one together with support from MA below restore confidence. The next entry opportunity came when OEX broke R1 to the upside.

In fact you also see another U-shape base forming around 12.30-1.10pm ET. However, it failed to break the high formed at 12.30pm, which is also a weekly pivot point (orange line). A double top formation (not highlighted in chart) presented itself. OEX retraced back to R1, which is also near the 62% Fib retracement of the session high to session low. I didn't draw this because the chart already looks very messy!

(c)OEX tested R1 twice and a hammer (the 2.40pm bar with a long lower tail) candle shows that sellers are shaken off. But to be sure of double bottom formation, a safer entry would be around 643.7, when it cleared the 'hump' of the double bottom. It then went on to test the weekly pivot point again before closing $0.3 below it.


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