Let me begin by saying that finding tops is tricky business. Generally when we have a run like this the ground is new. Sometimes uncharted. Extension fibs may be all you have or key levels from months or even years back. When it comes it will be at an extension fib with all likelihood and you will know it well after we are there. Things move slow and its hard to chart the road the first time around. So picking the TOPS is tough business. Working your way down however gets just a little easier. We have charted that road on the way up so we know some things. I often refer to speed bumps, ceilings, and floors. Speed-bumps refer to fibs which create minor pauses in action. The machines all know where they are and if you have the time to chart them you do too. Walls and ceilings are places where there are MAJOR fibs, volume support or stacks of fibs. I want to add another term to the mix, "Sink Holes".
I did some research to see where this thing may go to if and when we ever do get a pullback. I found some very interesting things and would be worth keeping this handy. Using volume per price tick interval. We have one hell of an air pocket and I mean virtually air between 1334.25 and 1323.75 Write that one down. That gap may fall with 1 trade when or if it comes. So where is support and where are the holes. ESH12 only.
For the purposes of this study I am using intervals that have at least 125,000 contracts traded as decent levels of support with real strong support comming with intervals which have 250,000 contracts traded. The highest tick on the board is 1308.00.
From here working our way down.
- 1360.00. We have a average size hole from here at 1362.50 to that spot with strong support for 3 bars from 1359.00-1359.50.
- 1359-1354.50 offers decent support down to the next hole which is 1354.25 to 1350.25. If 1354.25 fails it could be a short fast trip to 1350.25.
- 1349.00 offers the greatest support within that grouping from 1360.00 at 275,000 contracts traded.
- There is s slight pocket between 1349.00 and 1346.25 where major support begins, with the highest support at 1345.00. Plenty of decent support from there to 1338.00 but this is where it gets interesting.
- 1336. Keep that number close at hand. Each tick BELOW it has much less volume. And it happens fast. 1334.25 is a cliff depending the momentum at hand should we get there. In reality the cliff could start a couple of ticks higher. What created the hole? Friday February 3rd. The explosion off of the astronomical unemployment report. We never looked back.
- To give you an idea about how big that hole really is here is a sample from some of the ticks in that grouping. 1333.75 61K - 1333.50 51K - 1333.25 36K - 1333.00 25k - 1332.75 21k - 1332.50 23k - 1332.25 18k - 1332.00 13k - 1331.75 6k - 1331.50 4k - 1331.25 3k - 1331.00 6k - 1330.75 2k - 1330.50 3k - 1330.25 - 625 contracts That's not a typo. This tick may as well be invisible. Gulp. - 1330.00 2k - 1329.75 2k - 1329.50 4k - 1329.25 11k - 1329.00 6k - 1328.75 3k - 1328.50 5k - 1328.25 7k - 1328.00 7k - 1327.75 14k - 1327.50 22k - 1327.25 25k
The entire 6.75 handle range above traded less than say the single tick of 1310.25.
And so forth and so on with the first sign of decent support at 1323.75 and the first sign if stronger support at 1323.00. The point is this. Things happen. Maybe we meander down there at some point. Maybe we never do and we just keep going up. Or maybe we have an event trade. To me that's the real reason to know this. Where is the air. Maybe you use fibs, maybe you use macd or stoch. Perhaps they turn up in toward the end of a flash trade or just if we ease down there but if we get there your indicators will probably be worthless. We ease down there or we gap down to those levels and maybe you are looking at a 261 fib extension saying this thing is overdone and macd and stoch has just turned up. Bingo, Im gonna hit this one just right. So you buy thinking you just bought the bottom and by all indications you would have. It moves up 4 ticks as it certainly can at a fib that big and it looks like you just hit the jackpot. Problem being there is a sink hole right under your fib. We have a lot of those in East Tennessee. There not pretty and you cant always see them when they are covered with brush and sticks. Look in one and you may find the bones of a wild hog, or a used tire and some PBR beer cans from the 70's. They stink of rotten debris. Im being graphic so you will remember the sink hole that exists. Buy at the edge of that sink hole and you may find yourself down 10 handles before you can even write down what you just traded. It could be that fast. I have seen it. Ive been around long enough to have lost 10 handles in a flash, actually it was 13, and I was lucky, it could have been 18 had I not acted quickly.
Another theoretical. Who knows where the top is I honestly do not this thing may go 100 more handles for all I know. But if you make the assumption we have a temporary high in place which is saying a lot guess where the 38 retrace fib is for 2012 lows and highs? Near the bottom of the hole at 1327.75 but not AT the bottom. If we had a high in right now and people started buying again at the 38.2 fib odds are there is not enough meat to support that fib. The meat is 4 handles lower. Know where the hole is. Realistically we could only be 1 solid down day from that hole. Why did we drop the last 5 handles Wednesday from 1355 to 1350.25 besides the fact that we had a big fib at 1350.25? Because their was a hole between 1355 and 1350.25. There was no meat on the bone until we got to 1350.25. It was the easiest trade of the day.
We all look at charts all day long. They all look alike after time. Ticks all LOOK the same but they are not all CREATED equal and I have the sink holes written down on a sticky note on the side of my computer as well as lines on my chart with the words "sink hole" next to them so that I under no circumstances forget them. And should we approach that level I will not be long regardless of what the fibs say. And its my dream we sit on the edge long enough for me to go short for a dream trade.
Now for the good news there is an absolute PILE of major support in these key areas besides the ones mentioned earlier:
- Good support begins around the 50% retrace at 1313.00 and steadily increases to the maximum support on the board at 1308-1309. Those 4 price ticks average almost 486k in contracts and I would assume it will be a big stopping point for downward pressure assuming we ever go down.
- Below that it gets thin from 1301.75 to 1288.50 with the next real big support at 1275.50
I hope this makes you aware of a couple of those levels and at worst case you avoid loosing money there and at best case you make money there. If so I happily accept Happy Meals and Grey Goose. LOL.