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Wednesday, August 26, 2015

Key Support levels and Breakdown targets

 They say; "It's better to teach a man how to fish than give him a fish", but finding key support levels is an art, and I don't teach art.  


Earlier this year I Tweeted a key support level and showed a long term chart view of the NASDAQ $COMPQ and told folks to make note of it. I'd bet a nickel that not one single person wrote that target down, so I'm going to give it to you again. The number is 4250, and this key support level is determined by the pink line on the chart below. When you see a pink line on 1 of my charts with a circle on it, this is what it represents.

When the market looks like it's breaking down, and all your short term charts are broken, it's time to STOP panicking and time to start looking at your long term charts. If these long term support levels start to break down on high volume, you will see disciplined veteran traders cut their losses. This is also where shorts start working in a big way, because the next support level tends to be a lot lower than the previous one, and in some cases hard to find. This is where decision making is removed from the equation. It's a case of, "shoot first and ask questions later".

Veteran trader Dale Pinkert alluded to this phenomenon (@ 5 minutes) in my April 24, 2015 interview FXStreet.com, but I was nervous, and the term he used was one I was unfamiliar with, and I'm afraid that important point was glanced over too quickly. I have been wanting to touch on it again ever since, and this turns out to be the perfect time!

I've created a fresh chart in order to make it easier to see.



There are also 2 more important indicators apparent on the above chart:

1. Volume is relatively low. Granted the month isn't over but volume doesn't support a market breakdown, and especially at this time of year. Markets are cyclical: kids are back in school; Money Managers are returning from summer vacation and that liquidity is about to return to this market. I also suspect this 3 day market "Rout", was the result of a few clever hedge funds conspiring to take the market down, or shake the weak hands. The fact that the $VIX was driven above a widely accepted bearish signal (20+), precisely on OPEX, supports that view.

2.  The Force index has not rolled over. Again this points to a thinly traded sell-off in which a basket of market movers - several of which I pointed out yesterday (the $MERK and other) were taken down suddenly, and what better time for a bear raid than just before the bulls return from their summer break.

As far as finding these support levels on your own:

1. This only comes with expedience and it took me a few years to really get it.

3. Look for a rising line that has worked in the past. Clone that line, and then apply it to current levels. Like I said in the beginning of this article this is an art.

3. Experiment with different time lines, and chart views, until you find the one that is working.


Take Care, Anthony Allyn











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