You Can Make A Fortune Out Of 50% Alone
What a last few weeks it has been! Some trading hasn’t been easy at times but the last few days have helped make all the effort worthwhile. This month I am going to review of a couple of markets that I’ve been following: NASDAQ Index, Gold and the US Dollar Index. The big focus here is keeping it simple and watching 50% levels.
E-mini NASDAQ Index Futures
Let’s start with the NASDAQ. Last month we were looking at the big picture ranges and ABC Pressure Points, in particular a 50% Danger Zone that was coming into play. Chart 1 below is the up-to-date daily bar chart for the E-mini NASDAQ (EN-SpotV).
Chart 1 – E-mini NASDAQ (EN-SpotV) – Daily Bar Chart 50% Danger Zone Bigger Picture
click chart to enlarge
Our big picture ABC on the upside gave us:
Point A – 2480.25 on 4 June, 2012
Point B – 2871.75 on 21 September, 2012
Point C – 2492.0 on 16 November, 2012
This formation gave us an AB reference range of 391.0 points. By adding this range to our Point C (2492.0), we determined the 50% milestone (danger zone) of 2711.0 as a place to watch. At the stage we were at last month, a little daily ABC Long trade had formed just after penetrating the 2711.0 (50%) level. While I don’t think I’ve ever seen an ABC trade that has required so much patience in my entire trading career, it was not stopped out and the 2711.0 level has proved to be incredible support. I don’t know about you but that thrills me: resistance becoming support right on our 50% Danger Zone – beautiful! The market holding above this level is now very important for you bulls out there!
And so to Gold. You may recall that I’ve been watching big triple tops around the $1,800/ounce level. Ultimately, based on the charts, I’m still quite bearish about Gold. Last week another beautiful example of the power of the 50% Danger Zone got me in short and it is looking good after the past two sessions. Chart 2 is the up-to-date daily bar chart for Gold (GC-SpotV).
Chart 2 – Gold (GC-SpotV) – Daily Bar Chart 50% Levels in Play
click chart to enlarge
I’m looking for a potential big picture ABC on the downside with:
Point A – 1755.0 on 23 November, 2012
Point B – 1626.0 on 4 January, 2013
Point C – 1697.8 on 17 January, 2013
The ‘estimated Point C’ for this formation comes in at 1690.5 (halfway between 1755.0 & 1626.0). Within a reasonable margin for flexibility, I’m happy to say our big picture Point C is approximately a 50% retracement.
What’s been brilliant - but not easy to trade over the past few trading days - comes from analysis using a 50% Danger Zone on the upside with the ABC Pressure Point Tool placed over:
Point A – 1626.0 (4 Jan., ‘13)
Point B – 1697.8 (17 Jan., ‘13)
Point C – 1651.0 (28 Jan., ‘13)
Then the 50% Danger Zone for this smaller ABC formation comes in at 1686.9 (see Chart 2).
The recent high (1687.0) on our seasonal date of 5 February was a great place to watch for resistance. Since the market reached this level on Wednesday last week, I’ve been patiently and periodically watching intraday charts looking for low risk opportunities to get short. This worked out well with last night’s session finishing at 1649.0/ounce. All of this analysis is very strong on the power of the 50% level.
U.S. Dollar Index Futures
Finally, let’s take a look at the U.S. Dollar Index (DX-SpotV). This is also absolutely beautiful and is again all about 50%. Chart 3 is a daily bar chart of the U.S. Dollar Index showing the big picture of market movements since the 4 May, 2011 low (72.86). The highest point reached since that low is the 24 July, 2012 high (84.25). There is also a secondary low on 17 August, 2011 (78.97). You could argue that the bulls took charge following this low.
Chart 3 – U.S. Dollar Index (DX-SpotV) – Daily Bar Chart – Big Picture 50% Retracement Levels
click chart to enlarge
Ideally I would normally try to use only one perspective but in Chart 3 we have two major 50% retracement levels to keep in mind:
- 50% Retracement between; 72.86 to 84.25 = 75.555
- 50% Retracement between; 73.52 to 84.25 = 78.885
We now have triple - or even quadruple - bottoms in place, hovering around these 50% retracement levels, which suits me fine. One thing that got me very excited about the recent 1 February low was that it made a small ‘false break’ of the 17 October, 2012 low (78.97) and 19 December, 2012 low (79.02). In fact, I set an alert on my optionsXpress platform to let me know should the 79.02 low be broken. That alert was sitting on my platform for quite a few weeks. When the alert sounded, I jumped on to the intraday charts and managed to get long around the 79.20 level. What confirmed it for me was the fact that Time was also right – a nice Time by Degree relationship between the 4 May, 2011 low, the 1 May, 2012 low and the 1 February, 2013 low. Wouldn’t it be great if this rally repeated the run out of the 1 May, 2012 low?
As you can see, there is tremendous power and beauty in learning to appreciate the power of the 50% level. While I love the complicated Gann stuff, my greatest passion is in the power of the simple. The trick is how well you put it all together.
If you would like to follow futures markets like the ones I discuss in my articles each month, book yourself into the Online Futures Webinar this Saturday (16 February). I’m pleased with how many have registered so far as it shows that students are really interested in achieving their goals. And I’m delighted to be able to help!
Until next month...
Professional Derivatives Trader