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Weekly Reversal Report for 7/6/2015 – ASHR Redux – We Got Part of That Countertrend Rally, And Then….

David Simonds Cartoon for Guardian Article referenced in this blog post.

 

Once again, the Friday screens once again revealed more slop, but moreover, the Greek referendum apparently goes strongly against accepting a bailout and more austerity to reduce their debts. To make things even more exciting, the EURUSD opened down around 100 pips (about a penny),  NQU15 (E-mini Nasdaq 100 futures September contract) dropped 39 points, and ESU15 opened about 21 points lower, just to name a few. Instead of trying to pick a bottom that might not yet be one, I think I am gong to continue the discussion that I began last week on ASHR (which you can see here). I am not going to make brownie points trying to be the blind squirrel finding the nut in the whiteout blizzard. There will be plenty of time to find set ups soon enough. Its time for me to do some more”educatin’ ” on pattern analysis.

One thing I think most new traders should do is to stand down unless you see set ups that you are both used to and that fit your trading plan. This overnight shakedown could be the beginning of something larger, or just another overreaction. Your principle goal as a trader or investor is to protect your capital as much as you can. You pay for stupid moves. You GET paid by dong research and testing your ideas before implementing them in the financial markets. You can be successful, but you have to work at it and remain persistent.

We did, as typical Fibonacci pattern theory would dictate, see a short-term rally into mid-week on ASHR. However, as the week progressed, we began to see news out of the Peoples Republic of China (PRC) about the government there trying to put a floor under prices as novice investors began to put more money (and margin money) into the Shanghai Stock Exchange. Even though this seems at first blush an overreaction to an overheated market, one would have to think that the Communist Party there is worried about further damage to consumer confidence and spending if savings are blown up in a market meltdown.  Add to that noise the rumor of both domestic (Chinese) and international short selling  and you have the recipe for a rumbling casino (something we have seen several times in this stock index over the last 20 to 25 years). Then the cherry on top of the market panic sundae was the IPO freeze announced Saturday. When governments start talking up “market stabilization funds”, you know some powerful politicians are worried about the outcome, and short selles, like sharks, smell the blood in the water.

What does the daily chart seem to indicate?  Take a look at this chart. Well, at first glance, it now shows 3 Fibonacci confluence points at the new low that was set on Friday July 2, 2015, seeming to want to more strongly confirm a near term bottom. If that is true, with some minor adjustments, you get something very similar to what I posted last week.

So I should go right out and plow everything I have in it, right? Let Darth Vader answer that question. NO!

Why would I say that? First, the news items I quoted seem to indicate that the sellers are lining up in greater numbers as the government leadership hits the panic button. The other issue is the confidence factor that my neural net model created using Ward Systems NeuroShell Day Trader Professional software. The confidence level of a buy has a profit factor of only 1.3/1 and a win percentage of 75%, which is slightly lower than is normally acceptable. The reason for that is that average losses in that model are nearly twice as large as the average wins despite the win percentages.  Unless we can see a countertrend reversal to the levels in that chart I generated last week, the optimal time to short has passed for now. The June 25 lower high (marked LH) was the best place to have shorted. 

I will continue to track the model and report on it for ASHR as the days move ahead. There is a lot of uncertainty and hubris being tossed around in world financial markets at present. I would prefer to wait for the best set-ups, manage my risk, and be prepared for the next opportunity. There will always be one out there.  We are probably overdue for some kind of correction in equity prices in the USA and China, but we will simply have to wait our turn. It always comes around.

The basic lighting in the studio works, and I will be testing the camera beginning tomorrow. The e-mail newsletter will be revving up again shortly, so if you want to sign up, head up the box on the right hand column of this blog post and join.  The survey will be coming soon also, which will determine the future direction of this blog.

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{ 2 comments… add one }

  • Victor Berry July 29, 2015, 7:13 pm

    Since ASHR bounced off it’s long term 38.2% support (approximately $34.30), does your analysis indicate that a 123.4% target (approximately $63.00) is possible in the future?

  • David Buffalo August 9, 2015, 5:12 pm

    Victor:

    I have been working on projects to get this thing ready for video and some content changes, and somehow missed this comment. Clearly, this comment will seem like 20/20 hindsight now, but until China gets it’s regulatory house in order instead of reacting to investor panic by trying to manpulate how shares are bought and sold, it might be awhile before that happens. Sometime this week I will comment on what an outbound upside target would be if things held firm around the recent lows. What you indicate above is certainly possible in a longer-term time frame, but the PRC needs to clean up issues with margin, earnings reports, GDP and growth reporting, and its own securities laws before we can be a little more confident about that future rally (that probably will come). China is not going away, but the fear factor is high at the moment, and the lows may get challenged again before cooler heads prevail. (You might even say some of the same about crude oil, but there are a lot of players with regional and global agendas working those prices). I apologize for the delay. I will have a video explaining what I may do in the future this evening some time.

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