11:45am – ES futures trade right thru the 845 pocket and gartley target mentioned last night.

2:00pm update – first signs of a divergence on intraday basis.  Start to look for wave overlap.

2:30pm – OT flip

3:00pm – first overlap series and wedge / wolfewave possibilities showing.

3:22pm – ww setup

10:35am – market immediately opens with a third push lower – wolfewave pattern.

11:30am update – pattern targets are met.  Note the lack of overnight globex futures quotes, therefore inflection points 3-4 are invisible in this chart.

2:30pm update – ES has a second lift and consolidation sequence.

5:30pm recap

The Japanese yen has shown a lot of strength, however, at this juncture a ‘pocket trade’ is asserting itself.  At a smaller scale, a head & shoulders pattern is also visible, which should take it back to a retest of the 1.06 level.  This is a short candidate in any cross trade for the next week or so.

I also realized that the currencies futures are better served by using the continuous contract symbols, since they will illustrate overnight and intraday prices ranges more clearly.  Below is an example of the yen continuous contract (J6H9 compared to above JYH9) and the improved detail.

Linda Raschke made an interesting observation about support / resistance levels.  Rather than assuming that price action will bounce off spike high / low marks, it is also good to consider ‘pockets’ or inflection points which produced a reversal.  Such is the case as the 2008 financial crisis produced a fall directly into the 2002-2003 pocket.

The dollar is now facing a similar technical level as it retests the DXY 87-88 level.  The Japanese yen is in a similar situation as it tests the 1.13 pocket on a daily basis.  In this endless cycle of competitive currency devaluation, we are now approaching a juncture where foreign exchange traders can short dollars and yen.  As far as equities are concerned, this should produce a lift as a weaker currency is deemed to be advantageous for corporations.

Currency devaluation produce effects on nominal prices.  In order to keep things equal, devaluation will produce a perceived higher price for the same goods.  In June 2001, the dollar index topped around 120, only to fall precipitously to around 72 by July 2007.  The net effect is that gasoline skyrocketed along with other commodity prices.  As the dollar strengthened last summer, the CRB (Commodity Resource Board) index headed the other direction and produced a significant top.  The same can be said for the Dow Jones Industrial Average which peaked a few months later around 14,000.

It benefits the trader to keep an eye on the foreign exchange market, since it is the means of producing stealth price adjustments.  A currency devaluation is an easy means to entice the public into believing that prices are going up, yet what is really happening is that your buying power is diminished.  Looking back at the Dow Jones in 2000, it appears as if the 11,215 peak was shattered in 2007, yet in dollar-adjusted terms, a 62% (Fibonacci fans rejoice) retrace was completed.

Session Start: Fri Oct 10 15:13:05 2008
Session Ident: #pitstock

[15:13] good afternoon
[15:14] wondering if ^Sam^ is covering today
[15:14] does Sam feel the bottom today?
[15:15] is very important .. he is the only one I really trust here
[15:16] I am covering today .. fwiw
[15:16] been laying low .. very low .. today is very KEY, however
[15:19] feels like the indicies have traded into the 2003 “pocket” as Linda describes it
[15:23] intraday higher-low put in .. use today’s intraday chart as gameplan for retest next week
[15:24] today feels like -the- KEY .. was looking for a confirm from Sam .. but can’t find him on all IRC

[15:39] am considering turning cash into $AUD (aussie) on fx slam
[15:40] trades as ADX8 .. wolfewave setting up on daily
[15:40] whoops .. ADZ8

[15:41] all indicies tagged intraday measured move off AM low spike
[15:50] SPX .. montly .. trades into the 2002-2003 “pocket” .. http://chart.nu/chart?ticker=SPX&m&y_start=2000

[16:07] looking for narrow trading range next week
[16:09] sideways .. trying to establish 2002-2003 lows as a floor .. a trading range (with lower VIX readings)
[16:10] VIX cannot go higher .. just not possible from today’s action
[16:12] dunno where this junk comes form in the data .. but this kinda bad data seems to happen at key turns .. http://chart.nu/chart?ticker=VIX&m_start=2&y_start=2008&filter=21

[16:12] today .. as far as a trading bottom .. just feels different from past weeks
[16:14] anybody figure out if PPT stepped in on open @ 9:55?

[16:48] the nasty thing is .. we are entering a presidential cyle .. which always tend to bottom in the 2nd year (2002-2003 = Shrub, 1990-1991 = Bush, 1982-1983 = Reagan) .. gonna have to wait for final say in 2010
[16:50] “rescue” the economy 2 years in .. in time for the next election cycle (can blame all the existing conditions on the previous administration)
[16:51] the “stars” also point that way .. astroecon
[16:54] a free update from 2007 .. http://www.astroecon.com/lev2/year2007opinA.htm
[17:04] At or around the 2008 election is when I expect the wave THREE of C to get going. In the context of the bigger picture this wave THREE will be oddly sharp at the starting gate with little or no sub wave two within it but as it progresses will also be constantly decelerating in a pattern that is created by forced liquidations.
[17:05] from article above .. food for thought .. nite all