Friday, October 21, 2011

Channel pullbacks

On a day that starts with a large gap and starts off with a strong trend, you probably expect a decent move off a the first two legged pullback. However, when the pullback looks like a channel, its a good chance will act like just one leg and a second leg needs to be complete before the trend resumes.

The outside bar on b18 and the distance from the ema precludes any entry above b18 so the next logical setup is b21. b21 is a possible WP but since it was really one leg and not a low momentum move (i.e., not tiny / doji bars) it is probably one leg and another leg down is to be expected.

A failed 2 legged attempt to take out the high at b29 is a failure and therefore high probability short for at least two legs down.

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