Tuesday, November 3, 2015

Ira Epstein Example - Part 2

In the previous post some of the advanced considerations were able to be outlined but not illustrated by way of example. We left off that post by saying there was an 'outside day down' which is defined as a higher high, a lower low and a lower close than the previous candle. With reference to the chart below, we want to illustrate, now, some of those more advanced considerations.

From Friday's candle, the "outside day down", clearly it can be seen that the futures traded down about 6 - 7 points in the pre-market Monday, but then clearly took out the high of the outside-day down. The consideration we outlined was that if the high of an outside-day down was taken out within the next two trading sessions, it would constitute a "bear trap" - as it is likely that a group of traders were caught short at the lows.

Follow-through by bullish participants can be seen on today's candle (Tuesday) with yet higher highs, putting more pressure on the bears.

So, then, very interestingly, Monday's candle is an "outside day up", and the same rule applies but in reverse. If the low of the outside candle up is taken out in the next two trading sessions, then it would constitute a "bull trap". So far, there is no sign of that, and it can only happen tomorrow or the signal is negated. What's good for the goose is good for the gander.

There remain several things to note on this chart. First, the slow stochastic is still fully embedded. Until the %K line (the red line) crosses back down under 80, it is not likely that price will try to regain the 20-day SMA.

Additionally, the 20-day SMA has recently crossed above the 100-day SMA constituting a "bull cross", the effects of which are already being seen in higher prices. How long this will last is not certain. Sometimes the cross happens very close to the point where the market enters a corrective phase, so even though the cross has happened, it, in itself, could sound a note of caution.

Lastly, note that there are still two gaps, circled in red, on the daily chart which are not yet closed. While some traders may not pay much attention to gaps, sometimes they form 'targets' for the Smart Money.

Disclaimer: Nothing in these observations is to be taken as trading or investment advice.


  1. Thanks again Joe! That previous post was a gem and saved me some green. Really appreciate the follow up!

  2. bull trap sprung? or does it have to close below yesterday's low?

    1. Whitemare, to create a bull trap, it has to simply take our the low of Monday's low; not Tuesday's low. Hope this helps.