Avoiding Confirmation Bias

The dictionary defines confirmation bias as, "the tendency to interpret new evidence as confirmation of one's existing beliefs or theories.". So, in other words, one uses new evidence (...prices going lower Friday...) to confirm that belief or theory, "that the market has topped". I said on Friday's post that with the minute ((v)) = ((i)), for the time being, the discussion of alternates needed to be put on hold. That is still the case. Yet, in an effort to show readers a more unbiased or neutral approach, below is the ES 8-Hr chart with just some chart notes on it.

ES Futures - 8 Hr - Chart Notes

The first note, in blue, shows the new trend line of interest with currently five touches on it, and a recent break on Friday, counted as an expanding diagonal. If the expanding diagonal retrace holds the top, it could be (i) or (a), down.

The second note is in red in the volume panel. The down (red) volume is increasing, and that is to be respected for the time being. 

The third chart note is down in the MACD indicator panel. The MACD has diverged with the local top, is declining, and the histogram bars are currently lower. This, too, is to be respected. Still the MACD has not gone below the zero line, yet, as a contrary indication. 

The fourth chart note is in brown below the 0% level of the Fibonacci ruler. In order to start a move much lower, or a diagonal wave of reasonable proportions, this level of 4,279 must be exceeded lower. (With regard to an upward diagonal, that is because a larger diagonal on this scale should typically have retrace waves that are 66 - 81%. We are nowhere near that level now.)

The fifth chart note is actually the Fibonacci ruler itself. It shows that the most recent up movement was only about 40% of the up move prior to that. That is a very odd proportion for the waves, as simply another contrary indication.  While it remains possible to count a top, even as an upward diagonal fifth wave, one could surmise that the two up waves are only a & c of an overall a,b,c of wave (i) of a contracting ending diagonal. Still, if this is only a wave (i), then the whole discussion of a diagonal is premature until or unless there is a new all-time-high for a wave (iii).

The sixth chart note is in black near the top, that the recent blue trend line can be back-tested at any time. There could be a further drop Sunday night, and then a retrace could start. Or there could be a retrace right out of the gate Sunday. This is very difficult to tell.

The seventh chart note is in orange in the lower left. Any movement below 4,126 would invalidate the idea of a continuation of the up move as a diagonal wave. So, watch the level carefully.

And, the Fibonacci eighth chart note was shown yesterday. It is the placement of the Bollinger Bands, and the 18-day SMA. Sometimes, those levels are respected enough by the trading algorithms to provide some decent temporary support and resistance.

Again, the primary purpose of this post is simply to let readers know that I try to avoid drinking the Cool-aid in either direction, and stay neutral of mindset until we see a good series of lower lows and lower highs on the daily swing line, with daily price bias below the 18-day SMA, with some price length in the waves.

This is the second post this weekend, and if you have not seen the first one, yet, you may wish to review it now.

Have a good rest of the weekend.

TraderJoe