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Point & Go Figure: AMD, VLO


What's an ideal setup?


Market Overview:

The short-term conditions continue to deteriorate from high-risk levels. The Percent Above 50-day Moving Average Indicators for both the NYSE and Nasdaq Composite are negative, having formed yet another lower high on their respective charts and exceeded previous bottoms.

The High-Low Index for the Nasdaq Composite has now joined the NYSE as negative. Unlike the Percent Above 50-day Moving Average Indicators, the High-Lows have yet to exceed prior bottoms, but are very close to doing so, which would further raise the probabilities of a move lower of significant degree.

Meanwhile, the longer-term bullish percent Indices for the NYSE and Nasdaq Composite are both still in Xs, but the larger pattern of lower highs remains intact. Both lost ground yesterday and the NYSE Bullish Percent is within 1.3% of a reversal to negative, according to data from Investor's Intelligence.

Yesterday afternoon, following a Buzz post where I noted a number of PnF breakdowns, Adam Warner pinged me and suggested that under such "sky is falling" conditions, perhaps one could find a trade by taking the opposite side of those breakdowns?

That is a great question. Very often it seems as if PnF breakdowns and breakouts are quickly followed by moves in the opposite direction! Does that make PnF breaks contrary indicators? Sadly, no. "Sadly," because if the breaks were always "wrong" you could print money by simply doing the opposite. Rather, the way I view PnF charts are as contextual pictures of the dynamic battle between supply and demand. A PnF buy or sell signal simply provides a context for evaluating future moves. For example, if a stock on a PnF sell signal moves higher, that move higher can provide an opportunity to "fade" the move.

If PnF provides a context for market moves, then DeMark indicators provide a tool for pinpointing exhaustion areas. For me, an example of an ideal short situation is a DeMark upside exhaustion "sell" signal for something that is on a PnF sell signal. Putting those pieces together, the PnF context suggests supply is in control and the DeMark sell signal suggests a counter-trend move has ended. An example of an ideal buy setup is a DeMark "buy" signal for something that is on a PnF buy signal.

Charts of Interest:
Advanced Micro Devices (AMD)
(Chart courtesy
broke a double bottom at 38, but this initiates a bullish shakeout pattern in the PnF methodology... do DeMark indicators agree?

Advanced Micro Devices (AMD)
(Chart courtesy Thomson Financial)
So far, no buy setup for TD-Sequential or TD-Combo on a daily chart. I prefer to at least see a buy setup before pursuing a PnF shakeout pattern.

Valero Energy Corp (VLO)
(Chart courtesy

Valero Energy Corp (VLO)
(Chart courtesy Thomson Financial)
VLO completed TD-Sequential and TD-Combo buy setups, but no 13 price completions and new setup counts have begun as well.

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No positions in stocks mentioned.

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