The August carnage in global stocks have established wide monthly channel structures that are grounds for changing volatility conditions, trade risk, and expectancy. The current NQ channel ranges 2395-1972 in August, unofficially -- there will be a lot of movement within this range in the coming months ahead, just as the 'crash' of May 2010 was a precursor for movement and consolidation for 3 months. The previous monthly lower boundary for the NQ at 2280 should stand as a resistance level, structurally. See the day chart of the NQ below for context. The 'brown' and 'blue' horizontal overlay lines represent the critical monthly and weekly structure levels and the 'black' trend line links the low prices established in August/Sept 2010.
The hourly chart below shows recent signals generated by the hourly 'pivot' structure over the past 2 weeks; all winning trades. In trending conditions, signals are generated on the basis of either a 1 or 2 day closing violation of the hourly pivot structure, depending on the implied directon of the signal (trend vs countertrend). In volatile conditions, I move into a 'faster' positioning dynamic, even despite the 'down-trending' bias in stocks, to a 1 day (intraday) violation of the hourly structure as my entry signal. The arrows below highlight the directional signals and confirm the hourly closing as a valid entry in the direction of the trade. We had a 'long' signal generated yesterday in stocks.
Despite the quantity of signalling as of late and the winning bias, I expect some of the trades to be false positives in this environment. So, money management is critical. It's important to get in early on these signals when they are confirmed and reduce position size in the counter-trend direction (up) in the early going of this macro consolidation to volatile down-trend climate - as the market adjusts abruptly and rapidly.
The ES hourly perspective is shown below:
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