The Seven Trading Samurai

“Crimson flames tied through my ears, rollin’ high and mighty traps

Pounced with fire on flaming roads using ideas as my maps

‘We’ll meet on edges, soon.’ Said I, proud ‘neath heated brow

Ah, but I was so much older then, I’m younger than that now.” – Bob Dylan, My Back Pages

“People think that technical analysis is unreliable because they tend to pick the one thing they are comfortable with. The problem is that no single technical approach works all the time. You have to know when to use each method.” – Mark Weinstein, Market Wizards

“Use all the tools, all the time.” – W.D. Gann

Between using one technical tool and ‘swinging from one limb’ and using all the tools as Gann said, in my experience there is a happy medium.

In 35 years of trading, I have learned that the best strategy is to have a quiver with a handful of tools.

One or two is not enough and following Gann’s approach using “all the tools all the time” doesn’t work for most because you will be overwhelmed and become like a deer in the market’s headlights.

In my experience, in trading, the more you try to see the less you see.

Allow me to explain. This is true on two levels.

The more stocks you try to ‘see,’ to follow, means you will end up missing the forest for the trees. If you try to stalk too many prey, they will all get away.

Likewise, the more techniques (technicals) you use, the more watered down your analysis will be.

For me, the Seven Trading Samurai are:

1) Trendlines and trend channels

2) The 20 day moving average… the Holy Grail, and the 50 day line

3) The Wheels of Time… the Daily, Weekly and Monthly Swing Charts which define the Line of Least Resistance.

4) Pivot Points — prior breakout points and failure points

5) Gaps. Gaps represent a sense of urgency to buy or sell.

6) Distribution Days and Accumulation Days defined by a move of 20 basis points more than the prior session on increased volume

7) Patterns. I have created an array of patterns, many of which are described in my Hit & Run books. These include:

Gilligan

Soup Nazi

Expansion Pivot

Keyser Soze

Lizard

Triangle Pendulum

180

These are my ‘edges,’ but they don’t mean anything without The One Sacrosanct Rule: Follow Through.

Follow Through is key.

Setups are just setups without it.

Speculation is just conjecture without it.

Let’s take a look at how to put this into practice this week within the context of the SPX.

On Tuesday, March 31, the SPX formed a Holy Grail sell signal.

This is a test of the 20 day moving average — in this case, the declining 20 day m.a.

Members took a long position in TZA, a short bet on the Russell 2000 index going into the bell.

The market gapped down big league the next day, allowing us to back a $6.15 gain or 10% overnight on the trade (point A on the above chart).

While the SPX could have, some would say should have, followed through to the downside to test the March 23 lows, it did not.

Potentially a sign of a different agenda.

By hook or crook, that different agenda revealed itself this Monday.

In a change of character, instead of the usual Monday gap downs in March, this week kicked off with a massive gap to the topside.

Not all gaps are created equal. Monday’s gap cleared the April 1 down gap perpetuating a strong trend day up.

In so doing, the SPX turned the important 3 Week Chart up for the first time since the Crash of 2020.

The behavior next week will be important following this turn up of the 3 Week Chart.

It may tell us if we are dealing with the aftermath of the 1987 crash or the 1929 crash.

Monday’s report is going to walk through the two completely diverse scenarios, the two outcomes of which could make you a fortune if you are on the right side.

But back to this week's 10 min SPX:

This Tuesday, the SPX gapped up again. Prior to the open we tweeted subscribers, “expect the unexpected here, the structure suggests we could have a big reversal after a big up. It could take until tomorrow or occur today.”

One of the factors in my thinking was that the index was set to test the top of a short-term trend channel (as shown on the above 10 min SPX).

Tuesday’s open marked a high. The SPX left a distribution day.

However, IT DIDN'T FOLLOW THROUGH ON THE DOWNSIDE on Wednesday.

In hindsight, all Tuesday’s reversal did was pullback to a textbook gapfill.

This set up Wednesday’s rally to a test of the week’s high.

Now, there is potential to our initial target for the week in the 2790 region… if we see follow through today following some possible Bleedback into Wednesday’s range.

The important thing is to notice the power of the short-term trend channels combined with gaps to voice the message of the market.

Technical analysis is vital if you want to make speculation a profitable profession.

Conclusion. 2775 to 2790 represents meaningful resistance. Breakage below 2650 region suggests a pullback into the 2550 region.

As long as the SPX can hold above 2500 it is in a stronger position than it has been.

Below 2500 opens the path to trade below the 2192 March 23 low.