WhipItAround.com

If you were locked into your bearish naivety and couldn’t see a couple of incredible trade set-ups, you need to brush up on your technical analysis and ability to read developing themes in the market. 

During the AM session there were two major moves that every intraday trader should have participated in.  The first trade was when the overnight low was tested and held at the open (the vertical line in the first chart below represents the 8:30 opening level).  Upon holding that level and seeing confirmation in the other indexes, a beginning small long position should have been initiated until the mkt told you to go short (breaching overnight support would indicate such action).  Once the futures were able to break and hold vwap, the position should have been increased in size.  You should have taken profits upon the formation of the double top, however, a new trade was formed shortly after– the “Bermuda Triangle” trade. 

The Bermuda Triangle trade should be executed when the price breaks out of the triangle and the move is confirmed with a retest.  I find that these triangles breakout almost every time.  You should have been on the lookout for resistance to break as crude oil was strengthening and the dollar was weakening.  These indicators also confirmed the opening trade– dollar was weak at the open while oil was strong.

I will admit that I expected the market to trade lower this week but the market doesn’t care what I think, so why let your bias prevent you from taking easy money out of the market.  Before the market opened, I identified the overnight low in the futures and commanded myself to go short if support is broken and confirmed with other indicators and go LONG if the market can’t break the overnight lows.  Immediately after the market opened, there was a firm bid in the mkt suggesting a lack of selling conviction.  

All traders should be aware of such levels and have a “what if” list of scenarios and actions planned befor the market opens.

The first chart represents the S&P mini futures (left includes the overnight session) and the second chart includes from left to right XLF, IWM, QQQQ, NYSE TICK, /CL (CRUDE OIL), and /DX (DOLLAR INDEX).

I haven’t wrote for whipitaround.com since I correctly called a near term top in the market on June 12, but I plan to update the site more frequently. The rally off the bottom of that near term sell-off has been resilient.  Dips are being bought, support levels are holding and the indexes are breaking through resistance levels.

The charts below display some of the tools I use for timing entry and exit points.  Inside Chart 1 below, the chart on the left is a 1-day chart of the e-mini S&P futures and the chart on the right is a 2-day chart of SPY (S&P ETF).  The /ES futures trade overnight and the highest level it reached was at 8:40PM CST (1,007.5).  Once the cash market opened at 8:30, ES tested its overnight high and failed.  There were clear signals that the day would turn out to be a “range day” and that the overnight high should be sold short (selling short is a bet that the market goes down).  The signals were as follows:

1. On “range days”, the market does not trade much higher or lower than the overnight highs and lows in the /ES e-mini contract (see Chart 1 below)
2. The TICK was making lower highs as the market was trending higher, creating a red flag that the market was weak (see Chart 2).
3. The rising market was not being confirmed by market leaders such as GS and AAPL.  In addition, the higher high on SPY was not confirmed in XLF and QQQQ.  Such divergence often represents a good signal that the market is running out of steam (see Chart 3).

There were also clear signals that the market was bottoming out around 1:15PM.

• Extreme low in the TICK followed by higher lows and higher highs. A good long entry point would have been when SPY popped back above the 100.4 level and held when tested (see Chart 2).
• The market found buying interest when it broke below Friday’s low of 100.4 on SPY (see Chart 1).

Chart 1

ES on left and SPY on right

Chart 2

SPY on top, TICK on bottom

Chart 3

Indicators (XLF, IWM, QQQQ, TICK, GS, AAPL, left to right)

The last chart displays Fibonacci retracements from the market’s high in Oct-2007.  We tested the 38.2% retracement level and it was rejected.  Note how the 23.6% retracement level acted as support several times.  Personally, i can care less about a Fibonacci retracement, but a lot of traders pay attention to it so it tends to be a sulf fulfilling prophecy.

Fibonacci Retracements