What You Need To Know About Yesterday’s Spike

From my perspective, we’re in a bit of a market stalemate even on a longer-term
basis. Specifically, until the hourly and daily turn up, the wind at traders’
backs remains on the short side as it has for the last few weeks. Yet the more
oversold we become and the higher the VIX heads, reward/risk will begin to shift
to long reversals over time. So what would help clear up this muck? A reversal
on the hourly and daily INCLUDING a successful test of any reversal (i.e., first
pullback) might get me interested in long attempts.  Alternatively, a final
“flush” might set up lesser timeframe long triggers at better prices.

On the short side, keeping entries as close to downtrend supports as possible to
minimize stop cost, or considering shorting the break of recent daily supports
(see

yesterday’s column) should the 13 rejoin the larger trends on the downside.

For those that watched yesterday’s close, the frantic ES action following
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PowerRating)‘s
earnings release provided a valuable lesson. While astute folks would have
clearly been on the sidelines, as should in my view always be the case with any
expected earnings or economic news until trends emerge, there is no doubt based
on the price action that amateurs were playing with their video game flippers,
also known as a broker platform. And while my next point is likely extremely
obvious to some, I’m nevertheless inclined to make a public service announcement
to those new to E-Mini Trading. If you think you could have filled shorts or
sell longs on the price spike, think again. As the large contract never traded
about 855, the CME properly broke all ES trades above 860 which took place
between 16:00 and 16:15.

As soon as I saw the action, I immediately got on the ‘phone with a few folks
that I felt might have been tempted to trade such action, to tell them the CME
would likely bust the majority of trades given the erratic move far above
market. Heck, there was one print just south of 950 … a mere 100 points off
market price.  The worst-case scenario is to have one side of a perceived
“closed” trade broken, leaving you net long or short as you wake up the next
day, only to see a large losing position as the market moves against you.