Be A Sharp Shooter
How do you
trade a narrow-range day? Carefully and selectively. Despite the
narrow range, there were a handful of nice trade setups, the difference was that
it required immense concentration. While that is certainly not a revolutionary
statement, we often forget how much is played out on our screens that is not
readily visible on the charts. It reminds me of when I first got started in this
business back in 1994 and the quote platform I was using was Track Data. Those
of you who were around back then can attest to the fact that the charting was
rather limited. Support and resistance levels were determined the old fashioned
way, “tape reading.”
For those of you not familiar with
this practice, it involves watching every single trade (print) that takes place
in a stock. It is by getting intimately involved with the trades and the way the
specialist/market maker is handling the order flow that you begin to sense
turning points. While charts can certainly replace this process to some extent,
and in very volatile markets even make tape-reading obsolete, the slow narrow
markets require it. I am thankful that my trading career started when things
were a bit more primitive.
Today was a perfect example of that
approach paying off. While I did not do a substantial amount of trading, my
trades were dead on. Sharp shooting you might say. By the end of the first hour
and a half of trading I was dead tired from staring at my screen, but the labor
was worth it. It is easy for traders, myself included, to get disillusioned with
narrow markets. However, with a little bit of extra focus and work, you can
uncover what charts simply do not illustrate.
The one great trade in the afternoon
was set up off the five-minute S&P chart (see below). There was a quick move
above the 40% retracement of the high/low for the day, characterized by a rather
bearish candle pattern. The subsequent bars offered a nice downward move for
those who spotted the short setup.
As has been the case lately,
“story” stocks have been the most active and correlated with futures
movement. Dynegy
(
DYN |
Quote |
Chart |
News |
PowerRating) was a nice stock to have traded off that
pattern in the S&Ps. Forty cents was available to those who spotted the
setup.
One thing is for sure, the futures
appear tired. The S&Ps finished below their 20-period moving average, and
the Nasdaq is on the verge of breaking through it as well. While
the trend is still up (daily chart), it does appear as though the market is
quite vulnerable in here when one also considers fundamentals and the fallout
that the demise of Enron
(
ENE |
Quote |
Chart |
News |
PowerRating) surely holds.
One needs to look no
further than the way earnings and balance sheets have been kept over the last
few years to know that it is quite easy to “hide” items from even the
best forensic accountants. Ultimately, who knows how it will play out, and
frankly as traders or investors that is not our job. Just keep those thoughts on
your radar screen so you can act decisively if something does unfold. If the
indices were to fall off, the retracements indicated on the daily charts below
would be reasonable levels to potentially test.
Key
Technical Numbers
S&Ps |
Nasdaq |
1161.53 |
1623 |
1152 (confluence) | 1603 |
1141-43 | 1594 |
1137 (very key) | 1575 (confluence) |
1132 | 1552-53 (confluence) |
1120-21 (huge number) |
1530 |
1113 | 1527 |
1101 | 1506 |
1097 | 1479 |
Thought For The
Week:
“The
crowd, the world, and sometimes even the grave, step aside for the man who knows
where he is going, but pushes the aimless drifter aside.”
—
Ancient Roman saying
As
always, feel free to send me your comments and questions. See you in TradersWire.