E-Minis: One Limitation
Futures Outlook
Pre-market futures are poised to open slightly above Friday’s close. Crude
oil priced in the $61 per barrel and all other outside factors seem to have zero
influence on stock market buyers. Every recent dip has been ramped, every
attempt to sell off in the face of bearish news is thwarted.
Markets certainly move up & down in
predictable, rhythmic fashion… recent straight-up action will be no exception.
There are dips and tops in our future this week, but the trend right now is
decidedly upward.
The S&P 500 hit a double top from Thursday
afternoon-Friday morning and sold off from there.
It bounced near 1240, retraced roughly 50% of the
initial drop and slid lower into the afternoon. Another modest range day of less
than 12 points total…it may be a while before we see intraday ranges average
20+ points again as we did with VIX levels in the mid 20s. The gradual ebb in
market volatility to new decade lows will not last forever, and indexes will
eventually move far differently than now.
Monday’s price action is likely to fail on
first attempts of breaking 1241. If that mark gives way, we can expect buyers to
step in above 1244 with new recent highs probable afterward. Otherwise, a drop
below 1238 would be bearish and sell-stop orders would cascade like dominos for
awhile.
Nasdaq 100 likewise traded inside a 30pt total
range…definitely not the stuff wild markets are made of. Playing the downside
worked, price action made its obligatory 50% bounce from initial highs to lows
and settled sideways from there.
1623 breached is an invitation to momentum
players on the buy side. Before that happens, 1617 area must give way first. A
drop below 1609 trips out clustered sell stops near there and retests 1600 level
or below posthaste past there.
Dow Industrial futures have initial overhead
resistance near 10685 and stiffer ceiling at Friday’s lower-high failure near
10710. Down near 10630 is where sell stops are clustered for new shorts and
nervous longs alike. The 80-pt range from green line to blue is where price
action likely rolls sideways, and breakouts either way are probable to begin –
continue trend moves up or down.
Russell 2000 futures keep marching to the beat
of northbound drummers. Like the S&P Midcap 400 futures, “there ain’t no
stopping us now” seems to be the melody here. While big caps and stodgy Nazz 100
indexes were settling lower to end this week, small caps held up relatively
higher. New all-time highs are posted almost every day, and ER continues to hold
within a few points of that recent mark.
The 680 level should hold any test if further
upside potential exists. Buy stops are clustered near 685, and sell stops
congregate near 676. The nine-point range between 676 and 685 is likely to roll
price action, i.e. bounce from each mark until one is broken.
Leveling With You
The price levels posted in charts above are compiled from a number of
different measurements. Over the course of time we will see these varying levels
magnetize = repel price action consistently. We can use them to our advantage,
whether it be pure intraday trading around the values or pure swing trade
entries outside of resistance and support. Price levels listed are considered
broken or breached only after completed bar/candle close on the opposite side.
Twice The Power
My E-mini symbols of preference to trade are the Russell 2000 and S&P 400
Midcap, in that order. At the present time I do not trade any of the others,
although I have for years on end in the past. ER and MD indexes give roughly
2-to-1 profit potential with same margin requirements as ES, NQ and YM. It is
far easier to pick off +$400 from the midst of a 10pt ER session range than it
is to accomplish the same from a 10pt ES session range. Simple math, clear
choice.
By the same token, levels of sideways “noise”
inside the ER-MD are no greater than other less volatile E-minis. A -$150
initial stop targeting +$500 potential profit in the ER holds with equal success
as -$150 stop in the ES-NQ-YM, but with twice the average upside potential.
Until otherwise noted in here (and for anyone who cares) I only trade the
ER and MD in real time myself.
Bigger Is Better
Trading the smaller, more dynamic E-mini symbols has one limitation:
liquidity. Try to enter a 50-lot on the mark, and your price fills confirmed may
be quite the surprise indeed! That may be a problem for scalpers, but not a
problem for me. My style of intraday trading does not involve a dozen (or more)
trade turns and profits of an index point.
There is nothing wrong with any approach to
trading that results in net profits realized over time. I’ll be the very first
to say that. If what you currently do is working for satisfactory or above
results, I sure don’t mean to disturb you. By all means, keep doing what you’re
doing!
For me, the scalp trader’s game has never been
one I played well. Twelve trade turns and a cloud of dust have too often been
the actual cash results. My own style = approach of targeting bigger intraday
swings within the overall range is where my account balances trend upward.
Trying to scalp a few points here and there demands the utmost precision and
skill of execution on entries and exits. There is very little room for error.
Likewise, taking fewer intraday trades while targeting larger potential gains is
a much more forgiving approach.
Let me ask you this: how many times have you
ever sold near session highs or bought near session lows, scalped out of the
position for paltry gains and fought your way thru several more trades for net
results in the end far less than holding the initial position would have
yielded?
The answer to that question is something to
think about in depth. Roughly half of the trading sessions each month are
directional, i.e. price action closes considerably higher or lower than where it
opened. Get good at taking out chunks of profit from the middle of these moves,
and the relaxed style of intraday trading is one you may enjoy most.
Trade To
Win
Austin P
(free pivot point calculator, much more inside)
Austin Passamonte is a full-time professional
trader who specializes in E-mini stock index futures, equity options and
commodity markets.
Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.