Here’s more reasons for a year-end rally
Wednesday’s session was a false
breakout. Price action briefly tested and/or penetrated recent highs of the
sideways range at noon, a purposely orchestrated attempt to press the indexes
thru resistance during the lowest volume period. We’ve seen quite a bit of those
antics this year… breakouts or breakdowns launching right near noon in
deliberate fashion to break technical barriers when many traders are away. In
some instances that ploy has worked: not yesterday.
The past five sessions have been low range, choppy, sideways affairs. Many say
this is bullish action as overbought markets churn off that excess without going
any lower. Perhaps. We should soon see a resolution to that hypothesis, one way
or the other. The longer price action coils sideways and frustrates traders out
of their stops, the easier it will be for price action to soar or tank
unfettered when ranges ultimately break.
Trend traders and swing traders repeatedly
chopped out of their stops eventually quit trying to trade inside the range.
More and more traders stand aside, waiting for the inevitable breakout to come.
When it does, they pile on trying to catch the pending ride. That’s much of what
happened yesterday when the noontime pop grabbed traders’ attention to the long
side. Subsequent pull backs failed to hold intraday marks, so the closing action
flopped around in scalper’s fashion.
Either the indexes will hold these micro-range
coils for the rest of our trading careers OR they will break up/down in
convincing fashion on the next (as of yet) unknown catalyst to emerge. One or
the other will happen… which do you think is more plausible? My guess is we
see a range break sooner than later. Most of the media world seem to carry the
“year-end” rally expectations. That might be right. On a short-term basis,
financial markets can and often do what the masses expect via self-fulfilling
So, I choose to ignore the contrarian view that
a rally so widely expected & predicted cannot happen, because it certainly can.
That’s how bubbles form: oil prices are expected to rise, so everyone buys that
momentum. Housing prices are expected to rise, hence everyone is a buyer. These
type of public perception moves can last longer and push farther than pundits
ever imagine. The next directional break of index action, be it up or down is
very likely to run much further than most will expect or prepare for.
As for us, we only need to remain open
to what happens next. If price action breaks the range upward, keep buying pull
backs to support. If the markets break downside, keep selling lifts into
resistance. October’s wild, wild west volatility led to November’s current death
knell of the VIX. That will not last forever, and it will probably end much
sooner than later.
Trade To Win
(Weekend Outlook trend-view section…
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.