Let’s Go Through Thursday’s Trade Sequence

Case in point: The SPX closes at 998.68, having moved a rather non-stellar
six points over the past week, with significant emphasis on “net” as
some daily travel ranges have made the Boston Marathon look like a backyard sack
race. On the technology front, the Nasdaq closes at 1730.70 — up 22 for the
week — yet the real story may be today’s 45 point bounce off early
intraday lows which brought the Nasdaq back to Thursday’s pre-bungee drop
levels.

Many of you have commented over the years that you’ve find discussions about
actual trade sequences — both good and bad — helpful from an educational
perspective. So it’s in that spirit that I thought it might be helpful to review
what was going through my mind during Thursday afternoon’s Wile E. Coyote drop
as well as comment on recent summer trade rhythms.

First, those that have followed me over the years hopefully know that I want to
avoid the all-too-common “well, it was simple to short the consolidation
break and hold on for the ride” chart hindsight baloney like the plague,
which we’ll continue to try to place in the trash can right next to “the ’86
Mets had the Series in the bag all the way”.  Oh where have you gone Bill
Buckner?

Anyway, there’s no question that I was on alert for a possible SPY short of the
non-scalp variety (defined at this end as anything longer than a 5 minute hold)
in light of a number of morning and midday considerations that included
weakening ES price vs. momentum divergences, a lagging and descending intraday
triangle on the Nasdaq, new lows on the VIX.X, etc., etc. And given the extent
of the confirming backdrops, I actually wanted to put some size on.

My pre-determined premise was a post-noon confirmed 13-minute downtrend where I
would consider a 5MA cross and a first pullback. Such an entry would be
analogous to Option D on the post-divergence cross example in the

E-Mini video and
course.
Why the focus on a first pullback?  Simple — recent summer rhythms which have
been characterized by a mix of lame whipsaw chop followed by rockets or anvil
drops. Or said another way, a market that has been alternating between
one-minute and two-stage thirteen-minute trends as the market continues to mark
time on the longer term charts.

Yet a funny thing happened in the batter’s bat. The pullback “pitch” I wanted
never materialized as the bottom dropped out of the markets with barely a
pullback. The best comparison I can make is that I felt the pitcher had to throw
strikes, and I was focused on looking for a change-up over the inner half of the
plate that I could drive, and instead was treated to Pedro-like heat over the
outer half.

Sure, the pitches were strikes — I got that part right –  but they weren’t
what I wanted.  And while I fouled off a few pitches in terms of scalping some
bite-size ES shorts on the shallow pullbacks, I was left looking foolish with my
13-minute SPY bat on my shoulder as three fast balls sailed over the plate.
(Yes the 3:20pm “overbought on resistance” setup on the three was there and it
could be considered a quasi-13-minute pullback, yet the immediate trend was
getting a bit long in the tooth from a risk/reward perspective given recent
summer rhythms).

OK, these are admittedly corny comparisons — yet hopefully extremely relevant.
Want a deeper 13-minute pullback if that’s your “pitch”.  Let the others go. 
And while I found myself staring at Thursday’s box score (chart) long after the
game had ended with a bit of frustration given the 15 point ES plunge, I must
say the more I looked at it, the more comfortable I grew as the pitch — my
personal pitch based on comfort level and frame of mind at the time — was never
thrown.  Consolidation breaks aren’t my thing, plus the summer rhythm has made
picking buy/sell stops — which would work under many market conditions —
subject to numerous whipsaws given the thin market.  Plus, I stink at hitting
fastballs when I’m looking for something else, and that’s putting it nicely.

Fast forward the tape to Friday where both pre- and post-open action provided
moves toward both the 13-minute 15MA downtrend support and its hourly
sibling in terms of five-to-six point pullbacks off overnight lows — which in
turn were followed by an eventual ten point ES move south (close to a buck on
the SPYs), and the change in pitchers was highly refreshing at this end.  For
today’s starting pitcher thankfully threw change-ups over the inner half of the
plate.

For those who drove Thursday’s “pitch” into the seats, nice going and I tip my
cap to you.  I also tip my humble cap to Thursday’s market as there’s no doubt
that the pitcher bested this batter on that one.  And yes, this morning’s short
could very well have stopped, lest we fall into the famous “profitable trade
= trader is genius” trap that ignores objective probability.

Yet perhaps the doubleheader sequence is a good reminder that opportunities last
longer than a single at-bat, game, or even an entire season, and as long as we
maintain our capital and confidence, we’ll get another shot with a pitch we can
drive.  And if we don’t expect and accept whiffing, hitting, taking pitches, and
breaking an occasional bat as part of the game — and I’ve broken my share over
the years — we won’t last in the “Great Game” for more than a few fleeting
moments.