Morning Thoughts: Volatile Index Times

These volatile days in the US indexes seem custom-made for the short term swing trader. This morning we are in the midst of a sell off across the board in the DJIA E-mini YM, the S&P500 ES and NASDAQ NQ. I am going to focus on the DJIA E-mini contract but the same ideas are applicable for all of the E-minis.

The first thing I do when index futures are down across the board, 30 minutes prior to the open, is look at the 15-minute chart. Markets never drop in a straight line; they drop then retrace a little, then drop again. See the 15-minute chart posted below, note the decent from 12990, then a bounce around 12903 to 12920, then a continued drop.

This first retracement on the 15-minute chart is what to focus on. Any retracement over 15 YM points is significant, and the first one over 15 points in a morning decent is the key to this method. I add 3 points, round to the nearest 3 or 7, forming my long entry level for the day.

For example, this morning, I placed a BUY order for the YM at 12923 based on the theory that momentum will continue once price travels through the first significant bounce.  My market experience has shown this to work time and time again, however, it is important to keep in mind, that whipsaws are possible, resulting to losses. I analyze on a 15-minute chart and swing trade on the 3-minute for the YM. Looks like it’s going to be an exciting morning, there should be a significant bounce at one point today – if the above criteria are met, I will be going long.

Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.