Never short a dull market

“Never short a dull
is an aged market cliche` for good reason. The past
several sessions have demonstrated exactly why selling attempts into tapes
bleeding upward is a futile effort at best.

S&P 500 broke out of a five-day consolidation
pattern to the upside last Thursday, on decreasing volume. This has been a
persistent pattern all year long… price action bursts higher with a volume
surge, then volume backs right off as markets continue to leak upward. It is
much more a complete absence of sellers than it is aggressive buying.

Russell 2000 futures, same situation. Volume
wanes while price action climbs straight up into the air. No sign of massive
accumulation… just fewer contracts traded finding nil resistance to the


Regardless of how or why price action does what
it will, being on the right side makes money while the wrong side loses money.
Stubborn shorts have no consolation that markets are not rising due to heavy
buying but more a lack of willing sellers. In any event, short trades are wiped
out at every turn higher.

For the past three sessions there has not been
one bonafide sell signal in our trade charts… nothing but buy signals all the
way. That said, trade signals are scant and usually come early in the day. For
the most part, price action coils straight flat before the next little push
upward moves the pile. There is little pullback or “swing” action right now,
that requires a two-way tape which has not been seen in a week. We are due,
perhaps overdue for a short-term pull back or correction at the very least.

The financial media is filled with nothing but
feel-good bullish euphoria. Perhaps they are correct. Experienced traders,
perhaps too many of them keep insisting the rally is nearing its end. We’ll see.
Market predictions are little more than educated guesswork at best. Pure
intraday traders don’t need to worry about all that stuff anyway. See the
signal, take the signal when confirmed is our game.

However, it is important to know what the general
condition of market behavior we have to work with. Seeing price action rising on
waning volume means support immediately below is pocked with thin air. Right now
the extended tapes are very susceptible to a one-day (or longer) correction that
could be violent. In the exact-same manner bear market rallies tear their way up
a chart, bull market corrections can shed several day’s worth of listless ascent
in a single plunge lower.

Do not be surprised if we see a news-driven
plunge that drops the ES nearly -30pts intraday and/or ER more than -20pts
intraday. That lone day event would not signal a long-term top, end of the rally
or anything such. What we do know for sure is that indexes are extended right
now, and they are out on a limb with flimsy ladders below. Solid footing is
quite some distance down the charts. It exists, and lower levels of support may
be visited real soon, in a hurry.

Trade To Win

Austin P

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.