Picker Or Follower — Which One Are You?
The September S&P
futures (SPU and ESU) opened Monday’s session with a -1.00 point gap
to the downside. The open was fairly quiet as the futures quickly closed the gap
and then got some follow-through selling from Friday. A report at 10 am ET that
Existing Home Sales were higher than the consensus created some brief whipsaws
that were a prelude to a very slowwwwwwwwww grind for the majority of the
session. The futures were headed for their narrowest-range day of the year
before an unimpressive late push put the contract at the overnight Globex high
and at the best levels of the session . All I can say is that on days like
Monday, it’s very important to remember that not trading is, in itself, a
position. The entire day had that “no real buyers and no real sellers” feel to
it.
The September S&P 500 futures closed Monday’s
session with a gain of +1.25 points, and finished in the top 1/3 of its daily
range. Volume in the September ES was estimated at 377,000 contracts, which was
well off Friday’s pace and well below average. On a daily basis, the contract
was able to hold its 50-day MA and its previously broken downtrend line, and
avoided confirming Friday’s reversal. On an intraday basis the ES has formed a
long 60-min bear flag that will tell the rest of the story on Tuesday. The
“pole” gives it a target in the 970 area while a reversal back up puts
resistance at Friday’s broken trendline (see chart).
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Tuesday’s session may show some signs of life
after the Durable Goods report at 8:30 am ET, with a consensus of 1.0%, andÂ
Consumer Confidence at 10 am ET with a consensus of 79.6. Â
I was reading through one of the first technical
analysis books that I received in the late 80’s, and although it’s describing
the markets then, the “theme” of it still rings true, especially in today’s
market. This is from the book “Timing the Market” by Weiss Research:
Stretched out before you are the widest
diversity of markets, with the most powerful leverage and the greatest
opportunities – or dangers – in all economic history. You are both bewildered
and fascinated by the speed of change and the plethora of technical indicators
used to track that change. However, before you can move into this new, often
unchartered territory, you come to a series of crossroads, where you must make
some basic decisions regarding how you will approach the markets in general.
At the first crossroads, you are confronted by
a stranger who asks you, “Do you want to be a picker or a follower?”
“What do you mean?”
“The pickers are all those that try to pick a
bottom or a top. They say that they have technical tools which will predict the
next market turn, help them get in before it really makes its move, and get out
before it heads back in the other direction. For lack of a better term, we call
them bottom-pickers and top-pickers. But more often than not,
they’re the ones who, in effect, get picked off…. like flies. Every time
there’s the slightest rally or correction, you can hear them shouting ‘this is
it! Now’s the time to buy (or sell).’Â Granted, there are some who do make
money, but for the most part they suffer from what we call ICGAL syndrome – that
die-hard belief that It Can’t Go Any Lower.”
The stranger points towards the horizon. “See
over there. That’s where you’ll find the ceremonial burial ground of the
thousands of would-be traders who literally got killed trying to pick ‘the
bottom’ or ‘the top.'”
“The followers use a somewhat more
conservative approach. Rather than trying to catch the entire move, from top to
bottom, their brand of analysis is designed to give confirmation that the
market is indeed trending in one direction or another. Then, and only, then do
they jump on board. They are the trend followers.”
Just some food for thought.
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Please feel free to email me with any questions
you might have, and good luck with your trading on Tuesday!
P.S. Spend 3 days with me
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