This bullish pattern may be forming in the S&Ps
Stock index futures opened Tuesday’s session once again
with an air of indifference, despite lower crude oil prices. After
fading the small gap up, a test and hold of Monday’s lows forced some
short-covering that turned into a squeeze after crude oil futures plunged $2.Â
But the gains were limited with breadth going negative and taking the futures
with it just after the lunchtime lull. The fact that the equities markets
couldn’t get off their posteriors with crude oil off sharply was a good heads-up
that the path of least resistance was to to the downside. The afternoon turned
into a nice stair-step series of bear flags breaking down to new session lows
each time and hitting sell stops.
The December SP 500 futures
closed out Tuesday’s session with a loss of —15.00 points, while the YM held on
slightly better with a -116 point loss. Looking at the daily charts, both the
ES and YM posted key reversals down and blew back through moving average support
that had been broken last week as resistance. On an intraday basis, 60-minute
head & shoulder patterns broke their necklines and could be forming bullish
Butterflies. For you daily 3-Line Break followers, the ES remains short with a
Break Price of 1248.50, while the YM is also short with a Break Price of 10720.
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We’ll get a look at the ISM
non-manufacturing number at 10:00 ET, but the main focus should fall on the
weekly oil and gas numbers from the API and the Energy Dept. at 10:30 ET. Also,
keep in mind that while the talking heads like to talk about crude oil and
inflationary fears, etc. etc. etc., this is historically a weak time of year as
mutual funds do their tax-loss selling.
Are You Thinking Like a Pro
or an Amateur?
We’ve all heard the old
traders’ adage, “Cut your losses quickly, and let your profits run.” Easier
said than done, right? An amateur trader is usually thinking about how much he
can make on a trade. If the trade goes in his favor, he fears that he’ll lose
his profit and takes it right away. When a trade moves against him, he hopes
that it will come back and he swears he’ll never do it again. Sometimes, the
market helps in its own perverse way by allowing a break-even trade and further
re-enforcing an ultimately devastating habit. A professional trader is
constantly thinking how much can be lost on the trade. So, he takes the
emotions of an amateur and turns them around into a positive scenario. The pro
trader fears when the trade goes against him and cuts his losses within his risk
limits. When a trade goes in his favor, he has confidence in it and stays with
it as long as an exit signal isn’t generated or his stop is hit. And just as
importantly, he has confidence in his set-ups and knows when NOT to trade.
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Please feel free to email me with any questions
you might have, and have a great trading week!
Chris Curran
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