This pattern has an edge after 1:00 PM EST

Thursday’s session was another wild one
in the end.
What started as a somewhat drifty morning ebbed lower but bounced
around off the 38% retrace pull back on Wednesday’s afternoon ramp. Various
outside catalysts conspired to press prices lower, not the least of which was
heavy selling in oil stocks led by Chevron.

That downward pressure inflated October SPX and
OEX put option contracts while deflating call options at the same time. Option
traders off-setting these positions along with October equity options suddenly
flying or tanking in value greased the skids for S&P’s dramatic slide.

From highs to lows today, slightly OTM index
options offered more than +1,000% gains intraday. When that type of inflation
happens to traders resigned to letting position expire worthless or buy back for
a pittance, it changes everything inside that day. What effect today’s reversal
of Wednesday’s option-fueled rally remains to be seen next week. We can say for
sure that anything destined to happen on Friday is beyond our wildest guess.
These markets are best handled on a read & react basis for intraday players.

We’ll forego trying to pontificate what may/may
not happen today and invest this time together in educational fashion instead.
Thursday’s ES chart offered up a “sure-thing” trade that we all must remain ever
vigilant for.

ES (+$50 per index point)

Several Ships Sailing

The S&P 500 gave sell signals via the method I use near 1198 level this
morning. Once it bumped & ground lower to 1192 daily pivot, the midday bias went

Past 1:00pm EST, a false breakout to the upside
quickly reversed and sent the trade chart bearish again. We marked ES 1192.50 as
a sell signal trigger inside our educational room, and that trade confirmed
itself before 2:00pm EST.

After 2:00pm tolled, a second sell signal on
bar close below the pivot point near 1191+ was confirmed. That type of weakness
into the afternoon following lower high failures all day is tradable.

The kicker came when ES set up a “sure-thing”
trade we seldom see any more. Price action coiled into a perfect little wedge
best visible on 5min or smaller charts. The downside break of that continuation
pattern should be money in the bank far more often than not. Those flags used to
form all the time… it’s been so long since I last saw one, it took some
rubbing of the eyes to ensure I wasn’t hallucinating!

In all honesty, I hadn’t planned on trading the
afternoon any further. That one single pattern compelled me to boot up the
broker platform and hit “sell” at 1188 as price action bumped the upper
trendline and other measures of resistance not shown. It was diver down from
there, offering up to +13pts potential profit in this option-driven landslide.

“Sure Thing” Trades

Perhaps there is no such thing as a sure thing in trading, but these
specific setups are close. When you see price action coiling tight or flagging
into a little wedge past 1:00pm EST in the market, something big is brewing.
Taking the breakouts after they happen or before using methods that identify the
edge have excellent risk-reward ratios.

Looking at that flag on a two minute or three
minute chart (not shown) really pops it off the screen at us. If you didn’t take
this one short for any reason, keep these high-odds patterns in mind for next
time. You’ll sure be glad you did.


Current volatility is likely to last for weeks, months and maybe
years ahead to come. Certainly not 25pt ES sessions, although we’d sure take
them on a regular basis. I do expect a plethora of 10+ point ES and ER sessions
in our future, and it only takes normal market action and effective trade
methods to create favorable results over time.

Trade To Win

Austin P

(free pivot point calculator, much more inside)

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.