What A Difference A Day Makes

July 12, 2001
Dave Floyd

What a
difference a day makes. Fast-forward
24 hours; add some positive news from Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating), and the markets are
poised for a big opening. Since starting
this column back in June, I have talked about a few different types of trading
days, narrow range, fundamental days and now anotherâ€¦the dreaded Gap &
Crap (G&C). These days are
a daytraderâ€™s nightmare. Why?
Because the market trades in such a way that makes it difficult to
optimize your entry points, i.e. no pullbacks to initiate longs, and of course,
no precipitous selloffs. For trending
swing traders, these are wonderful days, but us daytraders usually have limited
options other than extending out our time frame on a per-trade basis.
Donâ€™t lose hope, though, this market is still on shaky ground as far as
Iâ€™m concerned and has had a very tough time holding on to any early gains.

Looking at the opening, the
futures are already trading above the intraday support/resistance numbers I look
at, but are just shy of daily resistance at 1200.
In order to keep the bulls happy, the S&Ps need to close above 1221.
Support is seen at 1193.5. The Nasdaq
is above 1700, but like the S&Ps, the bulls need a close above 1757 in order
to keep wearing the party hats. Support
on the Nasdaq is seen at 1700 and 1677.

Yesterdayâ€™s session was
without a doubt the best session I have seen in several months. It had all the
makings:Â good volume, range and a little bit of fear thrown in, just to
make it more interesting.

There was one trade, however,
that stands out, because I got stung on it, and I want to share with you why
this trade is importantâ€¦KNOW YOUR LEVELS.

As most of you probably
guessed, I was shorting every rally all morning. I had taken 13 trades in the
first 45 minutes, and they were all paying off. But,
like every good streak, they come to an end. This
one losing trade could have been prevented. I will show you why.

The chart below is a one-minute
chart of the Dow Jones Industrials. Notice
that between 11:00 and 11:11 the Dow had a pretty good selloff, 30-40 points.
The low for that move was 10,144, which was a 60% retracement on the
daily chart. While it is true that the
move up was minimal, it was enough to stop the downward momentum in the market
and forced the hyperactive traders who were short to cover.
The better trade was to wait for the rally to fail off 10,144, then
short. Knowing that level ahead
of time, which I did not, cost me. Important levels are never broken
after a long move up or down. Levels are broken after resetting, then continuing
lower/higher. The loss on my trade
was relatively minor, .30 on 2000 shares, BUT it was avoidable.Â