Where might the pullback end? These 3 charts show you

Tuesday’s session was one where the
S&Ps refused to sell off early and persisted in testing venerable upside
Soon after 1:00pm EST the sell programs kicked in and promptly kicked
out a cascade of sell stops dominoes down the charts. Will we see morning
continuation of a previous afternoon trend move for today?

ES (+$50 per index point)

S&P 500 bobbed around the 1240 level of
resistance we (and numerous others) pointed out in recent days before falling
out of bed from there. Price action got shoved straight down a rabbit hole
without a pause or bounce to the 1232 level. That became price magnet at the
close and also nears today’s daily pivot point value. Look for 1232 and possibly
1236 to be two sticking points if not solid resistance before further downside

ER (+$100 per index point)

Russell 2000 also surged lower as it failed to
breach Monday highs on two attempts. The subsequent watershed left traders in
chase phase to catch any downside before the first bounce & drop to closing bell

The 660 and 663 levels are most pertinent
today. If tested this session at all, 663ish is likely to mark the highs before
another drop to lower lows from there.

This Session:

ES (+$50 per index point)

The 1218 level marks several layers of support,
some shown and some not shown in this chart. We can expect to see this magnet
tested on any further downside push, quite possibly today. If that mark fails to
hold the much anticipated year-end rally, bottom of channel near 1204 will be
hit post-haste from there.

ER (+$100 per index point)

652.60 and then 642 are next magnets in the ER
chart. Bottom of recent congestion and 38% of recent swing converge, but 642ish
is much more likely to hit = hold if ES works down to 1218 in similar fashion.

Professional Perspective

“If I must boast, I would rather boast about the things that show how
weak I am”
(2 Corinthians 11:30)

Most traders have the natural human mindset of
efficiency and maximization when it comes to our profession. What do I mean by
that? It’s simple: humans are geared towards being efficient in exchange of time
for reward. In order to be efficient, we are taught to maximize expected results
in a minimum amount of time expended in exchange.

To put that in trader speak, we often measure
our success by how many points = profits are captured each day relative to
maximum possible. Traders are human and humans are geared to desire every dollar
of profit available in a trade. We all want to buy the low tick and sell the
high tick or vice-versa. We all naturally lament exiting too soon or too late…
giving up some amount of potential profit in the process.

It is a learned trait to accept being partially
successful. It is a practiced skill to emotionally accept watching most of a
day’s given potential pass by while being content to have enjoyed some amount of

For example, we caught +5pts shorting the
Russell Tuesday morning. The S&P gave up +2pts downside and -2pts downside
before it popped a tad in the late morning. I passed up a buy signal in the ES
just above 1327 that went to 1341 highs because the ER was lagging, holding
bearish all the way.

When the tapes finally broke in early
afternoon, I had one brief instant to decide on a momentum short in the ER at
664.00 and opted to wait for a clearer entry. Wrong decision… ER went tank
city off that fleeting short signal from there to 658+ before the initial bounce
that would have made another +5pts downside profit for the session.

As that trade blew away, the ES offered a
similar momentum short near 1238 in rather aggressive fashion. I hit that one
and tried to add more contracts along the way, but never had the chance as price
action dropped without pause. Covered the trade for +6pts at 1232 and called it
a day.

I then watched from the sideline as secondary,
aggressive short signals flashed at ES 1232 and ER 659 that each went +3pts in
favor to session lows soon afterward. The trades were there, I opted to sit
tight on the day’s modest gains and stuck by that decision with little remorse.


I’ll never forget watching the Larry Williams “Money Tree” video series back in
1989 where he said something to the effect of traders will never be right, but
can make a lot of money in the process. Traders will always buy or sell too late
= too soon. They will always have too many contracts on the losers, too few
contracts on the winners. Traders will never get things completely right, and
that is frustrating. But it can also be methodically profitable over time.

Yesterday I personally had the chances to book
+13pts ER and only manage to capture +5pts total. Is that success or failure?
The trade signals I passed up were not the crystal-clear setups I prefer, but
they were viable. Should I have taken them boldly instead?

Bottom line, it doesn’t matter today. I might
react differently next time around, and I might not. Other traders hit those
aggressive entries and enjoyed favorable results. I was content to book
acceptable profits for the day, made conscious decisions in personal
trade-account management and remain at peace with end results. The human nature
of efficiency (greed?) does tug at me when knowing the potential existed to be
nearly three times as profitable than realized. The veteran trader in me quells
that inner emotion best as possible in order to face the new day with clarity
and focus.


Professional traders measure success as being methodically
profitable. Maximum potential is a benchmark only served for measuring viability
of a method or approach. No human trader OR mechanical system (I use both) is a
highly efficient being at work in live market action. Any human trader OR
mechanical system should always strive for being more profitable than not over
the course of time, and then add contract size according to proper account

Fixating on anything other than that is a
negative emotional experience, damaging to the growth of a trader and overall
waste of time. Get good at keeping losses smaller than wins, and forget about
measuring success on max profits captured versus max potential possible. The
former mindset will drive you anywhere you wish to go in your financial future.
The latter mindset will merely drive one insane ;>)

Trade To Win

Austin P


(Weekend Outlook trend-view section
open access)

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.