Why I suspect a selling climax

Stock index
futures opened Tuesday’s session higher and what a difference a day makes.

Good broker buying off the open pushed the PREM into buy program range and
triggered a flurry of buy stops. The first hour became a roller coaster
ride between R1 resistance and daily Pivot support until the pivot finally gave
way. Breadth started out like gangbusters but gave a good heads-up of the
underlying weakness and turned red to confirm the new session lows. The
futures shot up on news from the FOMC minutes that some members had wanted to
take a pause in the rate hikes, but quickly fell back to earth as more hawkish
comments came out.

The December SP 500 futures
closed out Tuesday’s session with a loss of —1.50 points, while the YM held on
a little tougher again with an 18 point gain. Looking at the daily charts, both
contracts continue to eye last week’s low and set up bullish Butterflies. On an
intraday basis, the 60-min charts have contracted into descending triangles.
For you daily 3-Line Break followers, the ES remains short with a new Break
Price of 1200.75, while the YM remains short with a Break Price of 10348.

Computer’s revenue miss was pressuring the futures after hours. The
extended VIX and the high Put/Call ratio continue to point that some real fear
has some market players quaking in their boots. Be alert on Wednesday for some
early weakness and some selling climax action.

Which Moves Will Pay Off?

Do you
spend a lot of time and energy trying to figure out

which moves will pay off,
and which moves will not pay off? Do you use a basketball analogy (head fakes)
and an engineering term (noise) to describe moves that don’t work out profitably
according to your analysis and plan? It seems trite to say that the future is
uncertain, and that we cannot know what will happen with certainty, yet this is
the REALITY of trading.

I personally don’t view the market as either true moves or fake moves. I
consider all moves that are of a minimum range to be true and moves that are
less than the minimum range that I’m looking at are pullbacks within the trend.
I don’t believe that the market is ever wrong – it just exists and moves. So by
my definition, there is no such thing as a fake move.

Our job is to be aware of what the market is ACTUALLY doing. To achieve this, we
have to be DETACHED from the market in order to objectively see the reality that
is going on in the market, like an impartial spectator, rather than as a fan who
roots for one side or the other. We can then use our analysis and plan to see if
any of it applies to the current situation. This requires being objective and
true to our plan and not fudging it to make it fit the situation.

Daily Pivot Points for 10-12-05

Symbol Pivot R1 R2 R3 S1 S2 S3
INDU 10266.75 10299.30 10345.43 10377.98 10220.62 10188.07 10141.94
SPX 1187.02 1190.87 1196.88 1200.73 1181.01 1177.16 1171.15
ES Z5 1191.17 1195.33 1202.17 1206.33 1184.33 1180.17 1173.33
SP Z5 1191.23 1195.17 1201.93 1205.87 1184.47 1180.53 1173.77
YM Z5 10291.00 10327.00 10378.00 10414.00 10240.00 10204.00 10153.00
BKX 93.90 94.29 94.93 95.32 93.26 92.87 92.23
SOX 441.05 446.18 453.65 458.78 433.58 428.45 420.98

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran


Chris Curran started his trading career at the
age of 22 with a national brokerage firm. He combines fundamentals and
technicals to get the big picture on the market. Chris has been trading for 15
years, starting full time in 1997, and has never had a losing year as a
full-time trader.