Why we’re seeing short setups
Two things we know for
an absolute fact: market volatility is returning to more normal
historical levels, and institutional traders are selling into every lift of the
market. Both of those market facts are welcome news to emini futures traders.
ES (+$50 per index point)
S&P 500 futures opened on a gap up right to daily
pivot resistance, and promptly coiled there for several hours until the
afternoon stretch. That’s when volume increased and waves of sellers crushed
stock index markets like a hapless squirrel in the road. We shorted and shorted
and shorted some more into that telegraphed drop, for some serious distances
captured as a result.
Price action halted right on the S1 value, and
will attempt to bounce from there at the open of trading today.
ER
(+$100 per index point)
Russell 2000 futures chopped sideways most of the
day, but more than made up for that in the beautiful swoon past 2:00pm EST.
That’s the type of chart action serious emini traders absolutely love to see:
nothing but straight-line direction for two hours of profit filled fun.
Red… the color of money!
ES (+$50 per index point)
S&Ps blew thru light support and currently
eyeball 1240s as the next magnet below. It’s a congested range between 1240+ and
1270, and price action has made an extensive move in the past two weeks. The
recent trend lower has engulfed the previous twenty-four weeks combined. In
other words, six solid months of upward churn has been totally erased inside the
past six complete trading sessions.
Six month’s upside work blown away in six meager
sessions? What does that say for where markets are at in this aged bull cycle?
Kevin Haggerty and Gary Kaltbaum have been warning us all on this pending
development for a long time now. I for one would not bet on the correction to
have bottomed for keeps anywhere near this level.
ER
(+$100 per index point)
Russell 2000 has likewise blotted out the past
fifteen weeks of upside progress in its last six sessions. What goes up does
come down a whole lot faster & easier… especially when the ladder is extended
far beyond rational, logical levels.
The 705ish target is all but a given from here,
with 680 next on the docket if bulls don’t materialize from the mist to resume
buying with reckless abandon right here.
Summation
Volatility is up, stock markets are down. Who would have ever predicted such a
thing? Certainly not the economists and talking heads in financial media
circuits. Certainly not the perma-bulls who believe every dip is the next great
stock sale before immediate markup begins. Now, I do believe that much of the
past two day’s action has been influenced by index and equity option sales. Many
traders who held May SPX put options at 1275 and 1270 strikes began yesterday
with worthless contracts on their hands, only to see them inflate in value
dramatically before the closing bell rang.
That type of derivative instrument influence does
play a part in short-term price action. Long term? Stock markets have no logical
reason to rally and plenty of reasons to sell further down the scale. Whether
logic and reason play any part in near-term action ahead remains to be seen.
Sell all rallies that falter or fail until that approach ceases to work. You
might very well be amazed at where these tapes ultimately wind up in the end.
Trade To Win
Austin P
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