According to the Taylor three day cycle, today should be a “sell short day” for the S&Ps. Taylor believed that markets were run by insiders, who would run the markets up and down. I don’t know about the “insiders”, but I’ve found Taylor’s ideas to be useful in a swing trading timeframe.
In Taylor’s cycle, a market would start at a short term low. It would rally off that low as the “insiders” bought. It would see followthrough buying for a day or two, as the insiders would first sell their stake to the public, then get short and drive the market down. As it sold off, they would buy back their shorts from the public.
The sell short (SS) day should be the high of the swing. On a SS day, the previous day’s high is the reference. In general, we’re looking for the market to open near the high of the current day, then sell off during the session, closing lower than where it opened. On the daily chart of the eMinis (below) you can see that we’ve had 3 higher closes this week, as it rallied from a breakout setup on Tuesday.
I use the 2 period rate of change as an indicator for the Taylor Technique; peaks indicate we should watch for a sell short day, bottoms that we should look for a buy day. Other points to note on the day chart are 1062.50 (Fib retracement resistance) and 1069.50 (trend line resistance drawn off the past two day’s highs). After today’s high was made, I added the Fir retracement points from yesterday’s low to today’s high-a 50% retracement of this move came in at 1054.25.
Sell short day?
Next is a 10 minute chart for the eMinis today. Before the employment report was released, Spoos rallied to a high of 1069.50, but were unable to take it out. After NFP, they fell through yesterday’s high and the overnight low of 1061. The selloff stopped at the Fib support at 1054.25. A subsequent rally got to 1069.25 at 9 AM; this double top was a good opportunity to sell out longs or establish shorts.
Double top. Now watch 1064
From here we can get into watching for the sell short signal. The key will be yesterday’s high of 1064.00. Staying under this price this afternoon would be evidence of the sell short signal working, giving a lower close today and follow through selling on Monday.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
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