The start of 2010 has seen a big rally in stocks ( the rally actually started on New Year’s Eve.) Through Friday the SP futures had five sessions of bullish price action – both higher closes and bullish intraday action (high >open).
By the Taylor Technique cycle I view today as a Sell short day. Last Wednesday was a breakout setup; a narrow range day on Tuesday then a doji on Wednesday (Tues. and Weds. are circled). This meant Thursday was the Buy day, and Friday was the Sell day to liquidate Thursday’s longs. From the rally on 12/31 I’d normally be looking for a Sell Short day earlier than today; but the range contraction and breakout setups ‘reset’ the Taylor count.
In last night’s STI report I labeled 1147.00 as trend line resistance; you can see where that came from on the daily chart. The red up trend line was support in late Dec.; after it was broken on 12/30 it then served as resistance and a ‘price magnet’ of sorts for the past week. That trend line came in around 1147; I drew a green circle around where it came in today.
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On a Sell Short day we use the previous day’s high as a reference price; the move back under the previous session high is the trigger for a short sale. To me, this is the strength of the Taylor Technique. It is true that the Taylor Technique attempts to pick tops and bottoms, but its guidelines are such that you aren’t looking to sell into a rally; rather you seek to get short shortly after the trend turns lower. The Taylor Technique gives you a way to recognize and trade the turns; by getting in relatively early a trade’s risk parameters are pretty tight.
A 30 minute chart for the March eMini SP is below. Friday’s high was taken out around the time the stock market opened; followers would currently be short. For now the game plan is to carry the shorts overnight, assuming they close favorably (if the trade was a loser at the close we’d liquidate, anticipating a better sale tomorrow). If the trade works, I expect selling to pick up toward the end of today’s session, and then we’ll be looking for downside follow through tomorrow. I drew in Fibonacci retracement levels from the 12/30 low to give some ideas for downside profit targets.
click to enlarge
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.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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