The eMini S&P futures have been especially illustrative of following the rhythm of the markets for trading. In previous posts I wrote about breakout setups on Tuesday and Wednesday of last week leading to Thursday’s strong rally.
The Taylor Technique would normally have us looking for a sell short day today (see the ROC indicator, middle panel of the daily chart). On a sell short day, we look for the market to open, maybe see some early strength and then sell off later in the session.
Friday was a breakout bar
Today’s sell short signal was negated by the breakout setup today, as eMinis had a narrow range day and a doji. On a breakout day, range contraction is an indication of a potential directional move. The nature of breakout setups is such that we generally can’t know the direction the breakout will take.
The fact that we can’t “know” the direction the breakout will take is often frustrating to those first exposed to this concept. Traders often want to predict where a market will go; I think a trader’s primary job is to keep an open mind, and let the market tell you where it wants to go.
Friday had a breakout setup.
When we have a breakout setup, let the market tell you where it wants to go by determining its early session direction, then getting in to ride the momentum. The intraday chart below shows how this principle works.
There were a couple of close in breakout points to look for. As we now know that the market rallied, we’ll look at prices on the upside, but this works just as well for selloffs). I marked some upside breakout points on the chart. First, 1069.50 was Friday’s high-in fact, it was a double top on Friday. Next the 1071.11 level was Fibonacci retracement resistance. Finally, 1075.28 is the first trade or Fade resistance, also a potential long entry point.
Breakout points are the red lines
From these entry points it’s time to look for profit objectives. The first objective I was saw off a trendline on the weekly chart; that came in at 1077.50. The first rally objective for Trade or Fade is at 1084.81.
There were a couple of other things of interest for traders today. First, the green moving average line is the 20 period exponential moving averages-this is one of my favorite trend lines. Note as well the interplay between the green trend line resistance and the red Trade or Fade resistance (then support). 1077.50 stopped the rally the first time up; breaking through it on the second test turned out to be a good second buying opportunity.
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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