Today provided a great example of the Taylor Trading Technique at work; it also reinforced my bias for use of technical analysis over fundamental as a basis for decision making in trading.  Equities have had a spate of bad news recently-a surprise rate hike in India, a brewing trade spat with China, the passage of the healthcare reform bill in Congress, and concerns about financial reform plans in Washington.  In spite of this, S&Ps were up nearly six points by the close.

I’ve marked up the daily chart for the June S&P futures. Thursday had a breakout setup; it was an inside day and a doji; it also had the narrowest trading range of the previous seven sessions.  Thursday’s breakout setup yielded Friday’s breakout sale; it saw a range expansion and bearish price action (close

Daily eMini SP Futures Chart march 22

click to enlarge

A major tenet of the TTT is that market moves end in ‘excess’; it is this excess that fools traders into doing the wrong thing at the wrong time.  The range expansion and directional moves often associated with breakout trades make it likely that a breakout move is likely to create the excess that marks a market turn.  It is this turn that the TTT seeks to identify and trade.

The intraday chart for the S&P shows last night’s / today’s structure.  Twice overnight the market traded down to the 1148 area, only to attempt to rebound back over Friday’s low- the reference price to buy on a Buy day.  The second attempt failed around 4 AM, and the subsequent selloff took out the double bottom.

eMini sP Futures Chart Intraday March 22

click to enlarge

This final break proved to be the low of the move (although likely no recognized as such at the time).  A series of higher lows formed, culminating in the final move over 1150.25, shortly after the 8:30 open.  This move was the buy trigger for the TTT Buy day trade.

From that long entry, initial stops went under the low of the day (a risk of about five points.) The Fibonacci retracement levels are from Friday’s high to Monday’s low; the 50% retracement level at 1155.88 was the first rally objective.

So what do we anticipate for tomorrow?  By the TTT, tomorrow is a Sell day; we should anticipate follow through strength.  The 1165 are should prove to be resistance.  Monday had the widest trading range of the previous seven sessions; I generally look for consolidative “fade the moves” type of day.

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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