Back when I was brokerage youngster, I worked for a firm founded by an old CBOT floor trader. We used to talk to him about the markets; it was fun to talk to someone with that kind of experience. When talking about a market, once in a while he’d say the following: “If the door is here “(he’d point one way) –then a dramatic pause- “it can’t be over there” (then point the other way). I never understood the wisdom of that saying; I think I’ve figured it out over the years.
Below is a 10 minute chart of the Dec. eMini S&P today. It’s been another beating for commodities today; gold futures were down about 1.5% earlier, and crude oil is currently about 2.4% lower now (read my post about crude oil here). Given the correlation between markets today, the US Dollar was stronger at midday.
click to enlarge
The session low for the eMinis was at 1085.00, made right around the open. A slide in commodity prices started about 10 AM, about a half hour after the DOE crude inventory report came out. S&Ps followed commodity prices lower during the morning session, but they never took out the early session low.
This is where the “door is here” comment comes in. Commodities were making new lows; S&Ps were unable to take out the previous low. To me, this was an indication that if it wasn’t going to break, it was likely that it would rally.
That is, in fact, what happened. The failure to take out the lows made a rally likely, as traders covered shorts and more confident buyers came in. A late session rally pushed through the day session high, and might have been able to take out the overnight high if the session lasted longer.
Even if you’re a “one market trader”, sometimes looking at related markets can give you clues as to what your markets will do.
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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