Having been a broker for so long, I’ve had the opportunity to watch hundreds of traders in action. One of my core beliefs from all this experience is that the markets try to fool traders into buying when they should be selling, and vice versa. This is why the Taylor Technique method for swing trading made so much sense to me. I have found Taylor’s method a way to identify when and where traders are likely to get sucked into the “wrong” trade.
This brings us to the eMini S&P futures today. The big New Year’s Eve selloff last Thursday was taken away by yesterday’s big rally to start the New Year. By the Taylor Technique, yesterday was a Buy day, reversing Thursday’s losses.
In the TT cycle, Taylor called the day following the Buy day a “Sell” day. This is the day to take profits on long positions on upside follow through The third day is the Sell Short day; a day to establish short positions as a short term top is put in.
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So today would normally be a Sell day; we would sell out long positions ahead of a Sell Short day tomorrow. However, there were two mitigating circumstances today that had me thinking to today in Sell Short day terms rather than a Sell day. The first was yesterday’s trade itself – it had the widest trading range of the previous seven days, and closed on the high of the session. These both made it more likely that yesterday was the “excess high” (as Taylor called it) that marks the end of a rally.
The other reason I anticipated a potential Sell Short day trade today was that yesterday’s close was around last week’s (and 2009) high of 1128.50. On a Sell Short day we look at a “reference price” on the upside to determine the end of a rally; the market’s move back under that reference price is what triggers the short entry. Normally we use the previous session’s high as the Short Sell reference price. In this case, a move back under yesterday’s high and last week’s 1128.50 high would likely create the “long and wrong” traders who got sucked into buying an upside breakout that didn’t materialize.
The intraday chart below shows the action thus far today. There have been a few abortive rallies and selloffs, but no decisive break under the reference prices. I’d expect one of two things today, either a late selloff as the bears take control, or a quiet session today to set up a breakout day tomorrow. I’d consider a break of today’s low as a sign that the bears are willing to press the market lower and we should consider shorting.
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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