Stock index futures have sold off today, following a couple of attempts this week to push back to their 2009 highs. Some pattern watching would have given you a heads up and a trade set up for today,
Below is the daily chart for the March eMini S&P futures. From a low at 1080.50 last Wednesday, S&Ps had four straight up days, reaching 1113.00 on Monday. It was unable to take out the 12/4 high however, and sold off on Tuesday. Tuesday was an inside day, so we were looking for a directional move on Wednesday.
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By the Taylor technique count, yesterday could have been a Buy Day – Tuesday was a Sell Short day (which is followed by a Buy Day). The Rate of Change indicator (2 period ROC) dropped to a level that corroborated a Buy Day signal. (The Buy Day signal was clouded by Tuesday’s inside day, but in this case it didn’t matter).
Yesterday did see some positive price action, as the close was higher than the open. Two things tempered the bullishness, however. First, yesterday’s rally stopped around trend line resistance at 1112.58. Second, yesterday had a narrow trading range; in fact, it had the narrowest trading range of the previous seven sessions (an NR7 day in my shorthand).
Yesterday’s NR7 pattern was an indication for a potential breakout trade today. On Inside Days, Taylor said the following day’s move was a “go with” trade; you go with the market in whichever direction it moves past the previous day’s high or low. I have expanded Taylor’s pattern to include other breakout setups as “go with” setups; yesterday’s Nr7 was such a pattern.
On the 30 minute chart below, I labeled a number of price levels. The two red lines are the points I watched for breakout sales; yesterday’s low at 1103.00 and Tuesday’s low of 1100.25. These were the two “reference” prices I used for a downside breakout. For profit targets I watched 1096.75 Fibonacci retracement support and 1094.48 trend line support (both these points can be seen on the daily chart above).
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So where dowse this leave S&Ps for tomorrow? As I preach, breakout days tend to create the “excess” that moves terminate against, so I wouldn’t be surprised to see a Buy Day rally tomorrow. On the other side, today is the fourth test of the up trend line connecting the swing lows on the daily chart. A close below that trend line would likely spell more trouble for stocks.
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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