There are many interesting parallels to the Taylor Technique and Market Profile.  One of the concepts that I find useful for both is the idea of acceptance or rejection of prices.  A rally indicates acceptance of higher prices; a top and reversal indicates that traders rejected higher prices.  This fits well with Taylor’s concept of ‘excess’ that occurs as a high or low is made.  It’s this ‘excess’ high or low that fools traders into buying on the highs or selling on the lows.

Taylor advocated that when a market has advanced through the first two days of the ‘Taylor cycle’, we anticipate an ‘excess high being made as the rally extends past the previous day’s high.  This last push marks the end of a rally, and is much the same as a tail in Market Profile.  The definitive rejection of higher prices occurs when the market is pushed back under the previous session high; this is also the Taylor Technique trigger for a short entry.

Acceptance or rejection is a useful way to think of market behavior around significant chart points-old highs or lows, trend lines, etc.  These are places where rejection occurred previously, so they are often important points to watch when approached subsequent times.

This brings us to the S&P futures today.  In last night’s Swing Trader’s Insight newsletter I labeled today a Sell Short day for the S&Ps – the past three sessions have seen bullish price action (close > open) .  Thus, today we were anticipating the end of the rally, and a reversal to a downswing.

SP Futures Daily Chart

click to enlarge

On a Sell Short day, we use the previous day high as the ‘reference price’ for a short sale.  We anticipate that the move above the reference price to be the ‘excess high’ that marked the top; the break back below the reference price to be the entry for a short sale.

This week’s advance was also interesting in that it was pushing up to the year’s high – 1143.00 for the June S&P. So not only are we looking for a short sale by the Taylor Technique, we are also looking to see if the market would accept or reject the move over the previous yearly high.  Rejection at the previous high would set up a short sale.

The 15 minute chart below shows this morning’s action.  After the retail sales number an early morning push took the ES to the high of the day.  By the 8:30 open it dropped under Thursday’s high, and traded under the old 1143 high for a time.  1143 proved to be support, and they bounced.  It now looks like it’s roughly contained by the two reference prices; 1146.50 resistance and 1143.00 support.

15 minute chart June SP March 12

click to enlarge

For the remainder of today’s session I would watch the 1143.00 level.  Another move under there, especially if it occurs before about 2:30, would be a sell signal.  Follow though selling and a weak close could result in follow through selling Sunday night / Monday.  If short, I’d use a stop over the high of the day, or just over the midpoint of today’s range (1147.00 midpoint).  Don’t go home with an unprofitable short.

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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