By the Taylor Technique today is a Sell Short day in the stock index futures. While we normally use the previous session high as the reference price for the short sale point, understanding why we use that chart point can help you find other trade opportunities.
Below is the daily chart for the June eMini NASDAQ futures. Monday was a Buy day – an early selloff below Friday’s low, then a rally to close higher. Yesterday was a Sell day; the market saw the upside follow through we would expect.
click to enlarge
That brings us to today, the Sell Short day in the TT cycle. TT says that on the Sell Short day, the ‘market insiders’ engineer a rally to produce an ‘excess high’ in order to be able to short the market at higher prices. The TT views the move above the previous session high as the ‘excess’ that marks the end of the rally.
You don’t have to be a conspiracy theorist for this concept to be useful. Whether you believe in ‘market insiders’ engineering moves’ or not, the idea of ‘excess moves’ is illustrative to market psychology. It is exactly these ‘excess moves’ that make the market look best at the top and worst at the bottom – the reason so many traders buy the top of moves and sell at the bottom.
That brings us to the trade in the NASDAQ today. A good earnings report from Apple led to an overnight rally in tech stocks, pushing up the Naz.
In this case, I viewed the April 15th swing high at 2037.75 as the reference price. Bulls, breakout traders and the unsuspecting were likely to buy the breakout over that high. As it turned out, this move was actually the excess that marked the end of the move, and the subsequent break back under that high was the TT short sale signal.
The old high was the sale point.
This rally and selloff gave a good scalp sale; we’ll have to watch the rest of the session to see if there’s more downside to come. I’d watch for a close below yesterday’s high (the standard SS day reference price) to make that call.
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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