Monday, January 9, 2017

January 6- Breakout Buy in EMini S&P Futures

The EMini S&P futures had a breakout setup for Friday, which made sense in light of the monthly employment report due today. The breakout setup gave a good trade for the day session after a fake out in the premarket.

Thursday’s bar for the S&P was an inside day, NR4 and a doji. These were all patterns indicative of a market lacking in conviction, which would be logical ahead of the monthly employment report. In keeping with the lack of directional clues, I approach breakout days willing to take a trade in either direction- let the market decide which way it wants to go, we go along for the ride. ( In this morning Exclusive Advisory I noted ROC was bullish- something to give confidence for the long side.)

For today’s trade, our upside breakout reference prices were the Thursday high of 2266.00 and the Wednesday high of 2267.25 – we would look go to long if the market traded above these price(s).
I suggest waiting for the 8:30 stock market open to take trades and today was a good example why. After the 7:30 employment report there were two moves above the Thursday high (double top at 2266.75) however this move lacked momentum and the market fell to a new session low of 2258.25.

This session low was made just after the 8:30 however it too lacked momentum, and the rally resumed. Around 9 AM it reached the Thursday high and 45 minutes later it began to move above the highs. Although they were all close, at this point I would use the premarket or Wednesday high as the reference price for an entry point, in order to have confidence in the uptrend.

The initial stop loss for our longs could go either below 2261.00 (the last swing low) or the session low. By 11 AM it reached the previous contract high at 2273.00, eventually making an intraday double top high of 2277.00.

Saturday, January 7, 2017

January 6 – Taylor Trading Sell Short Day in T Bond Futures

Treasury Bond futures had a big rally on Thursday as they rallied out of Wednesday’s breakout pattern. This gave them a Taylor Trading Technique Sell Short day signal for Friday

Treasuries (Bonds, the 5 and 10 Year T Notes as well) had a breakout pattern Wednesday. They all showed range contraction from Tuesday as well as a Doji Bar, which indicate a lack of participation and lack of commitment to buying higher or selling lower, which would be needed to create a daily trend.

Breakout setups are often resolved by a big directional move in the following session, as traders decide on a direction, which pulls in more trade interest, setting up a positive feedback loop. That’s what we saw in Treasuries Thursday – they opened near the low of the range and rallied over the session, ending with a close near the daily high.

In the session following a breakout move I normally anticipate a Taylor Trading move in the opposite direction, so in this case Thursday’s breakout rally meant we would anticipate a Taylor Trading Sell Short day for Thursday. We look for a Sell Short day because the breakout rally of the previous day tends to create an “excess high” (to use the Market Profile term) that ends up marking a top and a trend change down.

The Taylor Trading Sell Short day tells us to look for a failed rally above the previous day high (the “reference price”) with the move back under the reference price being our signal for a short sale. Thus, for March T Bond futures we would watch 153-00 as our reference price today.

Bonds did have a rally and a sell signal before the employment report. I don’t like to take trades into major reports so I passed on this trade. My thought is that the result of a report tends to be a 50 / 50 proposition, and I’d like to take trades where I think I have better odds than that. Additionally, a report like NFP often causes the kind of “excess moves” we look for, and looking for trades after a report allows us to exploit other traders’ mistakes.

The initial move after the NFP was a rally back above our reference price and then the session high (153-05) to make a new high of 153-09. This rally failed as well and the subsequent drop back below either today’s lower high or the Thursday high could be used as a signal for a short sale.

The initial stop loss would go above today’s high of 153-09. We would hold shorts only when the market shows downside momentum and a new high would negate the bearish trend.

Bonds sold off in the wake of the employment report, making a series of lower highs to make a session low of 151-29around 8 AM (This was just above Fibonacci retracement support at 151-28). This low held until 9:40 when stocks finally rallied above their Thursday high (S&P futures have a breakout setup for today.

Thursday, December 15, 2016

December 14 – Post-FOMC Emini S&P Trade

For the EMini S&P futures, we were anticipating a breakout trade after the 1 PM announcement. In a advisory I sent out around 12:30 I suggested we watch the session low of 2265.25 as our reference price for a downside breakout. As it turned out, this level was a 50% retracement of the past two days range so a break below there would likely lead to a move to Monday’s low.

The break actually took some time to get going; the first move was up with the down move beginning about five minutes later. The first break of our reference price came around 1:10 PM, triggering our first short sale signal.

The market made a short covering rally into the start of Yellen’s press conference, leading to a test of our reference price level, leading to a test of our reference price level.

“Support becomes resistance” proved an accurate axiom as it was unable to hold above the reference level, turning back down to make a session low of 2248.00. It held over two tests of the Monday low, ending with a close in the middle of the post- FOMC range.

Wednesday, November 30, 2016

How to Read Bull and Bear Market Phases - Accumulation, Participation & Distribution

Dow Theory is a cornerstone of price analysis and its principles have been time-tested over decades. An understanding of the three market phases and the trend cycle concepts within the Dow Theory can help traders make sense of the way price moves and shed new light on how bull and bear markets are created.

The Dow theory distinguishes between the accumulation phase, which is where the ‘smart money’ starts to accumulate positions very early on, and the public participation phase where the trend has become apparent to the ‘typical investor’ and retail traders. The third distribution phase is the final stage where the market tops and the smart money is unwinding their positions while the average investor is usually still adding to their positions. Let’s now take a closer look at the individual trend phases and what is important to know here.

Tuesday, November 29, 2016

November 28- Taylor Trading Sell Short Day in EMini S&P Futures

The Taylor Trading Technique views market moves as a series of reactions to what the market has done recently. Knowing this help us to anticipate what a market is likely to do, based on what it did in the previous session.

For the EMini S&P futures, Friday was a breakout buy day. On Friday it opened near the session low, rallied above the previous session high and continued higher, closing near the top of the daily range.

In reaction to this, we anticipated a Taylor Trading Sell Short day for Monday. For a TTT Sell Short day we look for the market to open near the session high, (possibly) make a failed attempt to rally above the previous day high and then proceed to sell off over the course of the session, finally closing near the daily low.

For a standard TTT Sell Short day today, we would watch the Friday high of 2211.75 as the reference price. However, I often view the Sunday night trade as a session unto itself, as it occurs after the longest weekly break between sessions and it often trades distinctly from Friday’s action

It was for this reason ( Sunday as a separate trading session) that when we would write this morning’s Trade Recommendation to my exclusive subscribers where I suggested we use the overnight high (2208.50) as a lower reference price for the Sell Short day. If the market was unable to reach Friday’s high, the high from Sunday night could be a good reference price level for deciding whether we could look for a Sell Short day / failed rally trade setup.


Thursday, November 10, 2016

November 10 – Early Session Short in EMini SP Futures

The 8:30 AM open was 2168.25, and the first move was a rally to 2178.50. This reinforced my conviction about the short as it made the market look all the more like a TTT Sell Short day.

This initial rally failed as the market was unable to push above the overnight high of 2180.50. By 9 AM it moved below Wednesday’s low, triggering our short sale. Our initial stop loss could go in the 2174 area, roughly the midpoint between the day session high and our entry.

The ensuing selloff was strong, as anticipated, making a session low of 2147.75 by 9:35. A double bottom made around 10:10 was a signal to cover shorts as bargain hunters stepped in (for now.) If you wanted to look for a second trade, you could look to re short if the 21477.75 double bottom was broken.

Sunday, November 6, 2016

November 1st - Breakout Trade in EMini SP Futures

Here is the Breakout Trade in EMini SP Futures

The EMini S&P, NASDAQ, Dow and Russell all had inside days on Monday, and the NASDAQ and Russell had narrow range days as well. The breakout setup told us to look for a strong move in one direction today, and we would look for a trade to take advantage of this.

Today was a reminder to not overthink trading. As today was day one of an FOMC meeting, I assumed the odds of a breakout move were lower than normal, as is often the case in the session before their announcement. In hindsight, given that the Fed is expected to not move ahead of the Presidential election, the Fed meeting wasn’t the caution signal it normally is.