This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Tuesday, April 15, 2014.
This morning saw a good example of a Taylor Trading Technique Sell Short day sale in the E-mini S&P futures. In addition to the standard TTT reference price, overnight price levels proved to be a help to analyzing and trading it this morning.
I labeled last Friday as a Buy day in the TTT cycle. Although it didn’t look like a textbook Buy day, a Friday afternoon rally fit the bill for bullish Buy day action. Friday’s Buy day was followed by Monday’s Sell day. On a TTT Sell day we anticipate a rally to the previous session high. While the market didn’t quite reach that high, Sunday night’s open was low enough that there was plenty of room to rally on Monday.
Monday’s Sell day was followed by a Sell Short day signal for Tuesday for the stock indices. For the June E-mini S&P futures, this meant we would anticipate an early rally above Monday’s high of 1828.00. (This level is what I call a “reference price”, an area to use to gauge market momentum). We would then look for this rally to fail and we would short the market when it fell back below Monday’s high, looking for more selloff during the session.
For the stock index futures, I usually don’t trade during the overnight session; I prefer to wait for the 8:30 AM CT futures pit and stock market open. That being said, overnight highs and lows can be useful as reference prices, as they often end up acting as distinct trading sessions.
The premarket high in the E-mini S&P was 1830.75; we could watch this level as a second (higher) reference price than Monday’s high. Additionally, we were watching the Fibonacci retracement level at 1835.38 (from this morning’s watch list) as a pivot point for a rally- a sustained move above that level would likely mean still higher prices to come.
Stocks took off after the 8:30 AM open, rallying to a session high of 1837.25. The rally above our reference price(s) told us to look for a reversal and be ready to get short if we saw downside momentum. Now it was a matter of being patient and wait to see if the market would do what we anticipated.
Around 9:10 AM the E-minis fell below the overnight high; this triggered an aggressive short sale entry. About five minutes later it fell below Monday’s high of 1828.00 for the standard TTT Sell Short day sale.
By 9:30 it dropped to a new session low at 1820.00. If you chose to stay short, stops could be moved to breakeven. (The speed and size of the decline could have made it attractive to take profits as well). The 60 bar EMA contained the rally, and dropped to make a new session low to 1817.25. About 20 minutes later it had a successful test of this low, which would have been a good reason to cover shorts.
I grabbed the intraday chart before it did so, but around 10:45 AM it took out the 1817.25 double bottom. If you chose to cover at this low, the move to take this out could have been a signal for a new sale. On a Sell Short day we anticipate the market will trend in one direction so we could look for new trade entries in that direction.
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