In last night’s Swing Trader’s Insight update I labeled the eMini S&P futures as an “exit breakout buys, Sell Short day” setup. The Sell Short day refers to the Sell Short day of the Taylor Trading Technique cycle. The overnight rally changed the picture a bit but we still ended up getting a trade out of it today.
Looking back at the week, Wednesday had a breakout setup that gave a rally for Thursday. Thursday’s rally, in turn, told us to anticipate a failed rally on Friday, and short the market when we identified the failure.
For the session following a breakout rally, a selloff (a TTT Sell Short day move) isn’t a sure thing. Normally, the Taylor Trading Technique cycle goes Buy day, Sell day and then Sell Short day. Thus, a rally today (Buy day) may see upside follow through in the following session- the Sell day of the TTT cycle. This would then be followed by a market top and selloff, a TTT Sell Short day.
For a three day TTT cycle, it takes two sessions to “use up” the upside momentum as the market rallies off a low. However, because breakout moves often move farther and faster than a “normal” move, sometimes a breakout day exhausts the market’s momentum on the first day, resulting in a market that reverses direction a day earlier than we see during a normal market cycle.
Sometimes stock index futures add a wrinkle to this, as the overnight trade (from 5 PM CT until the 8:30 AM stock and futures pit open) often can be thought of as a distinct session. In this case, the market’s action last night to today makes sense if you look at it in that way. We had the TTT Buy day on Thursday, which gave a rally and a close near the top of the range. In turn, last night was the Sell day of the TTT cycle, and the market saw strong upside follow through.
If last night was the Sell day, which meant we would anticipate today would be the Sell Short day of the Taylor cycle. For a Sell Short day, we expect the market will rally above the previous session high (in this case, the overnight high of 2071.00); we look for this rally to fail and then short the market when it falls back below the previous session high.
That’s what I wrote in this morning’s Swing Trader’s Insight watch list: Dec. eMini S&P Futures: It’s an “exit breakout buys” day so a Taylor Trading Technique Sell Short day is anticipated. That being said, we should only look to short it when we see downside momentum. Use the overnight high of 2071.00 as the reference price and the previous overnight high of 2068.00 as a downside pivot point.
S&Ps followed this game plan today. They rallied into the 8:30 open, moving above 2071.00 shortly before the open and then falling back under that level minutes after the open. The move back under 2071.00 was our signal for the short sale.
Our initial stop loss would go above the session high- we want to remain short only as long as the momentum is down and going back up to make a new high would be a sign that the market was no longer trending down. We would look to stay short as long as momentum pointed down, and the morning series of lower highs and lower lows confirms the down trend.
Essential Guide for Futures Swing Trading
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