Today was a Taylor Trading Technique Sell Short day for the eMini S&P futures. It has been an interesting session so I thought I would go through how I saw the day.
The daily chart is below. Last week’s big selloff meant Friday’s Buy day wasn’t especially clear after the fact as we didn’t see the close > open pattern we normally see for a Buy day. Nonetheless, Friday’s Buy day was followed by the Sell day on Monday, which did result in a big rally. The gap lower open Sunday night proved to be a capitulation low and bottom picking and short covering ensued on Monday.
The Taylor Trading Sell day on Monday would then anticipate a Sell Short day for Tuesday. On a Sell Short day we normally look for a failed rally above the previous day high to stop the rally and start a selloff, which we look to trade.
In this morning’s comment for Swing Trader’s Insight I labeled both 2051.00 (Monday high) and 2059.25 (overnight high) as reference prices- 2051.00 if the market couldn’t rally and simply sold off after the 8:30 AM open and 2059.25 if it staged an early rally.
Stocks sold off into the open and the first short sale was triggered minutes into the day session. It broke quickly but the selloff was unable to push below the overnight low of 2045.75 and a strong rally ensued as the volatility continued.
Things stayed interesting today. This rally pushed above 2059.25 (overnight high) around 9:45 AM and the dip back below there was the second sell signal. This proved to be a fake out, as it rallied to make a new session high about 45 minutes later. If you used a wide stop loss you might have stayed with this short; most traders would take the loss as a new high was a signal to cover shorts.
We still anticipated a selloff by the end of the session, so we could continue to look for sell signals. The lower highs from 10:30 to 11:05 was evidence of waning bullish momentum and the 11:20 move back below the overnight high was out third signal for a short. The market worked lower over the early afternoon, making a new session low of 2041.50 around 2:10 PM.
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