Report releases often create conditions where a market makes a large move in a short amount of time- a breakout trade. Yesterday I wrote about a breakout trade in crude oil (read it HERE) after the weekly inventory report. Today we had a trade opportunity in the stock index futures after the release of the monthly employment report.
In last night’s edition of Swing Trader’s Insight I labeled all the stock index futures as having breakout setups. We know to look for potential breakout trades because of the range contraction seen on Thursday and doji bars in the S&P and Russell futures.
It was logical to anticipate a breakout move after the employment report release because traders tend to not commit to a side before a major report (as evidenced by range contraction and lack of directional movement) . Then after the report release, traders often move the market (buy at higher prices or sell at lower prices) to reflect a new idea of the market’s “fair value”.
Today’s June employment report was viewed as bullish for equities, and they rallied above the Thursday and weekly high, peaking at 2110.00 shortly after the 7:30 AM release and then tailing off into the 8:30 open.
When trading stock indices, I normally wait for the 8:30 open; I find that waiting means I miss some occasional whipsaw moves, and there are often additional entry opportunities after the open.
We did get that entry opportunity this morning. After the 8:30 open, the September eMinis traded back below the weekly high, making a short term double bottom at 2103.50. The rally resumed, clearing the 2104.75 weekly high a few minutes later, which triggered our first long entry. About 15 minutes later it traded above the 2110.00 pre-open high, giving a second entry opportunity. (With breakout trades we want to trade in the direction of momentum, assuming the market will continue to move in the direction of momentum.)
In this case, the market continued higher. The previous contract high of 2119.50 was reached in the early afternoon, and it was eventually squeezed higher, making a new high of 2125.50 about an hour later.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
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