Stock index futures had a breakout setup today. 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.
For me, 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.
On a day with a breakout setup we look for a market to move beyond nearby support or resistance, and that move serves as a springboard to a larger move in that direction as the market develops a feedback loop (the farther it moves from an equilibrium point, the more it squeezes out traders on the wrong side and attracts new participants to the side of the breakout.)
The standard prices I almost always watch are the previous day high and low, and this was the case with the EMini S&P today. In this case, however, it might make sense to use Friday’s low of 2112.50 as the downside reference price, as the two lows were so close.
The 8:30 AM open was 2125.00, a little higher than the Monday close and actually closer to the previous day high than low. There was selling pressure right off the open; it broke below the overnight low quickly, and first broke below Monday’s low around 9:30 AM.
The first break of the Friday low came around 10 AM, and after making a couple of higher lows, it decisively broke below Friday’s low just before 11 AM. A breakout sale entry could have been taken anywhere in this timeframe. The initial stop loss could go above the 10 AM high- note how the 20 bar EMA (green trend line) contained the market during the decline.
The decline gained momentum late morning, dropping below the 12 Sept. low of 2100.25 (and the psychological 2100 level) around 12:40 PM. By 1:30 PM it started working back above 2100, and is around 2106 as I finish this up. Once again we will be able to watch the 2100 area as a pivot point to discern the longer term trend.
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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