Following a breakout rally on Monday, the eMini S&P futures had a Taylor Trading Sell Short day signal for Tuesday. The fact that it was up against the contract high made this an interesting setup today.
Monday saw a number of moves pout of breakout setups. I wrote about a breakout sale in live cattle; I debated about whether to write about the sale in cattle or the buy in the eMini S&P. On Friday the EMinis had an inside day, NR7 and doji, with a resultant breakout rally on Monday.
By the Taylor Trading Technique (TTT) we would normally expect a Sell day today (the TTT cycle of Buy day –Sell day – Sell Short day); on a Sell day we would expect a two sided trade with the Sell Short day (bearish session) occurring a day later. However, a breakout rally often creates the “excess high” that exhausts the bullish momentum, resulting in a selloff a day earlier than the TTT would normally predict.
For a Taylor Trading Sell Short day we watch the previous day high as a “reference price”. On a Sell Short day we look for an initial move above the reference price, which serves to force out some of the last weak shorts and / or encourages some last buyers to go long. A subsequent move back below the reference price is our trigger for a short sale, anticipating a selloff.
The reference price for the June eMini S&P today was the Monday high of 2402.25. As the market was so close to the contract high, a move above that level would likely pull in more buying.
The 8:30 AM open was 2404.00 and the market immediately moved lower. An aggressive entry would have been to short when it moved back below the contract high. The standard TTT entry came a few minutes later with the move below the Monday high.
When it became clear there wouldn’t be a morning push higher the market began to sell off. By a little after 9:30 it broke below the overnight low of 2396.25 to make a session low of 2393.75. For the morning I would watch the 2399 level (the 50% retracement level of the morning selloff) as a pivot point for direction.
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