The eMini S&P futures had a breakout setup for today as uncertainty over the weekend path of Hurricane Irma kept a lot of traders non-committal as to direction on Monday. The relatively benign path of Irma was a big relief to market bulls today, giving a strong upside breakout move today.
Last week the eMini S&P traded sideways and in a tentative fashion; there were consecutive inside days on Tuesday and Wednesday, then an NR7 day on Friday. The hurricane was due to track through Florida on Friday so by Sunday night into Monday we would see where Irma had gone and how much damage was done. (There was also talk that North Korea would launch another long range missile this morning however this didn’t occur.)
The combination of the hurricane and North Korean news gave stocks the impetus for a rally today, and some traders got an early start. Last night’s high trade for the ESU was 2476.75, which was well above the standard first upside level of the previous day high. In fact, the market had gapped higher last night on the open, another signal to look for a breakout move.
I try to keep an open mind as to the likely direction of a breakout move, especially when looking to trade a day session the day after an overnight move. I suggest looking at the overnight trade as a discrete trading session, and used their high and low for reference prices for day session breakout trades.
So in looking for a breakout trade this morning, we could use the 2476.75 overnight high on the upside and start with the 2473 overnight double bottom on the downside. Although the overnight structure was bullish, we wanted to keep an open mind and look for a potential trade in either direction – the market is always the boss, we just want to go along for a move when it occurs.
Today, the 8:30 AM open for the Sept. ES was 2475.50 and it quickly rallied above our 2476.75 reference price, triggering our long entry. About five minutes later it cleared the Sept. 1 high of 2479.75, boosting the upside momentum (If it had stalled out at that level it would have been a signal to close out longs or at least tighten up sell stops.)
By late morning the market reached the contract high of 2488.50, and the rally stalled out against that level. Stalling out at this resistance was a signal to take profits; if you wanted to continue to look for a trade you could buy if it rallied above today’s high although it’s getting late to likely get much of a move.
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