After a two day rally in the eMini S&P futures, the Taylor Trading Technique (TTT) told us to anticipate a Sell Short day for Friday. A failed rally above our reference price gave us a good short sale signal at the open to catch the morning selloff.
After making a two week low (and threating the 200 day SMA) early on Wednesday, the eMini S&P futures rallied for the balance of the session, a textbook TTT Buy day (I wrote about that HERE). This rally saw upside follow through on Thursday, again closing near the high of the session (I often characterize a day as bullish or bearish by where the market closes within its daily range- bullish days close near the session high, bearish days tend to close near the session low.)
This two day advance meant that on Friday the TTT would have us anticipate a Sell Short day, characterized by an open near the session high and a decline to close near the low. For the trade entry we would normally look for a failed rally above a “reference price”. A reference price is often the previous session high- the level that marked where “too high” was in the previous session. Other times a market doesn’t reach a previous day high; when this occurs we need to look for an alternative level to watch.
Thursday’s high was 2677.50; this was our standard reference price for today’s Sell Short day trade. I wasn’t sure the market would reach that high today so in this morning’s note I suggested we watch 2675.50 for our reference price; this was at the last premarket high.
The 8:30 AM open was 2672.25 and within the first five minutes there was a failed rally (reached 2676.25); the subsequent selloff was our first trigger for a short sale. If you missed the first sale, you got a second chance about 10 minutes later on another failed rally above the reference price. The lower high of this second rally gave us confidence if we wanted to take the next setup.
Our initial stop loss would go above the session high – if the market made a new high after our short sale then the market no longer had the bearish momentum we were looking to ride. A quick selloff followed this morning, with the market making a session low of 2657.50 just before 10 AM, for a move of about 18 points. From here, the market started making a series of higher lows and higher highs, which told us to stay away from new shorts.
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