In this morning’s note for the EMini S&P futures, I suggested we might look to short the market if it the overnight rally failed. Friday had been a rally out of a breakout setup and I have long told my readers to be suspicious of Sunday night moves as they often reverse on Monday. This gave us a good trade today.
Friday saw a rally out of Thursday’s breakout setup (ID, NR4 on Thursday). This showed the classic breakout rally profile; it opened on the low of the session and then rallied above the previous session high, finally closing near the top of the daily range.
A breakout move is often taken back in the following session – the Taylor Trading Sell Short day or Buy day. This is because the move out of a breakout setup often “uses up” the momentum in that direction, and the following session takes back the first day’s move. It also runs out the traders who got in on the second day in anticipation of follow through, who end up buying near the top or selling near the bottom.
The EMini S&P opened higher last night on optimism about Chinese trade talks. This put it up near 2814.00 the high of last week and of 2019. This gave us a “pivot point” to watch. The market would likely either remain above 2814 and then continue the rally or it would fall back down, if traders didn’t want to continue to “buy higher”. The gap higher open added to the significance of this level, and the 2814 high gave us a good reference price to discern where the market was going today.
The 8:30 AM open was 2815.50 with an opening range high of 2818.00. It started making lower highs and dropped below 2814.00 around 8:45 AM. This gave us an early shorting opportunity with stop losses going above either the day session high (2818.00) or the overnight high (2819.75). Either one turned out to be fine as the market quickly gained downside momentum this morning.
At 9:50 the market broke below the Friday high of 2808.25, which is the standard reference price for a Taylor Trading Sell Short day. By 11:15 AM it broke 2775.00, last week’s low. It continued to make lower highs and lower lows until finally finding a bottom around Noon Central.
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