Today was another session that the stock index futures had breakout setups. Using the overnight structure as I wrote about yesterday (read HERE), we were able to trade this morning’s breakdown although the market was well past the standard trigger levels for a breakout trade entry.
In 2017 I wrote a report (get a copy HERE) in which I said that Trump’s penchant for tweeting and commenting at random times meant we were likely to see a breakout and consolidation cycle in the markets as traders would become hesitant to get overcommitted to trades in quiet news times and then have an outsized reaction to news (like Trump’s tweets).
With the deadline looming for new US tariffs on China, stock indices consolidated on Wednesday after the volatility of Monday and Tuesday, giving us the indices breakout setups for today. At a rally last night, President Trump said: “You see the tariffs we’re doing? Because they broke the deal. They can’t do that, so they’ll be paying.”
This hardline comment threw more cold water on hopes for a last minute deal, and stocks sold off overnight and into this morning. By 8 AM, the June EMini S&P broker below the Wednesday and Tuesday lows, which would have been our standard short side breakout entry levels, and just after 8 AM it made a session low of 2852.00.
The 8:30 AM open was 2856.25- below the Wednesday and Tuesday lows, but above the 2852 overnight low. We could use the overnight low as a new breakout trigger level – a break below there would be a signal that the downside momentum was reasserting itself.
The short sale was triggered around 8:40 AM. By 9:25 it made a low of 2837.00, a move of 15 points in 45 minutes. At this point, tailing stops or taking profits would be prudent. It did make a slightly lower low about an hour later however following new comments by President Trump around 11:30, a major recovery rally occurred. This showed the wisdom of taking profits while you have them in these current market conditions.
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