Here's a quick snapshot of this morning's trade in the S&P 500 e-mini futures (ES), as we move back into a two-day trading range for a profitable fade. Early in the session, I noted in my Twitter post that I was skeptical of the market's rally. Instead of seeing follow-through strength in the broad list of stocks--small caps, NASDAQ issues--we saw selling. Moreover, the pro-risk themes in other asset classes (selling Treasuries, rising yields; selling U.S. dollar vs. euro) reversed in early trade. We could also see selling in the pro-growth sectors: technology, materials, and consumer discretionary shares. It's a great example of how themes from various sectors and markets can illuminate the day's trade in stocks.
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5 comments:
Yes?
And when does one cover, especially when the Market immediately senses that Dr. Brett has posted, and reverses on a dime?
..So as not to play Chase One's Tail all day, being jerked hither and yon...?
Daniel
Hi Daniel,
An intraday position trader would look for a reversal back into the prior day's value area, with the previous day's pivot a reasonable target. That trader might well still be in the trade, having taken no heat from the early morning fade.
A shorter-term trader realizes that we have multiple negative TICK readings around 9:30 AM CT and cannot push the ES market lower; nor are those TICK readings < -800. So it makes sense to cover, take profit, post to your blog about the trade, and have time to answer questions from traders who feel jerked around.
Brett
;-)
An excellent answer, Dr. Brett!
As always, it comes down to a question of timeframes, of volatility vs a concept of intrinsic-volatility, and standard variations of deviance from an established mean.
How much leash do I give this dog when I buy him (or short-sell him)?
If I'm not mistaken that’s part of the pre-Prep you’ve so meticulously schooled us in.
That is, a sense of what WILL shake a position out of my hands should be as pre-set, and yet as flexible, as possible. Before one stakes the position.
Because of where we are or are not in the Endless Market Cycle, my own examination of late is for days of HIGH volatility and LOW range-- kind of like narrowing Bollinger Bands-- which are market tells of a great deal of “sound and fury signifying nothing”... and are usually written off in some fashion as boring. However, ANY time a new great deal of ANYTHING (even sideways-ness) starts showing up in the Market-- when it had not been there of late-- it’s possibly predictive.
High volatility and low range is what Krakatoa the volcano was exhibiting just before it blew.
The eternal question of How much leash? can never be formularized, but it can be ever-increasingly quantified.
Daniel
Hi Dr. Brett,
Thanks for all the great posts!
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