What a day. What a game. The perfect indecisive close. We close right below 1050 on the ES. The exact place the market needs to close so that it leaves no clear answer to where the market is heading next. Market showed every reason that it should break back above 1060 and most likely back to fill the gap to yesterday's settlement. However it was all tomfoolery, a beautifully manipulated market. The type of movement that will make everybody unsure of their position whether long or short. I am still holding my long position, but now of course I can no longer rest easy. I will stick to my original plan and hold this position with a target of 1065. No guarantees though. This close is weak in my opinion. To be honest I want to exit.
I will not exit, will stick to the plan. We'll see what happens.......
Tuesday, August 24, 2010
Market Holds Strong After Terrible Housing Numbers
Sorry, not able to post until now.
What happened this morning was picture perfect from a technical stand point, fundamentally it was suspect. The reason it was suspect in regard to fundamentals, was because the housing numbers were terrible, existing home sales were down 27% from last month coming in well low of consensus estimates. We were trading in the low 1050s at the time, right at the key support level I talked about. The market quickly sold off as panic set in. I actually stuck my neck out and bought at 1046.50 as I saw some buy orders flurry in. The market continued to tank another 2.5 points from my entry and I was a little worried, but because I was prepared (I outlined the possible scenario in the previous post), I didn't panic. I knew we had already traded down 50 points in the past few days ahead of the housing numbers which nobody really expected to be great anyway. Also you had guys like Cramer and every other mass media news source saying the market was going down further. They were the same people who said it was the perfect time to buy earlier in the month when we were at the highs. So I had the contrarian view point going for me as well. On top of that, I figured I could manage my trade effectively even if it went against me (which thankfully it didn't). It was nice to be in a trade that up-ticked almost immediately after my entry.
It was perfect technically because we had major support at the 1050 level. This was obvious support, so it was not a surprise to see a pierce of that support, a flush of the weak longs. I felt very confident in my position after we saw capitulation volume at my entry followed by a reversal candle with a long tail. These are tough trades to catch. You either get lucky or you are well prepared. And even though I was well prepared, I still didn't know the market would reverse there, it was just an odds play. It was a good entry because I knew if it did go against me, I could get out if I managed it effectively. Like I said, we had already come down 50 points since mid week last week, so further selling would have a high percentage chance of seeing a retrace at least back to my entry.
I am still holding the trade. This is one of the beautiful things about an entry like the one I got today. I can sit on it and not worry about taking profits. Don't get me wrong, it could still come back down. I don't like the fact that we have come back down to the low 1050s again. But I am still confident that the low is in for the day. And because my entry is so close to the low, I can hold on to this position. The last time we saw a capitulation reversal like today was back on 7/29. This was followed by a 40 point move up. I am not going for 40 points here, but my target right now is 1065 which is basically settlement or gap fill from yesterday. So there it is, my analysis of today's action and my trade.
What happened this morning was picture perfect from a technical stand point, fundamentally it was suspect. The reason it was suspect in regard to fundamentals, was because the housing numbers were terrible, existing home sales were down 27% from last month coming in well low of consensus estimates. We were trading in the low 1050s at the time, right at the key support level I talked about. The market quickly sold off as panic set in. I actually stuck my neck out and bought at 1046.50 as I saw some buy orders flurry in. The market continued to tank another 2.5 points from my entry and I was a little worried, but because I was prepared (I outlined the possible scenario in the previous post), I didn't panic. I knew we had already traded down 50 points in the past few days ahead of the housing numbers which nobody really expected to be great anyway. Also you had guys like Cramer and every other mass media news source saying the market was going down further. They were the same people who said it was the perfect time to buy earlier in the month when we were at the highs. So I had the contrarian view point going for me as well. On top of that, I figured I could manage my trade effectively even if it went against me (which thankfully it didn't). It was nice to be in a trade that up-ticked almost immediately after my entry.
It was perfect technically because we had major support at the 1050 level. This was obvious support, so it was not a surprise to see a pierce of that support, a flush of the weak longs. I felt very confident in my position after we saw capitulation volume at my entry followed by a reversal candle with a long tail. These are tough trades to catch. You either get lucky or you are well prepared. And even though I was well prepared, I still didn't know the market would reverse there, it was just an odds play. It was a good entry because I knew if it did go against me, I could get out if I managed it effectively. Like I said, we had already come down 50 points since mid week last week, so further selling would have a high percentage chance of seeing a retrace at least back to my entry.
I am still holding the trade. This is one of the beautiful things about an entry like the one I got today. I can sit on it and not worry about taking profits. Don't get me wrong, it could still come back down. I don't like the fact that we have come back down to the low 1050s again. But I am still confident that the low is in for the day. And because my entry is so close to the low, I can hold on to this position. The last time we saw a capitulation reversal like today was back on 7/29. This was followed by a 40 point move up. I am not going for 40 points here, but my target right now is 1065 which is basically settlement or gap fill from yesterday. So there it is, my analysis of today's action and my trade.
Market Sells Overnight as We Look to Gap Lower this Morning
Critical Level to watch this morning is going to be 1048-1052 on the ES. I said it was just a matter of time before we break through the 1060s, it turned out to be just a matter of hours. As I said in the previous post, the low 1050s would be a critical level. When we trade down there this morning, it will be an opportunity to go for a long entry.
How to play it?
At the first sign of a reversal anywhere between 1048 and 1052, you enter long.
You grab a point or two and you sell assuming that the low will be retested. You buy the low again. Often times a lower low will be put in just to get out the weak longs. If you can afford to trade with size. You take off part of your position after the first point or two. You then put position back on as the lows are retested or when a new minor low is put in.
Where to put in your stop?
Well, 1050 is a major level, so odds are, even if it moves against you, you will have the opportunity to get out of the trade later when the market retraces back up to 1050. You can also add contracts to your position at lower key resistance to make up for the heat that you take on your first position. I don't recommend this unless you are a very experienced trader. Practice in the simulator before trading a strategy you are not familiar with. Keep in mind that this 1050 level is dangerous because there is not much support underneath it. You have minor support at 1045 and the next level might not be till 1030. You may only have one chance to get out if it does tick down, and after that there could be a precipitous drop. Like I said, holding a long here is not for the inexperienced trader if it ticks against you.
So watching 1050. I will post if/when I buy the market and will try and update how I manage the trade in the comments.
NOTE: Dangerous trying to catch a falling knife. Be careful, wait for support to confirm before taking a long, sometimes its better to miss the exact bottom in a sinking market...
How to play it?
At the first sign of a reversal anywhere between 1048 and 1052, you enter long.
You grab a point or two and you sell assuming that the low will be retested. You buy the low again. Often times a lower low will be put in just to get out the weak longs. If you can afford to trade with size. You take off part of your position after the first point or two. You then put position back on as the lows are retested or when a new minor low is put in.
Where to put in your stop?
Well, 1050 is a major level, so odds are, even if it moves against you, you will have the opportunity to get out of the trade later when the market retraces back up to 1050. You can also add contracts to your position at lower key resistance to make up for the heat that you take on your first position. I don't recommend this unless you are a very experienced trader. Practice in the simulator before trading a strategy you are not familiar with. Keep in mind that this 1050 level is dangerous because there is not much support underneath it. You have minor support at 1045 and the next level might not be till 1030. You may only have one chance to get out if it does tick down, and after that there could be a precipitous drop. Like I said, holding a long here is not for the inexperienced trader if it ticks against you.
So watching 1050. I will post if/when I buy the market and will try and update how I manage the trade in the comments.
NOTE: Dangerous trying to catch a falling knife. Be careful, wait for support to confirm before taking a long, sometimes its better to miss the exact bottom in a sinking market...
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