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Innovation vs Responsiveness 2

Variations on a theme, and context

real time SPY predictions

Today, as I wrote the “Innovation and responsiveness” entry, interestingly, another version of what seems like this same phenomena was playing out in real time.  The ES, e mini futures on the SP500, have been in a trading summer range from 2149-2172.

ES breakdown 8-2-16

This range has lasted 13 days.  This is historical.  Historically boring.  Last time such a narrow range lasted so long was in the time of Nixon.  4 decades ago.  Summer trading is notoriously boring.  But gimme a break!

The fact that it broke down, and spent some time building volume below the critical level of 2149 says to me that the ES is now a short.  This seems to defy the concept of leaving a range, and then re-entering it.  It did re-enter the range by the end of the day right?

Plus, look how it broke above the range, seemed to hang up there, then went back in to the range, and indeed, did complete the 80% rule.  Why would this time be different?  Shouldn’t we target the top of the range again?

This is playing out in real time.  So I don’t know how it will come out.  But here are a few points in my thinking.

  1. The breakout at the top happened in the over-night session. Specifically the Asian session.  At midnight, the European session opened, and promptly sold the vehicle back in to the range.  For some reason, the Asians are often wrong.  They usually complete whatever the pattern of the day seemed to be.  The Europeans often reverse the Asian action, and are more often correct.  Also, even though price seemed to hang above the range up top, not a lot of volume trades in the over-night session.
  1. Tomorrow I will start looking for short entries anywhere up to the range mid, which is 2160-ish. Note, this is exactly where the breakdown today commenced.  In some cases, price will move back to the place where an initiative impulse started, and the same sellers or buyers will seem to reappear (sellers in this case.)  Above this level the idea is obviously wrong, so it would be a reasonable entry.
  1. When price breaks out of balance, it is compressed. Coiled like a spring.  We expect a large move.  If the sell-off resumes, it could fall dramatically.  So there is good risk reward.  There is no real resistance until the breakout from the all-time high, which it has never retested, at 2110.
  1. The SP500 is in a very bullish posture. And even though this 2 week range looked like a bull flag, that “should” continue up, the product was very over-bought, even just eyeballing it.  You don’t need stochastics or moving averages to see it.
  1. The SP500 ending the July month at the very top of the monthly range is very bullish. It really really appears to want to go higher.  Significantly higher.  In order to base, for a real run higher, a pullback would be healthy.
  1. We have some really juicy targets way below. The breakout level at 2100.  The 50% pullback at $2080.  (There was that Brexit breakout.  But the market called BS on Brexit through all its subsequent actions.)
  2. ES targets below 8-2-16If this idea is wrong, and price climbs above 2160, and resumes up, it will be a grind, before the upwards breakout happens, if it does. There will be plenty of time to unwind the position for little loss, or even reverse.

 

 

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