Potential price action that I’m interested in: long, E-Mini (S&P 500) Futures.
The S&P 500 index futures is breaking 2790 resistance. I’m not a fan of this trade, but sometimes the chart is just so demanding, it’s unwise to not listen to it. I have to stick to my rules. In this case, the horizontal resistance is too hard to pass up. I had been expecting a head and shoulder reversal, to continue the correction that started in February, but last Friday’s job report triggered a massive rally, which is destroying the pattern. A failed H&S can be a powerful continuation pattern.
The reason I don’t like this trade is because I don’t have a good place for a stop. A stop at the lows of Friday is about 60 pts away, which is equivalent to $3,000 a contract. That’s beyond my comfort level. It will stick to my $500-$1000/contract range. Given the recent volatility, this isn’t a very safe place to put stop.
Another reason not to like it, it’s because it feels like I’m so late on this trade… and I’m starting to see some wide-spread optimism in the market, which is a harbinger of euphoria. Euphoria is a harbinger of disaster.
Reasons to like it… well, everything is right with world, right? If even North Korea wants to sit at the table with Trump, then nothing is going to stop this rally… right? At least in the short term, I think so. We can argue about long-term issues, but I’m not trading those timeframes. As matter of fact, given the small size of the account, I can barely trade the daily bars. I’m really spending more time on hourly and 30-min bars.
The other sign of optimism for the direction of the trade is the fact that despite the ridiculous move we have had in the last five years (I’m still pissed at the profits I took at 1,400 at the end of 2012!!!), many voices are still negative. Euphoria is still not here. It reminds of a story I will tell another time, about the people who got hurt by major crises such as the Great Recession. They don’t seem to recover confidence very soon, if ever… If and when they get excited and the voices of dissent are very few, obscure, and ignored, then I’ll consider protecting my long-term investments and find trade opportunities on the short side.
UPDATE 3/12/18 – 10:10 AM
I’m already out of it. I didn’t like the overnight action. The rejection of the 2,800 resistance. I’m open to getting back into it, but I need to wait for a better stop level.
I exited at breakeven. Short-term, as in a day-trade, a short trade is plausible.
These are the challenges of having a small account. Have to be more nimble and open to looking at the hourly chart, for example, instead of the daily or weekly.