A day in the life...

Well, today was another good day for me - at least until this point. We'll see if my short ES contracts perform for me this evening (once all the last minute short covering is complete).

Today was a day-trading day. I was hoping it would be the start of the down swing - but no such luck. I guess a 10% decrease in housing starts when the economists were expecting 1.2% increase is really no big deal. So on days like this you have two options:

1. Sit out and wait for your breaks
2. Get in there are fight for every dollar

Since I am working to erase a terrible loss on Monday, I had to go to the front line. On such days, I only care about the 1 minute chart of the SPX and a variety of charts on the ES. I do not trade cash equity on these days - futures contracts only. Open the 1 minute on the SPX:




I have tried to highlight the features that I used to make trading decisions. First, my bias was that the market would see pressure during the day. I maintain this bias because all of the technical indicators suggest that we are at or near the top of this last reaction wave. This combined with the dose of reality from the housing starts data, in theory, should have resulting in a good deal of selling. With that bias, I took a short position ahead of the open. I actually took the position ahead of the report. For me, it was a low risk entry as the noise following reports always dampens in a few cycles and I entered with the intent of starting my swing position anyway. Anyway, here is the daily:

After a few moments we saw I quick pop followed by sell significant selling. In the process, a gap opened up "intra-day". Now, this is different than a gap that spans two sessions - however, it has similar effects on price action. Whenever I see such a gap, I immediately think of EWT theory and assume that the gap splits the price thrust in half. Hence, you see a fib grid dragged across with the 50% level bisecting the gap. As soon as we hit the bottom of the grid - I took my first profit for the day.

Of course, price did continue downward over the next 10-15 time slices - but it was choppy and the RSI was touching oversold and it was no longer making new lows. This made it clear for me NOT to enter short at that time.

Once price start to rise our attention must turn to above. Where will resistance be? Of course we watch the support points on the mirror side of the price action, but what big tests are there? For me, I like to watch price interaction with the MAs (moving averages) and the BBs (bollinger bands). In this case, we also had a GAP! When price only hiccuped at the 20p MA, all eyes to the 50p MA. By the time price reached the 50p MA, the 20p MA was already turning and we had already passed through all of the support levels on the mirror side of the price. That meant that the GAP was a likely target. The location of the 200p MA supported that theory.

We blew through the gap but price was met with some resistance at the top. This is a good sign - however it is important to let the price action fully explore the gap and decide what the heck it wants to do. In today's case, the price action re-tested the bottom of the gap and shot up - in bits and spurts. Whenever I see that kind of action (spits and spurts - short little price bursts) I get ready to short. Note how much stronger the price action was on the sell wave following the weak second thrust through the gap. I know it is hard to look at it on screen in static form - but if you traded the session today you know what I am saying.

At this point, I decided to start my first trend line - connecting the opening high with my suspected first reaction in a down trend. This line served me well throughout the day and was used in combination with the ES charts, volume and RSI to make most of my decisions. I will not go into each one as I traded 8 setups with 7 wins and 1 loss. I will say that the 7 winners occur ed prior to the trend change.

The trend change - ah yes, the trend change. It is funny that I spoke of the RSI yesterday and last week. Guess what tipped me to the trend change - in advance. You got it, the RSI. Even on the minute chart this baby can be very useful. Today, the RSI helped me three times (actually, only twice so far - I am hoping for three tonight). I spoke of the RSI and how it created concern in the opening session lows. Now look at the middle of the session where we set reaction lows, one after another, with flat over-sold RSI indications. That was the signal for me to cover all shorts for a trip to the top trend line.

At that trend line a break-out was signaled when price started to congest along the line. The 20p MA started to act as support for price action, which when combined with the fact that we broke through the 50p MA, almost guaranteed a break-out. I did not trade long as I refuse to take long positions when I am convinced about a swing change. Price ran to the bottom of the gap where it consistently met resistance due to the price consolidation that we have been seeing for the last couple of sessions. We even saw a classic retest of the down trend line. Once we bounced off of the down trend line, I created a new uptrend line connecting the last reaction low with the bounce point. I then duplicated the line to project the top line of an up channel.

From 3:00 forward, we saw some strength that carried price action back through the gap - short of the channel top. I noticed that again the RSI was diverging and took my final short position in anticipation of a selling wave. Unfortunately that sell wave did not materialize, or was absorbed by a greater amount of short covering.

We closed the day at the top of the channel - and I have decided to short the ES overnight - anticipating some selling pressure into the open.

There you have it.

Good luck tomorrow.