Hard Earned Profit...

These last rally legs have been very tough on me and not just because of my core short position which is in desparate need of correction. It has been tough because my timing has consistantly been just a bit early in all time frames. This includes my swing trades, day trades, and scalps. When you enter early, you have to endure a greater risk and worse, you tend to bail with a smaller reward - only to watch the setup complete according to analysis. I have been working on this during the last month, trying to improve my timing and endure longer when I do go in too early. I have been doing a nice job of it, but it is hard and stressful work.

Take for example the short position I took yesterday before the close on the ES. I took the position on gut - backed with substantial technical analysis. The initial position was smart but I should have scaled my position more conservatively. Without going into all the details, I built a full short too early and eventually traded 20 ES contracts and a number of dollar contracts throughout the evening and morning to scalp enough profits so that I could enter the open at my maximum $ risk level. Now, considering that the futures drifted fairly high last night and the blow-off at the open, I am quite pleased with how well I did. My wife on the other hand would prefer that I sleep. Anyway, the real problem with early entry is the tendency to exit prematurely at first signs of profit. I covered all of my positions in stages during the down move - with the last contract covered at 110225. This means that I left many points on the board - which translates into many dollars. At the same time, I have learned NEVER to complain about a profit. I earned about 3x my daily quota today - and for that I am thankful. Further, I am flat going into the jobs report - which will allow me to sleep peacefully this evening. (See my prior two posts for a more complete understanding of the setups)

What is in store for tomorrow? Jobs Friday. Expect volatility - but more importantly, the market will reveal it's direction. There are two paths, one is follow through on the sell side, the other is a breakout to new highs. I personally think we will see follow through on the down side. If you refer to my rectangle post, you'll see that the "Bull Zone" was entered and rejected after the false breakout at the open. This breakout, was a stop gunning exercise at a MAJOR resistance point to trigger a short squeeze and allow the larger participants to take positions in advance of the new trend (which will be down). The rectangle has a height of 30 pts - and anyone who got short during this squeeze expects prices to head down to 1084 at a minimum.

In addition to the false breakout, many bearish things took place from a technical standpoint:

• Crossing down through the 20p MA on the hourly chart


• Crossing down through the 50p MA on the hourly chart


• CLOSING well below both these MAs with heavy selling into the close

The 1 minute chart is gruesome - with both the 20pMA and 50pMA passing down sharply through the 200p MA. The real chart to look at is the daily:




This last reaction high is really ugly and extremely volatile - suggesting something wicked is about to happen. Look how ugly this top is compared to the round smooth top of the prior reaction high. Statistics favor a cross of both the 20pMA and the 50p MA during this down wave. Tomorrow is SUPER CRITICAL as price action is confronted by the bottom trend line of the wedge and the 20p MA. Both points tend to cause price bounce. If we break out of the wedge and head to the 50p MA - we'll be at the 50% retracement level for the rally leg. I love 50% retracement levels - especially when I am short and they fail!

Sorry I can not do a better job tonight - way too tired.

Good luck out there!