(1) DJI up against strong resistance from 2 sources; one is last week’s HB and the other is from the 8-hour SMA declining upper band. Just because price should move lower from this area doesn’t mean it will however, either way, I’ll learn something about the relative strength of the buyers and sellers this morning. If sellers are motivated they should be able to hold the line here and turn price lower. If they are unable to do that I will be looking for bullish follow thru higher to at least yesterday’s high. More updates throughout the day.
At the time I posted the previous chart (above) DJI was at good location for a short (bearish) trade. After I posted the chart price moved less than 5 points above the stop shown on that chart but the stop wasn’t triggered. Why? Price acceptance! I’ll usually mention whether a stop is a hard stop (anything above that level is stopped out) or a soft stop (price acceptance above a level is stopped out). Price acceptance happens when price is able to trade at a level for a period of time where significant volume transacts. How much time and how much volume? That’s where chart analysis is more art than science. I personally look to see at least 15-30 minutes of trading taking place to consider that price is being accepted by that’s not definitive. The market profile chart is a good way to monitor price acceptance. The bearish setup from the first chart is still in effect and would be profitable as of now. Price moving back above last week’s HB would be a warning sign that bears are not strong enough to follow thru today so watch the 35326 level. Also, if price doesn’t keep the downside momentum the hourly bands will start to flatten then curl up. That means the bulls are taking control.
Below is the DJI chart at today’s close. Price never did exceed today’s 35356.80 opening range high (for more info on the opening range read further down in today’s post). Remember that today’s entire analysis of DJI included no references to RSI, MACD, or any other indicator! I simply looked at the important price levels (for today last week’s HB was especially important) in combination with the 8 SMA bands. Nothing else was needed. Think about how much time I save by ignoring everything other than the price action.
(2) I used that same bearish setup that was shown on the DJI charts (above) to actually trade SPX. After entering the bearish position I didn’t need a large price move to allow me to Delta Hedge (DH) the position and reduce the cost from $12,500 to just $500. It’s important to note that I didn’t carry that risk overnight or through any important announcements (Fed announcement occurs within the hour). That’s why I’m willing to take on more risk than I would for an overnight position. Either price does what is should do relatively quickly or I’m out of the trade.
Below are the trade fills from today’s SPX trade.
(3) From past experience I know that the high or low from the opening range (first 30 minutes of trading for the day) is the high or low for the entire trading day about 80% of the time. When the first 30 minutes of trading in AMZN had concluded today I had a pretty good idea that the high of the day was in for the stock. Price reversed within 1 point of yesterday’s HB and closed the opening candle looking very much the bearish reversal candle. BTW, the candles on this hourly chart are set to open on the top of the hour. That means the first hourly candle of each trading day represents 30 minutes of actual trading or, in other words, the opening range.
(4) When /ES broke down late this afternoon I went for one more ‘scalp’ or at least the DH version of a scalp! Below is the risk profile of a Put 5×6 Ratio spread. Was able to lock in a minimum $50 profit.
And here’s the order fills. With that /ES late afternoon tank I was able to do this ‘scalp’ in just 40 minutes. Instant gratification is so much more fun than those grinding, slow moves! That’s all for today.
Nice. Last week’s HB looks particularly important here, since price reacted to that level repeatedly yesterday.
Agreed!
Yesterday’s HB is also doing its part on behave of the sellers. Price has been pinballing around that level all morning
A bit late to comment as price broke down – Yesterday’s HB was also doing its part on behave of the sellers. Price pinballed around that level all morning.
That was one nice quick trade! Was DH put on when the price touched the 8-hour SMA middle band? ‘Cause that would be an area of support for a reaction, at least upon first contact
The hourly bands had started to turn up and price was in between the now rising lower band and the middle band. Plus, yesterday’s HB was right there also. When price moved back above yesterday’s HB I DH’d the position.