Reviewing Today

Here is a quick review of my thinking today. Above this post you see a 5 minute bar chart of the e-minis day session courtesy of Interactive Brokers. I have labeled the key points of the day with capital letters and drawn arrows down to the corresponding volume bars.

The day started with increasing volume visible at point A and the succeeding bar. The volume level here was quite a bit higher than at the corresponding time yesterday. I might add that yesterday's session finished with a high volume rally off of the day's low, another clue that today would start bullishly.

In any case I came into today thinking that a big rally was about to start and so I started to look for a chance to get long on a reaction. I didn't want to chase the market because it was still below the last rally high at 873.75 which was established prior to the overnight low at 857 earlier this morning. So I went long at 867.25 on the break from the initial high at 873.75.

At point B the market gave its first warning that sellers were about to take control. The market put in an outside bar to the sell side. Volume picked up noticeably, especially for mid-session trading. Worse, this indication occurred after a rally to the earlier top which carried only a tick past it.

I decided to stick with my long position figuring that the break would hold 865. I was still bullish and didn't want to take the chance that this selling indication was a fakeout and thus lose what looked to me like a pretty good entry point.

At point C the market took out its first reaction low on a visible increase in volume. This is normal when stops are being cleaned out so I stayed with my longs waiting to see if the subsequent bar would show a quick recovery. It did not so I sold my long position.

Volume picked up even more as the market dropped still further at point D. I went short here figuring that if the bulls wouldn't support the market we would have to drop to 850 or so to find more buyers. If this analysis was correct I figured that the market would drop lower right away and the volume would increase as it fell.

The market did fall further but volume did not pick up as I expected, so I covered my short on the rally just prior to point E. The low of the day was made on the high volume bar at point E. I noticed that the close of this bar was actually in the upper half of the bar and in the span of the preceeding rally, so I suspected that my decision to cover wasn't as dumb as it appeared. In any case the very next bar labeled F was a very wide range bar to the upside with volume nearly as great as that of the preceding bar which was itself a high volume bar. This made me think that the buyers had taken control again so I went long looking for a strong rally to finish the day.

At point G we see another high volume, wide range bar. Any high volume bar at the extreme of a trend can turn out to be a climactic bar which ends the trend. The key thing is to watch for the follow through in such cases. Here I wanted to see the low of the bar at G hold. If it didn't I would conclude that it indicated the end of the upswing from point E and I would sell my long position. This I did about 10 minutes later.

After I captured the chart you see above the market rallied back to the level it had reached at point G. The market is about to close after putting in 5 distinct swings through a day with a range of only 16 points. This is unusual action and I think it means that the drop we have seen during the past 5 days is about to end (if it hasn't already) and that the market will soon rally strongly.