Tuesday, July 21, 2009

Reaction low

Here is a five minute bar chart of the last few e-mini day sessions. I estimated this morning that today's day session range would be 940-960 (blue rectangle). Now I think we have seen the high of the day, but I also think that the drop from this morning's high is nearly over. Why?

The biggest break on the way up from the 865 low was 15 points, and a break of that size from this morning's day session high would halt at 939 (purple rectangles). You can also see a short term trendline (green dashes) which currently stands near 940. Midpoint support is at 941 (purpled dotted line). Finally, the low 0f the trend channel encompassing today's drop stands near 939.

I conclude that the 939-941 zone is strong support. Whether or not it can support a rally to 960 remains to be seen.

Some of you may wonder why I got long at 948 earlier when I had predicted a 940 low for the day. The reason is important to keep in mind. Never trade as if your forecast is sure to come true. Instead you have to weigh probabilities, the evidence before your eyes, and compare the likely gains and losses of alternative courses of action. After the initial break this morning I noticed that it carried the market down about 9 points - reactions during the past few days have run 7-10 points. I was bullish and didn't want to leave a good profit on the table if the trend should turn out to be even stronger than I thought. So I bought a reaction that carried the market about halfway down to its earlier low at 945. I had to take a small loss, but I will do the same thing in the same circumstance next time.

1 comment:

Ron said...

I think we may have a turn higher starting just after 2:00 , as we may get a little planetary improvement at that time and it fits very well with your support levels.

Let us just see.