On a couple of housekeeping notes, I will be out next week taking some time off and finalizing our new web subscription and trading room services. Unless there is an important buy or sell signal, I will only publish the weekly View from The Top Down report. There will be no daily updates.
Yesterday was, indeed, impressive. And I can make many arguments that we should break through the top of the trading range in the next few sessions. If so, 4450 is a reasonable target, about 50 points higher than the current price at this writing. Is that a lot? No. We practically covered that distance yesterday.
The cautionary note is twofold. First, trading ranges are self-reinforcing and not always easy to break in either direction. Second, the market can pop higher from the range, only to reverse in what we call a bull trap. It is also called a final bull flag.
The reason I tell you this is not only to be aware of the risk day trading. It is easy to get lost in the weeds. But as to our swing trading positions, I always worry that anyone following these pages may not enter timely when we do, putting them at a different cost basis. I worry about the same on the exit. You have to stay alert and watch your emails so that you can execute as close as we do on entries as well as exits.
Balance Rules are applicable in this 37.25 point trading range. If we look above the old high at 4422.50 and then reverse, the probabilities are that we go back to the bottom of the range at 4365.25. If we break the downside of the range in that process, the measured move is 4350 or so.
If the volatility on the swing positions is more than you can bear, then exit on any strength today and tomorrow.
Today’s Plan
Overnight trading was inside yesterday’s range but bullishly in the upper third. However, we dipped a bit pre-market on the ADP job numbers, which came in half of what had been expected. There are innumerable signs that the economy is either slowing or anticipating a recession soon. This would not bode well for the market or our current positions, so this is weighing on my mind, at least as to fundamentals.
For downside referenced today, you have the overnight low, of course currently at 4898. I would call penetration of 4395 at the top of the single prints my “nervous line” Yesterday’s halfway point or halfback at 4391.25 is my line in the sand for bull/bear trades.
The main upside reference is the all-time high at 4422.50, but you must get through the overnight high at 4415 and yesterday’s high at 4417 first. So there will be some work if we get up there, including the usual stumble at the 4400 roundie.
However, the guiding principle in day-trading a five-minute chart is the 21-EMA. Under the line, you are looking to short from the line. Over the line, you are looking to go long from the line. You use your patterns and other work to confirm reversals when the price gets stretched too far from the line.
Finally, we may open with a small orthodox gap down. It is not a true gap, so Gap Rules are inapplicable but be aware of it.
Good luck today.
A.F. Thornton