Well, here we are at the halfway point of another year. Already here in Europe, more lockdowns are in the air as the “Delta” strain of the China Virus begins to run its course. Apparently, Sydney, Australia just seriously locked down with maximum restrictions for two weeks. Say what you will, but politicians have been drunk with lockdown power, and many favor these measures to enhance them. What will happen this fall and winter?
Perhaps this fear is at the root of the recent taming of inflation and interest rates. Maybe another virus strain is helping drive the FAANGMAN+T group back to the forefront, as we saw at the Pandemic beginning. By the way, natural viruses weaken over time. Is the new “Delta” strain an example of “Gain of Function?” Will there be more Covid-driven economic weakness ahead? It makes some sense that the economy is peaking again and that might explain recent rotational shifts.
Anyway, we saw a liquidation break in Globex last night (get used to them). Liquidation breaks tend to occur when the short-term crowd is running the tape (and they are). The price climbed just short of yesterday’s high before reversing and landing briefly below yesterday’s low. This also took prices below last week’s close. Globex price action also broke the short-term wedge and our tight bull channel.
The overnight low coincided with the 5-day line on the 24-Hr S&P 500 index futures. This now becomes the line in the sand today. Price has recovered, and we now sit below the regular session low from yesterday and in the lower third of yesterday’s 24-Hour range.
But yesterday’s settlement (the true “close” on the futures contract) was at 4282 (at the new 5 pm EST settlement time). 4282 is proving to be some resistance as the market tries to recover from the liquidation break in Globex this morning. We have broken the Navigator Algo trigger on the two-hour chart, and the 21-EMA is providing some resistance as well. Whatever your time frame, the 21-EMA is a good line in the sand for bull/bear trading. Above it? Buy pullbacks to the line. Below it? Short from the line. Don’t forget to draw trendlines to assist you, even on a 5-minute chart.
If our two-hour “master chart” is trading below the 21-EMA and trigger line, that will negatively influence our 5-minute trading chart, at least until we get a trend reversal on the trading time frame.
Overnight inventory is balanced, so there is no inventory adjustment to guide us in taking an early trade. Since we are inside yesterday’s range, there is not much else to guide us out of the box. In such cases, I use the first 30-minute range as my guide.
As always, I let the range break first, then buy the first pullback on a true pivot. You can still get faked out, but it is usually reliable if you are cognizant of all your key levels and market internals.
Remember, a range day is the default program. Trending days occur far less often. The only question is, where will the range find its top and bottom. That will usually work out in the first hour to hour and one-half of trading.
Mixed internals? Be suspicious of break-outs. The internals should support the direction you want to take. Mixed internals support range days. Also, don’t forget to run your heat map and check it periodically. This will tell you if the FANGMAN+T stocks carry the indexes up or down due to their cap weighting and despite mixed internals.
Pivots are important. In any time frame, when your candles are rising and the price closes below the candle to your left, that is a character change and vice versa. The fact that we already carried a price below yesterday’s low (pre-market) is noteworthy. The bears were unable to press the range lower thus far, and that is positive. On the other hand, if we were to retest those levels and or close below the 4269.25 overnight low, the tone shifts to bearish.