Epilogue – 8/2/2021

Today was the first trading day of the month, typically a strong day with payroll deposits and fund flows. Per the previous discussions on these pages, August can be a weak month, and this first day may have set the tone. The overbought nature of the market is stating the obvious. The opening price for the month will be a key level to watch as it will determine whether the month is a bull or bear bar.

The day started positive, with a small gap higher. However, the price went into a trading range right from the start with no follow-through on the first gap bull bar. Granted, a fade was in order, given that overnight inventory was 100% long. But I also cautioned not to interpret too much from the gap this morning due to context.

Traders pushed the price almost down to the moving average, and there was a legitimate long trade on a pivot micro double bottom. However, the market tucked under the Navigator Algo trigger, and that gave me pause. The market did attempt a rally but hugged the trigger and tucked under it again, which put me in wait and see mode.

From there, the market consolidated in a triangle pattern. Because trading range opens typically lead to trading range days, I was reticent to go long. Once the triangle broke down from the apex, and below the key moving averages, it was simply a matter of shorting from the MAs with confirmation from other patterns down to the bottom of the six day trading range for the rest of the day. In addition to the range bottom, our downside target at double the opening range breach was almost at the same level. Shorts from the MA were also confirmed by two double top flags, the Algo trigger, and a down trendline. 

To digress just a minute, this strategy is all about one of three scenarios. Either we are working a trading range, and the MAs are useless. Otherwise, on a trending day we are shorting from the 5-Min 21 EMA when the market is under it and buying on the line when the market is above it. Wide trading days can present mini-trends that can be worked from the MA as well.

The upper time frame MAs are there primarily to help us with context, trend reversals and help interpret the trend’s strength or weakness. The trend is more bullish when all the MAs are stacked higher from the smallest to the highest time frame and vice versa.

My notes appear in the chart above. I don’t typically trade Mondays and only took the breach trade for 9 points in the morning.

We closed slightly below our 5-day stop line but at the bottom of the six-day trading range. So I decided to give our swing trades another day.

A.F. Thornton