The upward momentum of the Dow Jones breaks overhead resistance and closes near its high for the session.(See chart below). I am not surprised but it is not what I expected. This is unusual behavior but as I mentioned, the market can do what it wants. For many, selling into resistance, on strength, is OK. You may or may not get the exact high but you will get a good price as you close out your positions. In trying to anticipate a market turning point to establish new short positions, in this daily market before it happens, is not always the best approach. I have done this on occasion in my own day trading, anticipating the likely path of price, but it is usually best to let the market confirm and tell you what it will do.
At this point, as mentioned in my last blog posting, being objective and open minded, the current momentum is still up on the daily as well as the weekly, and monthly. A break down will first be seen in the daily but until that happens, the path of price is still up even though it is surpassing some good established resistance. It is best not to argue with the market.
At key market turning points, it can be very tricky to catch the top. With that said, I have an updated chart of the Dow with the same notes as I have been writing all along the way. You can see the most recent comments from three sessions ago, about the current trend. You will see the comment, “IF”. That is a big word in that it is conditional. If this, than that. If, something happens to trigger the selling, you will see a lot more of it. If the momentum remains intact, the path of price is still up, just as it is.
In the monthly chart there is room enough for price to move up to the 16,000 level and still be at the extreme high of that chart pattern. Is it possible for prices to move higher than that? We would have to say yes. Would I be surprised if they do significantly, yes also, but that is just my opinion. I could be wrong at any time, because that is just the way it goes and apart of being a trader. We don’t or won’t always get it right.
We as traders should only move on the market when the price has confirmed it’s intentions. Taking a preemptive strike can work but when establishing a new position, but it is best to wait for confirmation. That is what my method would say anyway. I know others will often do different and that may not be wrong for them, but may be how they take on risk. We don’t pick market tops and bottoms to establish new positions, but are happy with a piece or pieces in the middle.
With that said, let me bring up today’s NQ emini futures trading in the late morning. In looking back at it, I will point out an example of just what I was talking about.
In the bigger short move about 8:30 West Coast, that was a 9 point move on the last portion of the original entry. I took on only 2 ticks of draw down after the entry and closed the last on the original entry, just one tick off the low of that move. That is an example of covering into weakness, which would be the same as selling into strength if long.
I would not try and buy that spot to establish a long position, but others in their method may try and do just that. It is different. My method pointed to that area exactly and that is what I call a “trade to target”, but covering some along the way is a conservative approach. I did add on, before I started to cover any, which can bring on more risk, but good trade management had me covering all the position if it turned against me for a still healthy gain.
You can see what a I call a “market turning point” just after that low mentioned and that would be a safer place to get long, not because of the indicator, but the method first. Price and what makes up the possible trades is always first and the basis for our trades, The indicators do a nice job to confirm, but is never the basis for the trades themselves. That is very important, for us anyway.
I hope you all have enjoyed the commentary and examples on the market action. I will be back to pick up where we left off soon. Best trade to you, Vince