As expected we didn’t see much action off the open with the market content to base in around the low 40’s. If you piece together the puzzle it all makes perfect sense. The entire rally into the 50’s was a complete falsehood from a volume perspective as we reported mostly all last week. When the final test failing in a double top high failure the bow broke and the cradle fell. There just wasn’t any new long volume coming in as all the institutional position traders have been long way back at the 1100 break and stopped adding above the 30’s. The mid 30’s are now acting as support and we will see no need to retest a double topped high in the absence of good or at least moderately significant news.
The order flow was reasonably strong off the open into the 44 handle so I passed on the fade and when it continued I felt good about a quick scalp from 45 into 46 for a retest of the overnight highs. I was right about the trade as mentioned pre-market but it failed to retest (which rarely happens) so I ended up having to close out for a 2 tick loss. I still feel it was a high probability trade though. You will also note that I mentioned pre-market I didn’t want to be too quick to sell the overnight low as there would be no volume conviction with all that messy wide range of resistance from 40 all the way down to 35. As it turned out that was spot on so I’m glad I didn’t sell it as fills would have been questionable with the lack of liquidity. You will also note the lack of relative volume as it bases in around the 38 handle as I write this at 12:15 EST. We almost faded the first move down to test the overnight low but again, it failed to get there. We gave up as conviction was non-existent and were happy to book the two tick loss. We are always content to walk away loser when we know that this is about as bad as it gets when you limit your ES trading to one or two trades a day in the first half hour to an hour at the most. It allows you to be really binary in your decision of “to trade or not to trade”. If there is no conviction, regardless of which way, standing aside is always the best decision.