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 November 20, 2003
Commentary-
Today was an interesting day. Although I
found that there were a few nice daytrading opportunities, the conflict in the
daily bond and ES charts still hasn't resolved. I'll start with the daily chart
of the bond, showing the grouping that we have been following.
The bond has went right back up to the
grouping to test it again. This is now four days of 'sideways' action, all just
under the grouping. My experience has been that when an issue barely bounces of
off a grouping (especially when it is also a 5-point pattern) and then 'hangs
around', it is showing little respect for the grouping, and the grouping is
getting more likely to fail. I like to see a fairly sharp reaction off of the
grouping. Let's look at the action on the lower 60-minute timeframe.
Recall how I said yesterday that I like to call entries
like the swing-low violation highlighted in this chart 'guaranteed heat'
(because of the likelihood of an imminent bounce)? Now you see why. Notice how
a stop placed above the grouping would not have been hit at this point, but as
I mentioned yesterday, it would have been a very wide stop.
In my
commentary from November 18, in reference to the ES, I said: "Right now I'm
thinking the downtrend that is becoming clear on the 60-minute is the one to
watch. With the overall sentiment so bullish, though, I'd keep an eye out for
some range trading in here." Take a look at the 60-minute chart.
Now, that's what I call indecision. I feel that the
technicals say down, and the sentiment says up. Right now they are battling it
out. And how does this fit with the daily chart of the ES, and the grouping
that we are watching there? Take a look at this chart.
The grouping was penetrated, and I abandoned any
interest in the daily long trade when there was no follow through. But the area
of the grouping is still the area in play. Does this chart remind you of
anything? You got it, an upside down version of the bond chart. That's likely
because a large part of the time capital flows from one area to the
other.
As I mentioned yesterday, a decision has to be made in here. It's
fascinating to watch. I expect the volatility could increase greatly when this
area finally 'gives way'. That should be good for trading. I don't need to
'predict' which way this thing is going to break to be able to trade it. I'll
trade whatever happens, not what I think might happen.
I'll leave
the option trading readers with a thought. What strategy comes to mind when you
see an area where the pressure is cranking up, the issue isn't moving yet but
you expect something is perhaps going to happen, and the implied volatility on
the options is still relatively low? One strategy jumps right out. Down the
line I will be writing a book on options trading, which is the area where I
'got my start'.
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