Monday 26th August – ES_F Review

Good morning fellow traders – who said trading in August is dull & boring!? Friday’s sell-off was incredibly aggressive and laced with a high degree of emotion as the ES smashed through some significant levels with ease. Typically, in these types of scenarios, I just get out of the way. I happened to be short (by pure fluke) when the first tweet was posted pre-open and took a decent winner, but I know how I tend to trade in the context of emotion from other market participants, so took the decision after watching the open, to pretty much down tools for the afternoon. There’s definitely people who caught a good short and ran it for good money, something I’ve always struggled with, so I know it was a good decision to stay out of the market. As I mentioned on my Twitter feed, the opportunities that present themselves in the days following a day like that, more suit what I’m trying to do in the market, without the backdrop of extreme levels of emotion from other traders.

I mentioned in last weeks posts, that I was of the belief that some big money, other time-frame trader(s) got long a week ago on Friday below the 2900 level. Some serious volume traded in the single print sell-off when the market broke 2900, which from my perspective looks like some big stop-losses being hit.

In the previous posts, I spoke about trying to get resolution of this particular period (2880-2930, last 10 days), and we were agonisingly close to breaking above the 2945 level before the tweets hit the wires. I genuinely felt we’d break that level during Friday’s cash session. But I digress.

Overnight, we saw some downside momentum into the sub 2820 region, but it’s quickly reversed and is now trading in the 2860’s region at the time of writing this. This information in itself is worth noting, that the low of this move printed during the Globex session rather than during the cash session, so the significant low that holds more value is 2834. I borrow Jim Dalton’s terminology regularly when I talk about Market Generated Information or MGI, this piece of MGI is important, and it’s worth carrying forward for any potential return to that zone during the cash session.

This morning we’re probably looking at a decent gap up from Friday’s session close which presents us with two scenarios; either the market tries to close the gap or it doesn’t. There are some fairly weak longs above Friday’s low and any retest of that area may see increased selling as those longs liquidate. Attempts to close the gap and correct itself will likely see a retest of Friday’s low and all that comes with that – either buyers step in or they don’t. To the upside, 2904-6 previously acted as good support, so we should expect that to be a profit target for longs, and an area where new shorts potentially enter the market.

Today & tomorrow will be interesting days to see how this plays out.

EDIT UPDATE: 1 hour into Monday’s cash session, inside day looking like playing out. Extremes of Friday’s range should be a nice hunting ground.

Good luck & happy trading!