Wednesday, December 22, 2010

Emini Futures Trading / Rare Statistical Anomaly


from the trading desk of CFRN...

The Energizer bunny keeps going and going and going……With help from the energy sector and a few economic reports today, the SP EMINI ground out another new high.  Crude oil and products were lifted with a drop in inventories today.  Crude regained the $90 level and that lifted energy stocks.  3Q GDP was the first report that came out today with mixed reviews.  The commerce department reported growth in the 3rd Quarter expanded at a 2.6% pace however the street was expecting closer to 3% growth.  Experts say we need growth to be higher in order to get the unemployment situation under control.  The bottom line, the market ignored the mixed sentiment and rallied on the news.  Next up to the plate was Existing Home Sales; Existing home sales reported a rise of 5.6% in November which was better than expected.  All in all the economic reports were not disappointing leading to the modest gains.

Technically we're still in a bull market despite the sluggish energy.  At the trading desk we still prefer the short side from this level and our last Weekly Trading Zone of 1151/1152 level.  With the close we're behind the 8-ball but we like our position.  Additionally, despite being overbought there are a number of sentiment figures suggesting a top is near.  Of course that doesn’t mean we have to trade lower but there are some signs on the wall.  Now, if the SP EMINI continues to grind higher, one should expect the markets to see resistance at the 1258/1259 level and as high as 1266.  If the SP EMINI starts breaking down, in the short term, I’m not going to rule out a break to 1246/1244 level and the 1238/1239 Weekly Zone for the CFRN listeners.

Volume is going to get worse, so sometimes, the best trade is NO trade.  Just a thought!

Statistical Anomaly from the Desk of CT
Price closed today above our highest Weekly Trading Zone. Based on historical data there is only a 6% chance of this happening. If we close the week above the 1251/1252 Zone, not only does that increase the odds of a break and hold in the future to 8%, it points to an incredibly bullish close for the year. 

As stated in Sunday Night's report, we would consider any opportunity prior to the end of the year to buy the SP Emini @ 1225 to be an incredible gift. However, based on the break and hold today above the 1251/1252 Zone, we would now also consider entering long on a pullback to the 1241/1242 Weekly Zone using a slightly larger than normal stop as we view either of these trades as the start of a potential multi-day rally into the end of the year. If you blindly buy at these levels you must keep them on a very short leash. If you wait for confirmation before entering, it will require a longer leash but the odds of being on the right side of the trade are greatly increased. Trading is risky and you can lose all your money. As David often says "The greatest edge you can have is a Stop." The point is, even in a fast market (which this isn't), the worst that happens is your Stop gets jumped by a tick or two, but ultimately your loss is contained. Get it wrong? Just Walk Away And Live To Trade Another Day.  Real Traders use stops!

As an example, this morning I was very tempted to short the 1251/1252 Zone. That alone, hitting our Highest Weekly Zone, is in itself our single Highest Probability Trade along with buying the lowest Weekly Zone. As stated earlier, historical data shows this trade has worked 94% of the time over the past year. That said, even with a 94% high probability wind at my back, I wanted to see one little "tell" on my 30 minute chart before I entered. The tell never came and I did not enter the trade. The tell could appear on the overnight Globex session or during tomorrow's day session. Here's the rub, had I been able to enter today my target would have been 1225 for a stop and reverse. With the change in dynamics my target will be 1243. If we consolidate there, I will then look for the same "tell" to get me long for the long haul up, or short to the 1225 where my gift awaits. If you were not tuned in live today, listen to the podcast and I'll tell you about the "tell" I was after. While you're at it, subscribe to our feed on iTunes and write us a Smokin' Hot Review. That would be an awesome gift as well and much appreciated by the entire CFRN staff.
S&P 500 Emini Futures / ESH1 / Hourly Chart

Stay Alert Stay Alive!

Christmas is not a time nor a season, but a state of mind.
To cherish peace and goodwill, to be plenteous in mercy,
is to have the real spirit of Christmas.
Calvin Coolidge

CFRN Staff Writers / D. Reeves - L. Burton - B. Schlichter  

Daily Market Profile Numbers for Thursday 12/23/10
VAH -  1254.25
POC - 1252.75
VAL -  1252.25
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