An Afternoon Trade

An Afternoon Trade

Here’s an afternoon trade in the S&Ps (ES) that set up wonderfully today.

This is a common pattern we see on trend days.  Trend days open at one extreme and close at the other.  Today opened on its highs and closed near its lows.  Trend days provide excellent trading

At times, though, trend days that start in the overnight market seem to die out in the American session.  And, sometimes they do die out and just go into consolidation.  But other times, like today, there will be a lengthy consolidation and then a return to the down move.  Let’s see how this set up and played out.

Shortly after the US open, the market rallied off the morning lows and painted a morning high just before noon (A).  The volume going into the highs appears climactic.  This occurs at an earlier low (dashed line) painted during the European session (about 5:30 AM ET).  Old support turned into resistance.

Later in the day, around 2:15 PM ET or so, the market revisits the highs at B.  Note the volume.  This is a big tell.  There is no demand here (i.e., buyers not buying).  No demand at significant resistance on a down day and price action indicating sellers are taking an interest—that’s a trade!  Since there is no substantive support between the entry and the morning lows, we target our trade for the 2750 level.

Note the price action and volume on the way down.  Buyers are being swamped.  We have an opportunity to add about half-way down, or so.

Being oversold on lighter volume with SOT in the price action tells us it’s time to cover.