Tonight I will look at Friday' trading in some detail. There were many obvious places to sell short, but only one would have led to immediate sustained and large enough profits. The question is how can one recognize this opportunity and avoid the false starts. In other words, see the false starts as evidence of distribution and not the moment to pull the trigger. I will study the 5 min chart of the es for the period that the market was open 8:30-3:15.
The market opened higher and sold off rapidly on high volume. All closes were near the low of their respective bars until the reversal bar at 9:00 AM. An automatic rally ensues that is checked by the small axis line at 894.50 (9:10 am). The market again sells off on markedly lower volume, finds support in a narrow range high volume bar at 9:35 and has an outside key reversal bar on a spring at 9:40. The evident support triggers a rally, but we go up not so much on demand as on a lack of selling. The volume on this rally is even less than the decline coming into the previously mentioned test. Prices are bid higher on high volume, probably catching some shorts and enabling there to be large selling to new longs on an upwave (10:25) and a reversal bar with a small range and diminished volume (10:30) caps the move.
We now fall on less volume than we rallied on and find support at 10:50 and 10:55. We now rally on even less volume than before, spike to a lower high and then have another reversal bar at 11:15. The es meanders down on even less volume than previous waves down and just spikes up only to reverse on the next bar. It finds support quickly and now rallies again without any volume to speak of. At 1:35 we thrust into new high ground on relatively high volume for the day and then on the next two bars back up to test the support at at 896 and although we dip below it twice on both occasions we manage to close above it. Evidently this is enough support to trigger a stab at new highs which immediately fails. We now have three bars in which we attempt but fail to rally, implying demand is exhausted. Supply kicks in with the largest range and the largest down volume since the first half-hour. What makes this the place to sell is so much evidence for the exhaustion of demand. It occurs right up against the old supprt line at 900, which makes this trade very low risk. Up against resistance with no demand, what could be nicer? That exhaustion is confirmed by the supply bar with the largest volume and range as described.
