Figure 1: DAILY CHART OF THE S&P 500 INDEX. The days following
the election saw the S&P 500 soar above its 50-day moving average and
break above the price channel.
In the two days following the elections, the markets saw a significant rally. As of this writing (November 10, 2004), there seems to be some hesitation as the markets decide which way to go next. Perhaps it's another uncertainty factor. Regardless, this indecisiveness makes it difficult for me to place a trade, to the point where I am tempted to give my eyes a rest and not watch the markets for a while. But as things go, I did have a chart up on my screen when I was fortunate enough to spot an opportunity. I placed a trade on November 9 that met my basic criteria (see my previous columns for what they are).
Since the S&P 500 is above its 50-day moving average, it means that I'll only enter a long position on strong volume. Well, it just so happened that I noticed an increase in volume on the five-minute chart of the eminis (Figure 2) at about 10:45 am PT. This surge in volume occurred when prices started moving up. I entered a long position at 1166.00 and was able to get a two-point gain rather painlessly by exiting at 1168.00.
Figure 2: five-MINUTE CHART OF THE E-MINIS. This was a fortunate
move in prices in the desired direction.
As I was writing this column the next day, I saw a similar scenario setting up -- a spike in volume with a nice long green bar. Everything seemed to be ready for a big move up, or at least for a possible two-point gain, so I thought, Why not give it a shot? But by the time I noticed it and was ready to place the trade, it was a little too late to jump in (Figure 3). I decided to keep an eye on the market in case a second chance came up. Sure enough, I noticed a pullback and a move up on high momentum. I entered a long position, since the market was still above its 50-day moving average at 11:45 am, and got filled at 1169. But this time the trade didn't go in my favor. When I realized the market was turning against me, I exited the position at 1168. For all you candlestick aficionados, the shooting star that you see in Figure 3 was a signal of this downward move.
Figure 3: BUT THINGS DON'T ALWAYS GO YOUR WAY. In hindsight,
it seems pretty clear that the markets were going to reverse. But how do
you know? Well, you never do until it happens.
Fortunately, I only lost one point on this trade. As you can see from
this chart, it could have been a much bigger loss. This just reinforces
the uncertainty factor in the markets -- regardless of the outcome of a
close Presidential race.
Originally published in the January 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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