April 2010 Trade Journal

TRADE

Date:  Wednesday, Dec. 16.

Entry: Short the March E-Mini Dow futures (YMH10) at 10,378.

Reason for trade/setup: The S&P 500 index closed in the lower 20 percent of the day’s range on the day of a Fed interest-rate announcement, an event that has better than average odds of being followed by selling over the next several days.

This trade has a few larger tendencies working for and against it. First, the market has been trapped in a consolidation for more than a month, a period during which it has made marginal new highs but failed to match the momentum of the preceding nine months. Prices are currently still toward the upper end of this range, bounded roughly in the March Mini Dow futures by 10,170 on the downside and 10,460 on the upside; a test of the lower end of the range is to be expected, even given a longer-term bullish outlook.

Traditional holiday season bullishness, year-end position squaring, and a looming New Year’s rally threaten an intermediate-term bearish outlook, but given the extent of the 2009 rally — more than 60 percent off the March low — a retracement is more a matter of when than if. (But that doesn’t mean it will occur in our estimated time window.)

The short position was established near the close after a day of intraday trading that ended in a scratch.


For the complete article, see the April 2010 issue of Active Trader magazine. Click here to subscribe.



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