Day Trading Signals and Strategy - 01-22-2015

Proper context can start the day with a solid win and make all the difference.

Enter the Chartroom here (pre-open Market Tour begins at 8:55 ET)

Through the prior close...
Wednesday morning had recovered from gapping down to test 2005.25, and then trended back above Tuesday''s 2026.50 high to 2032.75 -- rewarding Tuesday afternoon''s rally for having gained traction. With that obligation fulfilled, and with ECB news ahead of it, the morning''s optimism needed to be kept in-check. So, the balance of the session marked time, dipping to 2016.25 and then bouncing back up to 2028.25.

Overnight action''s new info...
Wednesday''s last bounce eventually extended higher to another fresh high at 2035.75. ECB news still lies ahead, so the optimism was kept in-check by dipping back down to test Wednesday''s 2028.25 late bounce high. That has bounced to retest yesterday''s 2032.75 high into the ECB interest rate news (but not yet the QE details).

If, then...
Yesterday''s price action behaved appropriately for a favorable reaction to this morning''s news, greeting it with retrained upward momentum. A favorable reaction could extend through multiple timing windows, but could. Regardless of whether it fails today, a favorable reaction should be very productive. A negative reaction should be both durable and productive.

First Trade...
I''ll update this following the QE details.

Trades are like trolleys. If you miss one, another will arrive momentarily.

As suspected, yesterday''s "50b Euro" leak was still a work-in-progress. Criticism was taken to heart, and the actual commitment was increased 20{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6}. 

As suspected, the news was productive. Its likely objective was 2041.00-2044.00, but it actually triggered a 10-point surge to 2047.00. And that was after already firming 3 points from a pullback to 2034.00.

As suspected, the reaction would be vulnerable to peaking. Whether immediate, this afternoon, or next week, the reaction should be reversed by a downleg back to last week''s lows.

About that last suspicion... 

NOT suspected was an almost immediate reaction down. NOT opening back under a prior low like 2034.00 kept price within 2047.00''s orbit -- bouncing 6 points into and out of the open did NOT disagree.

Anyway, that was wrong. A 22-point drop through the opening 15 minutes of volatility got to 2019.25.

I was late to catch that drop. At least it was still sizable. Catching the recovery has probed to be the bigger trade:

Usually, rejecting tests of both bias-up parameters (2033.00 signal and its 2038.25 target) through 10:15 would put into play offsetting tests of their bias-down counterparts. Not necessarily. Rewarding those sellers too quickly could limit the reward. Already holding a test of the 2021.75 bias-down signal did just that.

But wait, there''s more...

The 2033.00 bias-up signal was touched again, within 3 minutes of 10:15. That invoked the grace period through 10:30, which triggered "late bias-up." And now the post-open peak is being retested by a fresh session high at 2045.25.

About that vulnerability to reversing the ECB rally back down to last week''s lows... Maybe not. This morning''s reaction down came before the bias environment even began. Its round-trip recovery may have refueled the rally. The next higher objective is 2059.00 .

THU afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above 2049.50
2043.50
...would target 2054.50
2048.50
Bias-down: under 2041.00
2035.00
...would target 2035.50
2029.50
Signal status: NO-BIAS FAQ INTRO VIDEOS #1 and #2

1. At 1:20, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 1:20 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 1:20 would invoke a grace period through 1:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 1:30 after invoking the grace period would trigger "noN-bias," with no bias influence.

A daily summary of high-profile members of several complexes... View a more detailed discussion of each chart at the end of today''s Market Wrap.

Eurodollar Mar Contract (EC, ETF: (FXE))
Gapping up slightly Thursday was reversed down sharply in reaction to the ECB QE news. Falling back to 1.1525 critical support failed to hold, and instead broke sharply through it to 1.1367. That''s a breakout, and a second consecutive lower close on Friday would confirm. Even avoiding confirmation would not prevent probing fresh lows next week.

Gold Feb Contract (GC, ETF: (GLD))
Wednesday''s night''s drop to 1279.00 filled the gap back to Tuesday''s close, and recovered back above 1287.70 before Thursday''s open. Probing fresh high above 1307.00 is still likely to test 1310.00.

Silver Mar Contract (SI, ETF: (SLV))
Wednesday night''s dip to 17.90 filled the gap back to Tuesday''s close before recovering Thursday to test Wednesday''s opening gap above. All nearby attractions are neutralized. But Wednesday''s 18.49 high was narrowly avoided, pessimism that is potentially bullish from a contrarian perspective.

30-year Treasury Mar Contract (US, ETF: (TLT))
Wednesday night''s dip to 147-12 reacted up sharply in reaction to the ECB QE news, back through 148-23 and 148-14 to 149-28. The close had fallen back under 148-14, a second consecutive lower close that confirms Wednesday''s breakout, and which requires at least one more eventual lower close.

Crude Oil Mar Contract (CL, ETF: (USO))
A bounce up to the 49.00 before Thursday''s ECB QE was rejected sharply intraday, fueled by large inventories reported by EIA. The decline''s lowest target  at 46.25 (actually, noise under the 47.80 target) was tested and retested. It, ultimately held through the close, but the base must launch a rally before entering the noon hour if a new downleg is to be avoided.

Natural Gas Feb Contract (NG, ETF: (UNG, UNL))
The reaction to Thursday''s EIA report triggered a probe to fresh lows at 2.77. The close was probing back above 2.79-2.82 prior lows -- still overlapping and not necessarily recovering. Back above 2.86 and 2.98 would trigger a bounce targeting 3.11, with potential to become much more.

If Thursday''s high were a little higher, or a little lower... then we''d have confidence in the rally extending. But rather than close above the next higher target, or leave it outstanding, the target was met and held.

Pattern points... (Setups and technicals)
Thursday afternoon''s steep and substantial rally from 2043.50 quickly fulfilled its 2059.00 target. That''s not patient optimism. The session''s last 45 minutes hovered just under 2059.00 instead of correcting down -- i.e. refueling by trapping shorts. That''s ineffectual optimism.

None of which is inherently bearish. But all of which increases the vulnerability to stronger sellers retaking control.

A pullback had room down to 2047.50-2048.75. Still does. Opening any lower Friday could reverse momentum down. But holding support would still require rewarding Thursday afternoon''s buyers for having gained traction (they exited the bias environment above the noon hour''s high, and entered the final hour above both).

What''s Next... (Outlook and opportunities)
Sellers gaining traction through Friday''s open would reverse the trend down, but not necessarily for more than a correction. A lot of Thursday''s range can be retraced without reversing the trend. But reversing the trend would be very bearish for next week.

FRI morning signal (triggered at 10:15 ET) SPX ES Bias-up: above 2067.50
2061.50
...would target 2074.50
2068.75
Bias-down: under 2055.00
2049.25
...would target 2049.00
2043.00
Signal status: NO-BIAS, TESTED BIAS-DOWN SIGNAL FAQ INTRO VIDEOS #1 and #2

1. At 10:15, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 10:15 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 10:15 would invoke a grace period through 10:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 10:30 after invoking the grace period would trigger "noN-bias," with no bias influence.