Where are we headed? Are we still consolidating? Was today a warning signal for the bulls? Change in direction?
We saw very interesting action today with the ES, YM , and ER2 all falling below value and never looking back. Does anyone else smell the shift in market sentiment? The past 8 trading sessions has been something new.... we havent seen anything like this in the past few months.
Starting on Oct.23rd to Oct Oct.27, the YM had an overlapping value.
Then from Oct.30 to Nov. 1st we are seeing lower value placement. What is especially interesting is the higher volume on the lower value placement days. From the trend formation in July, volume had been a good confirming tool for the steady uptrend we had. We saw higher volume on the rallies and lighter volume on the pullbacks. Over the past few days we have seen just the opposite with higher volume on the sell-side. A warning signal???
Are bulls now liquidating their long positions? This is something we need to keep in mind. The YM will now go on to test the 20 period EMA and the trendline cluster. This will be a crucial make or break point. Let's take a look at some indicators on the daily charts.
See chart below: The MACD is a great tool for the daily charts. In the chart below, notice the cross in the MACD and the histograms below zero. The RSI is also coming down below the 70 line. A combination of warning signals exist from a technical point of view.
YM Trading Plan
As traders how can we monetize from these pieces of information? Let's try to build a trading plan. Let's take a look at yesterdays action.
The YM saw price rejection above value in the opening 30min. This lead to a decline into value and then a final rejection to the downside. The POC and VAL should act as a key resistance point for tomorrow.
Theres plenty of room for the markets to go down. Any further decline should take us to the 12000 mark offering plenty of opportunities. In my opinion, the short sellers are late coming in into this decline. The longs started liquidating early and now the shorts are jumping in. Why?
This is because we did not have any key price levels to the upside on the dow. The YM took off to new highs with uncharted territory. Shorts need a little confirmation before they can start entering the markets. Therefore, I am not expecting a short covering yet.
My bias is going to be on the short side. So my trading plan will be to look for short setups. The VAL or POC is number one. The previous days low offers another opportunity. 10/31 VAL is also in line with 10/30 single print tails. All of these areas are very close to one another and sellers will be looking at these levels.
Be on the lookout for the upcoming trading days. Try to capture the clues the markets give us. Each infrormation is a small piece of the puzzle. The faster we figure out the big picture, the better off we are as traders.
Good luck and best of trading.
Soultrader
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