As traders we are defined by our P&L (profit and loss statement). All the talk and all the indicators don’t matter if you have a negative P&L or can’t pull the trigger. There is no in-between; you are either up or down.
The Asian markets closed mostly lower and Europe is mixed. Today starts with 7 economic releases, a 7-year note auction and Jeremy Stein and Narayana Kocherlakota speaking from the Fed. After its fifth down day the S&P may look bad. But watch out, the buy stops are building up again.
When your P&L is going well and turning consistent profits it’s a new Porsche and vacations in the Caribbean. Or at least the possibility. When you’re losing, you’re worried about when the losing streak is going to end and questioning why you do this.
Profit and loss start with attitude
I am not a psychiatrist or an analyst. I study patterns and premium levels. I try to derive as much information as I can before making a trade. And part of that information is mastering my thoughts and emotions. It’s part of the job.
I have learned to be more patient. If you don’t catch the top, let the sell program exhaust itself and look to be a buyer. If it’s timed right you can lower your risk.
The S&P is at a threshold, down 5 days in a row: Sept. 19 (-.40), Sept. 20 (-15.0), Sept. 23 (-9.7), Sept. 24 (-.20), Sept. 25 (-6.7). While the losing streak is clear to see, the size of some of the down days is fractional, not even a full handle. When you add the net changes up and divide it by 5, the average down day is 6.4 handles. The current selloff is not a drop off a cliff, it’s more of a gentle downward slope. Wile E. Coyote isn’t even bruised.
The overall price action in the E-mini S&P (ESZ13) is one of failed rallies and sell programs right now. Yesterday we questioned whether the S&P could close lower 5 or 6 days in a row and we said no. We also said we did not think the S&P could go down all week and we still feel that way.
Many times after the S&P makes a fresh contract high it pulls back 30 to 40 handles off the high; 1685 is exactly 40 handles. Four instances of the MrTopStep 10-Handle Rule.
Can the S&P sell off and retest 1685 at some point? Sure, and if it does we would be a buyer. Our view is that the S&P is short-term overextended.
Ideally we lean to buying weakness today but can’t rule out selling a rally if the setup is right. Support lies at 1683-1685. On the upside there are buy stops above 1692 (Globex high 1693.25) up to 1696 and larger buy stops above 1699.00 up to 1706.
This is the “Waiting for Godot” market—everyone always seems to be waiting for some headwind to get resolved (“I can’t buy until the Fed tapers.” “I can’t buy if Larry Summers is going to run the Fed”. “I can’t buy if we’re bombing Syria.” “I can’t buy before the German elections.” “I can’t buy with the government being shutdown.”). And of course by the time resolutions arrive stock prices are always higher.
As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.
In Asia, 6 of 11 markets closed higher: Shanghai Comp. -1.94%, Hang Seng -0.36% , Nikkei +1.22%.
In Europe, 7 of 11 markets quoted are trading lower: DAX -0.32%, FTSE 0.14%.
Morning headline: S&P and Copper Seen Higher, Yen Down
Total volume: 1.63mil ESZ and 5k SPZ traded
Economic calendar: Jobless claims, corporate profits, pending home sales, nat gas numbers, Kansas City Fed, 7-yr note auction
MrTopStep Closing Print Video
- E-mini S&P 5002036.50+6.50 - +0.32%
- Crude56.50+2.39 - +4.42%
- Shanghai Composite0.00N/A - N/A
- Hang Seng24807.279-102.621 - -0.41%
- Nikkei 22517669.24-99.061 - -0.56%
- DAX10628.58-169.75 - -1.57%
- FTSE 1006811.61-40.79 - -0.60%