Monday, 27 April 2015

Dow Futures

I think the market action recently has been strangely constructive despite the chopping around. I don't know what the catalyst is going to be, and more frankly, I don't think it matters (AAPL earnings? Greece 'resolution'? Dovish Fed? etc...) but to me it looks like we could be on the verge of a break from this range. We have clearly been in a strong up trend for a long time (6 years and counting) but in the recent months the trade has been frustrating to say the least, so why do I believe we are ready to break out now?

If you look at the 'weekly' chart below you will see that last week we traded within the range of the week before which indicates we have reached a 'balance' a break from which should (could is probably a better choice of word) produce a trend. Since the prevailing trend is definitely up my bias is for the move to continue in that direction.

If we now look at the 'daily' chart Friday's trade was within Thursday's, again indicating we have reached a balance.

The 2 scenarios that I am going to look for in order to initiate a trade are:


We enter a stop buy above Friday's high (18037) with a protective stop at Friday's low (17932) on half a position. If the market confirms my thesis the market will remain bid above that low. I would have a second stop buy above the weekly high (18072) for the second half of the position against a stop at (17774) again if the market confirms we won't fall back to the lower level. My anticipation is for the market to trade through the all time high (18270) with a target of 19000ish eventually.


Quite regularly the market runs the logical spots for stops before reversing in the other direction (usually with shorts trapped). In this scenario the market won't breach my stop buys but will instead run the lows of the 'inside' day/week before reversing and closing back within the range. In this case we would look to enter long vs the low of the stop run. If this happens then i will need to revise the plan based on that information.

If the market does indeed breakout I will raise my stop to flat initially and will then operate a trailing stop on a daily closing basis.


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