As I scoured charts for good setups (either going up or down) over the weekend, I was thinking that the markets shouldn’t be down during the holiday season. Historically, markets just don’t go down during the holidays. I was convinced that the odds favored a turn and that the indicators were going to prove me right.
I was quickly reminded that the market care little about what I think.
Chart and technical analysis forces you to put away all biases and influences and just focus on trading the markets. My preferred and most successful approach when combining charts and options is a trend-and-momentum strategy: Go with the flow of money per the charts.
Looking at an index, we can see the trend has now shifted downward and the indicators have as well. While we could get an overbought reading on indicators within a couple of days (and a strong rally up), NOW is not the time to be adding plays. The markets continue to look elsewhere (Europe, Russia, China, Asia) and see potential problems before they occur.
Case in point: When the Euro currency futures opened for trading Sunday evening at 5pm EST (an hour before the ES futures), the currency was sharply lower on the open. To me, it looked like a “fat finger” trade, but that was not the case. My friend Boris Schlossberg tweeted that this drop was on big volume and would stick (the Euro fell to LT support at 1.18 on the open). Someone was getting out and took the market price. That kind of sell-off is never good, and it was sure to spread elsewhere.
Sure enough, it did: Coupled with the push down in oil and the lack of buyers, we ended up with big drop on Monday.
Happy new year? Not so far.
