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Were You Taking Profits or Covering After the "Crash" of October 1?

This brief article shows how our take on the market's action during the previous week allowed us to protect subscribers at Trading da Numbas (TdN) from acting on bearish sentiment which proved to be incorrect. On October 1, ES presented a steady downtrend through the day, closing at 1027.25, nearly 22 points below the open. The equivalent futures price at the cash close (15 minutes before the futures close) was 1024.75. This market action was interpreted by many participants as bearish, especially in the context of the of the 5-point opening gap down from the previous day. The opening level was sold from the onset having barely managed to print a tick higher than this level.

Following the October 1 close, the Globex action drifted towards this cash level into the European opening hours for October 2.

Being the first Friday of the month, there was important economic news scheduled to be released an hour before the cash open. This news included the Nonfarm Payrolls, Hourly Earnings, and the Unemployment Rate.

Headlines at one of the financial websites attributed the drifting of the prices in the Globex session to a case of jitters over payrolls. Prior to the payrolls announcement, the price action in Globex had already been noted for TdN members, and 1026 was identified as a resistance level. The market subsequently recognized this. Similarly the importance of 1012 had been noted at TdN, and upon reaching those levels, the market found support.

With the reaction to the news resulting in an immediate drop to 1015 and later to 1012 once 1018.25 had been tested, subscribers at TdN were aware that the market was pricing in a bearish sentiment if it opened around such key levels. Following the news-release the sentiment was in expectation of a gap-down open and possible subsequent reaction like the day before. However, TdN subscribers were alerted that at such levels the sentiment was too one-sided, and they were reminded that sometimes the path of least resistance changes. Thus they were looking for this area to hold as support following the open, and they were alerted to the levels of 1022 (the pre-announcement level) and 1026 as possible areas of interest. Once the 1018.00-1018.50 area had been recovered, TdN looked to those levels for support prior to ES launching to the higher levels that had already been mentioned.

Although the gap-fill level on ES was 1027.25 (a price not reached on October 2), and although similar levels had printed on NQ, subscribers at TdN were looking at initial targets near the equivalent gap-fill level on the cash index and at 1026. The high that was printed was 1026.25 with subsequent high prints in the 1025.50 -1026 levels.

Beyond 1026, readers at TdN were aware of levels at 1030-1031 which were important to be converted as support for much higher levels. These pre-identified levels were areas TdN members were focused on during the following week, as shown in the chart below.


Chart of TdN's EW count and key levels going into the following week

This article is a tribute to Dominick Mazza who sadly passed away 1 year ago, a gentleman from whom I learnt how to be wary and to trade in the manner discussed above during particular pivotal moments.

 

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