As we often remind our readers, traders have to think like mercenaries, willing to change sides at a moment's notice to fight for the winning team. When the charts change, it can be difficult to change one's underlying convictions, but flexibility is one of the keys to success.
In sports such as football, a good defensive coordinator will enter the game with a plan; however, before halftime, he may detect patterns in the opposing team’s offense that require a change in the defensive scheme. In basketball, if an offense observes that the defense tends to crowd the paint, then the offensive game plan may change to using outside shooters who can get an open look.
The goal of the players and coaches on a team is not to merely have a correct plan going into the game; it is to do whatever it takes to come out with the big WIN, sometimes just called the “W.”
We have been concerned about the U.S. equity futures in recent weeks, especially going into the final month of the year, and this caution has kept us from following our typical bullish conviction over the last several sessions.
However, on the daily chart of the S&P 500 futures ( ESZ18), we are beginning to notice a pattern. Our job as traders, or offensive coordinators, is to take advantage of what the opponent is giving us.
Notice on the chart that the ESZ18 traded lower last week in what was one of the worse Thanksgiving weeks in years for equities. It then bottomed Friday and began rallying this week. This looks like it could possibly be a higher low retest in the long term, and could potentially be the beginning of what is called a “W formation,” demonstrated by the drawing on the chart.
For conservative traders, a break of Tuesday’s low may be a cause for alarm. For traders willing to take more risk, a break of last week’s low would almost certainly break this pattern. However, the first target would be the peak of the W’s bounce on November 7th and then ultimately new all-time highs or at least something close to that as the W pattern comes to completion.
We don’t feel very bullish, but the markets don't care about our feelings. We have to be prepared to take what the market could be giving us and go for the big "W."
Today’s Economic Calendar:
- MBA Mortgage Applications 7:00 AM ET
- GDP 8:30 AM ET
- International Trade in Goods 8:30 AM ET
- Corporate Profits 8:30 AM ET
- Retail Inventories [Advance] 8:30 AM ET
- Wholesale Inventories [Advance] 8:30 AM ET
- New Home Sales 10:00 AM ET
- Richmond Fed Manufacturing Index 10:00 AM ET
- State Street Investor Confidence Index 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 2-Yr FRN Note Auction 11:30 AM ET
- Jerome Powell Speaks 12:00 PM ET
- 7-Yr Note Auction 1:00 PM ET