I have a certain tolerance for pain when trading and when it is reached I get out of the position and move on. Today the MouES (E-mini S&P 500 Index Futures ES) bit me repeatedly - until it reached my tolerance level. Then I covered my two sold futures contracts with a buy at $1322.50.
I had a number of very excellent trades earlier in the month and decided to define my tolerance level such that it would not allow those trades to go entirely for naught. So, if this should be my final trade of January (unlikely) I will conclude with a very modest 3% gain in my account value for the month of January 2012.
Here is the daily chart of ES as of a short while ago.
Yesterday I spent a few hours studying the S&P 500 price movement since the March 2009 low. The takeaway for me is the similarity of this rally with the fall 2010 rally. In that case, rather than the daily cycle bottoming on Day 35-40, it bottomed on Day 59 - clearly stretched in response to QE2.
But we don't have QE3 to account for current price action. Or, do we?
Is the FED printing money to 'loan' to the European Central Bank (ECB) at 0% and we don't know about it? Maybe Saudi Arabia is selling oil to China for Chinese currency - rather than US Dollar currency? Maybe there is huge liquidation of accounts in Europe that is being first converted into US Dollars (which would be US Dollar bullish) but then invested in our or other stock markets (which would be US Dollar bearish)? Or something else having to do with credit default swaps (CDS) between the US and Europe?
Or maybe I am just being paranoid and the overdue daily cycle for the S&P 500 is just a little late arriving this time. At this moment that explanation seems (to me) about as likely as Santa Claus visiting my chimney on December 25 or 26 and saying he forgot what day it was, but I guess it is possible.
In any event, the TSI is now sky high, price is at the very top of the 3 week price channel and the downtrend line from 2007 is still overhead. The FED meeting is over and I would think that the ES will go into a profit-taking correction soon.