Wednesday, January 11, 2012

Sold ES - $1287.25 - S&P 500 Update

About an hour ago I decided to sell a single contract of the E-mini S&P 500 Index Futures (ES) at $1,287.25. I have made a couple of charts to show us where the S&P 500 index is sitting going into this evening's overnight session.

This first chart is simply a daily chart of the ES continuous contract. Of particular interest is the length of the past two daily cycles - 39 and 38 days respectively. The current daily cycle is beginning Day 33 this evening. 

Also, and not shown in this chart, is the fact that in the last 12 months the daily True Strength Index (TSI) indicator (7,4) has reached and then peaked at +0.75 only three times. Each of these occurrences marked the absolute top for price. At this moment the TSI (7,4) is reading 74.24.

This second chart is a four hour look at the ES futures contract. It is normal to expect a daily cycle to break its price trend line before its cycle conclusion is reached. That being the case I would think the S&P would trade down to at least $1250 to meet this expectation.

For those readers interested in learning some of the bare bones basics of futures trading, this ES contract has a leverage of 50:1. For each single point the S&P 500 moves, the value of my position either increases or decreases by $50. 

If I have mistimed this entry and the index rises overnight from $1287 to $1297, I will wake up in the morning under water by $500 (and regrettably, it has been known to happen). Worse yet if I awake and the S&P is trading at $1307 - then I will be $1000 under water (yes, I know about that one first hand, as well. And some others, now that I think about it).

On the flip side, if I have timed this pretty well and hold on long enough to see the S&P take out it's daily cycle trend line around $1247, then I would make $2000.

A last basic: a person "sells" a futures contract if they think price will fall and they can "buy" it back at a lower price. It is very similar to shorting a stock in that regard.

Good trading to you for the rest of this week!

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