Today's action was far from "perfect", but I really enjoy days that have clearly defined areas of interest. After yesterday's gap up on CPI, today premarket we had a deflationary core PPI number. Sounds very bullish, right? Well, think again. A quick pop would turn out to be the high of the day as we opened inside yesterday's range near the top of value, and with a weak non-tech showing we bled lower during much of the morning. After we rotated just above the prior day's low, my intuition told me that there wouldn't be conviction to rally without a breakdown attempt. We got it, with a very nice little attempt which fizzled. The entry is aggressive down there but not unreasonable, but the best entry is as it comes back above the prior low at 16s/17s. It even gave a second chance at 17s, and that was a must-take if you want to be long, because the risk is well defined. If it gets below the fake breakout, you get out, plain and simple. 3 points of risk, with about 20 points of upside opportunity. My target on this trade was 5440, because it was the lower end of the previous day's high volume area. 5448 was an absolute max upside for me there.
Well, the trade gave about 10 good points, and then after Europe closed we had the real flush. I was out of 3/5 of the trade and stopped out on the remaining at 5419 before it broke to new lows. Not a bad trade, but the grind really was the best thing to jump on later, I just wasn't interested and was up to other things.
We have very clear areas of interest, for me. The 5440-5445 HV area is my pivot. Above that and I'll be long. Below it we have 5425 and 5416, low volume support areas which I'd expect to see some buyers. I'm willing to join the buyers there but not super keen on it because, while we have balance up here, we sold off twice from the 5440s (once yesterday, once today). I see that as a kind of "supply" area (though I don't love the term due to it not being accurate for futures). We have a series of prods lower over the last 2 days into the gap created by the CPI print. While it's not bearish per se, the second test lower today followed by the low conviction grind higher does not instill confidence in me as a bull. The stronger response would have been a stronger buy response after the first failed breakout with no need for another. This is why I'll commit to buying at/over 5440s, but not necessarily lower. If we do hold 5440s, it's more objective evidence that the test lower was sufficient and we can then begin prodding to the upside to look for sellers. I'm not itching to short and it was simply not a possibility for me today, but given today and the more well established 5440s pivot, I'd almost be willing to short below 5440s, looking for a gap fill down to 5390s. I know, I'm a madman. But it would take a very very good look for me to do that and we just don't see a ton of good looking short opportunities (at least, I don't). Shorting this market is just not a high probability play in general, and doing well in this game is as much about avoiding the marginal opportunities which may sometimes work out, but which are more risky. At least, that's how I play it. Have lost far too much in my life trying to pick tops to ever really want to think about doing it again.