Short Signal In Stocks

The NQ violates the hourly 3 Day Rolling Pivot Range in yesterday's session at the 11am hour, and continued lower signalling a short position. ES however, does not generate the 'sell' signal, but generates an indecisive close within the 3 day pivot. So, for ES traders waking up this morning to see the gap down move, any rally attempt at the open or through the day can be sold, using the updated hourly pivot channel high as a stop for the position trader.



Let's just have a look at the macro day chart below for context, which shows the NQ more firmly embedded in a 'major' downtrend, defined by the recent activity below the 'brown' line overlay, representing the pre-existing 5 month sideways range. The day chart below puts in an outside reversal yesterday at the previous March and June swing lows, coinciding at the 2200 level. The 'black' trend line links the June and Aug 10' lows with the recent Aug 11' closing low and could be a 'visual' level for this re-newed downswing which sits above 2050.

The hourly chart above reviews the previous long trade in NQ. The 'Green' arrow defines the entry signal on 'transition' day through the pivot. This signal is taken on an intraday 'buy' at 2128 level with confirmation of an hourly close above the larger 3 day pivot structure, which is the catalyst to get aggressive on the long side coming off a 2 week down trend. I held this as a core position based on my rule that any 'transitional' day trade be extended if the market can close within a larger time structure. The NQ closes that day back within the intermediate weekly channel defined at 2128. For less aggressive traders, waiting to see 2 consecutive days close above the hourly pivot is a good entry which comes the next day at the 2178 level. Unfortunately in the this fast moving market, waiting for the 'good' signal produced a flat trade with exit coming yesterday at 2174 12pm hourly close. One of the toughest things to do is to get long and hold on the transition day signal with a 'good' close, but it paid off with a 50 pt profit, defined by the red arrow above. 

Now, we have a changing market condition that we need to adjust too as these swings move fast, typically as 1 week holding periods and the reversing. The positioning tactic is now based on an agile 1 day closing violation of the hourly pivot channel. We can't wait for the market to follow through and confirm, because of these extended overnight moves that can occur as is the case today. There is higher risk using a swing system to guide in this environment, but my 5 year back test has produced positive risk-adjusted returns through historical market types that we are now entering. If you can review your performance through the June-August 2010 period, you will likely produce very similar results in these conditions today.

The ES hourly chart is updated below to reflect the latest pivot channel at 1192-1191 below.