Bears Want Blood, Bulls Want a Boost

Trading GOOGL, MSFT & the rest of the watch list.

Thursday was an odd session. There were some great cash flow trading opportunities in the ES, as it continually undercut the low but continued to find support in the mid-4640 range.

What is a cash flow trade? It’s a short-term reversal. 

When the ES — or NQ, YM or any other liquid asset —- undercuts a prior low or major level, quickly bottoms and reclaims that level, it’s a reversal. The new low is our pivot where we can put a stop-loss while we look for a move back to the upside. Reversals can happen on the upside too, when it fails to hold a prior high or major level. 

These trades are not to be used everyday, as they are disastrous on trend days. However, they work well in choppy conditions like we had yesterday. That’s as we can get an entry with a defined risk level and can quickly take off a 1/3 or 1/2 of our position on a favorable push. That lets us carry the rest of the position against a breakeven stop.

Little wins have a way of piling up to nice days, even when it’s a choppy mess.

The indices — as well as many big stocks — gave us an inside day yesterday, with the trading range entirely contained within the prior day’s range, (Thursday’s range contained within Wednesday’s range). That’s what we had with the ES, too:

Click to Enlarge | Daily chart of the ES

With the inside day, we’re now looking for some kind of follow-through. Specifically, that’s a push up through yesterday’s high at 4661.50 or through the low at 4638. The range is tighter if we exclude Globex (4658.25 high and 4642 low). 

Beyond that, we can zoom in a bit using the H1 charts to get some more exact levels. When doing so, you can see how important…