We had an overnight waterfall sell-off, with the Emini opening down almost 30 points. The overnight and pre-open weakness was driven by:
- New Greek government’s debt bargaining strategy
- Weak corporate earnings and outlooks (Caterpillar, Microsoft, IBM)
- Declining durable goods orders
So how do you trade a gap down open of nearly 30 points? Here are my suggestions:
- Remember the bottom is not in until you see Exhaustion Selling during the day session (“full liquidity of the day”)
- Get Short as the first sign of weakness just after the Open (e.g. break of Low of a blue Professional up bar on 1500 tick bar chart)
- Short a Short Covering Rally (Exhaustion Buying) after it has played itself out and if it’s before Exhaustion Selling
Today’s trade illustrated all 3 points. The Emini only bottomed after Exhaustion Selling (look for the 1500 tick bar chart for this). The early Short opportunity was there – but you needed to be quick to catch the Low. The Short Covering Rally was being led by the Amateurs and so unstable – but the Short entry took a while to play out fully.
Good luck with your Emini trading.
