Chart Reading Is Not Magic
By Lawrence
During real-time chat this morning, I called for Emini S&P to drop down to at least 1633 today if it traded below 1653 on 5-minute close basis. For some reason the call induced quite a number of emails why I knew a drop like this was coming. I also posted that once the drop has started one should not pick bottom and it turned out to be the correct approach because every temporary low during the last 2 trading hours are smashed through.
There are several reasons leading to this expectation. People who know me for a long time know that I look for this kind of moves all the time so it is not an exception. And there is no magic involved.
First, my breadth models suggest another sudden drop is coming. This put me on high alert for a potential quick and powerful drop once the necessary conditions are in place.
Second, as I put it in Time Map 2, the combination so far in the week points to high probability that the previous week low will be tagged and that the week low will likely be printed on a Friday. As I mentioned at the end of the article, The Extremely Uneven Distribution Behaviour In Emini S&P 500 Regular Trading Session, the best play in Emini S&P currently are false breakouts.
Putting these clues together, I know a false breakout play to start the drop was the likely scenario.
1633 is the 100% expansion of the first trading day of the week. It is not a magic number. It is also right below previous week low. On intraday basis it is the closest S3 price level. Thus it is the point where sell stops should be triggered. From the chart, it is clear that after 1633 is breached, we have volume unlocked. 300,000 contracts traded from that point onward. Emini S&P closed at the low to finish the week in red.
Finally, it is good old chart reading with direct application of STOPD, I have the complete setup posted as an example here in Chart Lesson: Emini S&P May 31, 2013
