Long At The Low With Proper Set Up

Today was an historical day as the Dow 30 cash index cracked 16,000 and the S&P 500 cash index cracked 1,800. A full blown market correction is just waiting for the NASDAQ composite to break 4,000 (only kidding).

In my earlier blog today, I discussed the rationale for the early long trade and marked the chart with the notation "Obvious area for day trader short". Sometimes the market acts as you expect and sometimes it doesn't. Today was a case where it behaved as expected. Since the market remains in a longer term uptrend, my plan is to buy retraces, even when "perfect" shorts set up.

I captured the entirety of today's ESZ13 (December E-mini S&P500) price action in the following 1597 (arbitrary large Fibonacci number) tick chart:

Click to enlarge

A couple of key points regarding the market today:

• If a larger time frame fib measurement worked, then keep it on the chart as the traders who used that swing measurement may use it again. That's why the blue Fibonacci retrace remained on the chart.
• When a pattern completes into its destination zone (cross-hashed gray box), in this case from the 78.6 short, look for reversal and continuation patterns.
• Regardless of the time of day, if a pattern sets up, then trade it. 
• Although not proper swings on this 1597 tick chart (no 50MA cross, but they are proper on smaller time frames), the 161.8 inverse head and shoulders (brownish fib retraces/lines) formed a perfect pattern that aligned with the blue Fibonacci measurements at 127.2% and the destination zone of the 78.6 double top (aka confluences).
• While the "X" point of the 161.8 inverse head & shoulders aligned with the 112.8 larger time frame retrace (blue lines) and the destination zone for the 78.6 short, it was not sufficient to turn price on a dime. Not a problem, it was a valid trade entry and it failed, but it set up a better trade opportunity at a lower price.
• Think of a head & shoulders pattern like anti-lock brakes. Sometimes the speed of price movement needs the brakes pumped before a full-stop/turn can occur. 

The RTH session is closed at this moment. ETH has not yet opened. Closing values for $ADD, $TRIN, $TICK, $VOLDC, A/D Line, don't necessarily suggest a melt up during ETH. Nonetheless, the destination of the late day inverse head and shoulders is within reach.