Good morning, Traders! As you know, yesterday was a bit of a rough trading day. We saw a pretty significant sell-off across the overall market. The most likely reason is that many investors are waiting to see how the latest earnings reports look this week. And some short-term investors like to take their profits right after a multi-day rally, and that can then drive down the market the following week.
At any rate, such sell-offs are expected, especially after a week of significant rallies like we just had. But we can prepare for them if we know where to look. And that’s just what I did a few days ago.
If you remember, I recommended that traders stay out of the Nasdaq 100 E-mini futures market (NQ), as I was anticipating a sell-off. You can review that trade setup here if you need to refresh your memory. Let’s jump to the one-hour timeframe to get a better look at what’s going on right now.
Right now, the Nasdaq is heading back down toward support. I knew a sell-off was on the way based on how the overall market trend was developing, and it started yesterday as the broader market also took a dive. As you can see in the chart below, the Nasdaq saw a 974 tick drop (if you want to learn more about ticks, check out my segment on How To Read Charts.)
NQ one-hour chart. The NQ is currently experiencing a sell-off. The price is moving away from resistance (top grey line) and headed back down to support (bottom grey line). If support holds, we can expect a bullish rally (light green arrow).
It was a very smart idea to stay out of the Nasdaq futures market right now. If we bought in a few days ago, we’d have lost some money as the sell-off happened. And I expect that the market will continue to sell off until it hits a level of support that then causes the price to bounce back up.
If that support level fails, we’ll expect a continued pullback as the price keeps dropping. Remember, the price has to reach a point where traders and investors are pushed to start buying into the Nasdaq futures market again. If that support holds, we’ll see a bullish rally.
We could see a new channel develop for the NQ if we see support hold (top and middle grey lines). That means a bullish rally could be just around the corner. But if support fails, the price could continue to drop within the current channel (top and bottom grey lines)
And that’s pretty much the story across the board as we continue to watch the futures markets: if
support holds, we’ll see a rally develop. But if that support fails, we can expect the sell-off to continue. We’re waiting to get a better read on the sentiment of the market. Once we see that develop in our timeframe charts, we’ll have a better idea of which way the Nasdaq 100 E-mini futures market will go.
If you’d like more information about the Nasdaq 100 E-mini futures market, follow me! I’ll show you how you can use my trading ideas to improve your overall trading strategy.
Mindset Advantage: Control
It’s what you don’t lose that counts the most, followed by what you get to keep.
We hear the same story time and time again: the money gets made, the profits are excellent, and then it’s all given back to the harsh maiden of the market.
It’s not because the money isn’t there to be made. It’s often due to good old-fashioned greed. Stops get pushed back. Targets get forgotten. That trade made $100, so why not turn it into $500 or $1,000?
These are the traps that snare 95% of the trading profit. Take what the market gives you and go about your business. Honor ‘thy stop’ and your risk/reward ratio. Don’t take that trade if you don’t feel good about it.
The ones you don’t take, or the ones that you end up stopping out of, those are the ones that keep you on the path to consistent profits!
Definitions of Futures Terms
Sell-off: when a large volume of futures are sold in a short period of time, causing the price of a future to fall in rapid succession
Resistance: The high level a stock price reaches over time, serving as a visual cap that the market generally stays below. Reaching resistance usually results in a price drop.
Support: A price that a stock/future drops to that prompts traders to buy. This reactionary buying causes the price to stop dropping and start rising.
Sentiment: the overall attitude of investors toward a particular financial market. It can drive the price of a market up or down.