Market Update: The Power of the TICK
By Daniel at 7 February, 2010, 2:00 am
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As many of you may recall, I have been waiting for the capitulation tick extreme reading of -1400 or worse to come along as I believed that selling extreme would find the short-term trading bottom that I have been looking for.
We got that signal on friday. At approximately 1:40 p.m.NY time on friday the tape printed a -1430 TICK reading on the NYSE TICK, (symbol is $TICK). You did not hear from me then, as that was my signal to go long in a significant way. The plan on that signal was to add more if we went lower, and add more if we went higher at any reasonable opportunity, so I was watching closely for that as the day proceeded. I managed that trade constantly until the close.
What happened next? The ES shortly thereafter (at 2:00 p.m. NY) registered its low for this move of 1040.75. This was over 105 points off the ES in the course of only 13 trading days. The bear is not a slow, lumbering animal at all, but rather a quick and decisive killer.
The ES proceeded up off of that bottom over the next 40 minutes to climb 7 points above that low. A 3 point pullback from there gave another opportunity to add more contracts.
From there, prices rallied another 14 ES points in just 30 more minutes up to 1061.75. And next, a series of +1000 ticks or better powered prices up to the day’s high of 1064. All positions were take off at the cash market close (4:00 p.m. NY) at 1062 on ES.
I have talked so much about this capitulation bottom signal (-1400 tick) because it is a rare event in trading. It is very powerful, and very dependable, after a major selloff has exhausted itself. You will not see it every day, every week, every month, nor every year. When it comes along, it is time to load up the boat!
Additionally, this capitulation should provide a short-term bottom for the market. I will trade again to the long side on appropriate signals until the market tells us again that it is topping or exhausting the upside move. The next most interesting of questions will be, how far can this capitulation of sellers last before we run out of buyers again?
We will watch, and see………..1105 on ES is still the major hurdle to be eclipsed for a rally with a bit of staying power………
I hope this discussion was helpful to your trading!
- fishhook
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