As my analysis for the E-mini S&P 500 futures (^GSPC:SNP) proved Monday, trading doesn’t have to be rocket science. As a matter of fact, my analysis for the ES for Monday’s session revolved mostly around basic price structure and measured moves, along with the late-day help of a highly bearish MIM. These basic factors helped me nail key levels in the S&P, including calling the low of the day at 1798.50.
Each morning, the traders in the MTS IM Pro trading room share levels and talk early strategy ahead of the opening bell. At 8am CT, Kathy Garber, Jack Broz and I provide our key levels, trades, and targets for the room during a live audio and visual update.
During the morning update, I talked about the overnight range in the ES from 1805 to 1809. I mentioned that a violation of the 1805 pivot suggests a primary downside target for the day at 1798.50, with a scaling point at 1802.
If you look at a chart, you’ll notice that 1805 was the key pivot for the day, and price eventually hit both targets I handed out, with 1798.50 marking the low of the day.
You can see the details in my 4-minute pre-market video, which also includes my morning analysis for crude oil.
Simple, accurate analysis
As you can see from the annotated chart, the ES broke down from the overnight range though 1805 early in the session, pushing as low as 1802.25 during the initial down move. Once price returned to 1805 for a retest of price levels within the prior range, the level was defended by sellers.
The ES tried to push through the 1805 level just after lunch, but instead experienced failed range expansion, which implied further weakness toward our downside targets.
How did I calculate the targets at 1802 and 1798.50? I used my ADR Method, which uses average daily range (ADR) to forecast targets higher and lower from a suspected high or low of the day.
Monday’s ADR for the ES was 14.50 points, meaning the ES has averaged a daily range of 14.50 points per session during the last ten sessions. If we assume that the overnight high of 1809.25 will remain the high for the day, we can then forecast our primary downside target by projecting 75% of the 14.50 ADR lower from the 1809.25 high, which gives us a target rounded to 1798.50 (1809.25 – (14.50 x .75) = 1798.50). To arrive at the scaling target at 1802, simply forecast half of the ADR lower from the 1809.25 high (1809.25 – (14.50 x .5) = 1802).
Try projecting 50% and 75% of the day’s ADR higher from the overnight low and lower from the overnight high to give you two highly reliable targets to begin each day, scaling out of a portion of your position at the first target, and then flattening the trade at the primary target. Keep in mind, if a new high or low surpasses the overnight high or low, you’ll need to update your targets using the most recent pivot.
The MiM was fantastic in helping us determine that further weakness toward our targets could be seen, as a highly bearish MIM reading at 2pm CT came in at -78% to the sell side with $455MM net to sell. Within a few minutes, the sell side reading increased dramatically to -86% with $600MM net to sell.
I’ve been a huge fan of the MiM since it was first released in the spring. With any tool, you have to understand how to use it and when to use it, and it’s also wise to create rules for trading the signal.
For this particular signal, I like a MiM reading that is +/-80% with a sizable imbalance of $250-300MM or more right at 2pm. A reading of this size right out of the gate can oftentimes be traded for an early impulse move, with the potential to trade in the direction of the imbalance heading into the 2:45pm CT “reveal” of the NYSE MOC data. You don’t get many of these “signals,” but I can only remember one time in the last month that it didn’t work out, and I only lost 6 ticks on that trade in the ES.
When the first MiM reading was released at 2pm, the ES was trading 1804, which was the best possible price to sell at that point. With the bearish MiM and price holding below our 1805 pivot, it was easy money forecasting a decline into our 1802 and 1798.50 targets.
How does fantastic get even better? While my primary downside level in the ES nailed the bottom at 1798.50, several MTS traders in our IM Pro trading room had targets that matched levels between 1798.50 and 1800, which further shines a bright light on the true power of our MTS “Collective”.
[Editor's note: To join our collective with professional traders like Frank, join the MrTopStep Trading Room, where dozens of working traders gather to support and advise each other and new traders, and to call out their trades as they make them. It is the only Trading Room of its kind. Our next boot camp is Dec. 13-19. Seats are limited, so reserve a space early. Or sign up if you're ready to join us. We'll refund your monthly balance if you change your mind. Sign up here.]