Reversion to Value

This week’s auction failure on retest of April 4th high reinforces that level as resistance. Yesterday’s sharp sell-off creates an “island top” type formation at the high end of multi-day range. The recent pattern has been to push higher creating extremes, only to reverse back deep into value, before longer-term traders (OTF) step-in with responsive buying. This pattern seems to be becoming more of the norm than exception, as price ranges have exceeded greater than 20 handles intra-day thanks to the High-Frequency Traders. As many of you know, I have been advocating trading more at the “statistical extremes” (STATX) zones, (prices edges) anticipating mean reversion type moves, and not getting caught trading in the median zone, where it is easy to get “run-over” by the friendly Algos (yeah…right!). Best way to trade is always with the dominant force…bull or bear…and know where those extreme price edges are located. STAY DISCIPLINED….NEVER CHASE MOVES!

Today is options expiration…simply…anything goes directionally, as early order flow may be influenced by the expiring contracts. We continue to trade the numbers and levels.

Prior Day Low (PDL) at 1859.00 marks excess and test of May 7th low. IF selling continues and this low is violated on high volume, THEN lower prices target 1856 – 53 zone, with extremes between 1850.25 – 1848.25. Below this level and long liquidation would be anticipated to unfold. Upside retracement levels are 1869.25 – 1873.75, with layered levels 1875.50 through 1881.50.

Remain Focused….Follow the Rules….ALWAYS USE STOPS!

Good Trading…David

Habitude Six
I am at peace with uncertainty. I know there is no such thing as a sure thing. I have no particular need to be right. I understand that being perfect has no place in trading. I am flexible. I am willing to change my mind. I am alert to scenario changes. I accept the information that tells me I am on the right track or on the wrong track.


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