When last week ended, the futures were headed into the wild blue yonder, trading several points above where I’d suggested shorting a single contract. The trade would have produced a loss of about $50, a relatively small sum to risk trying to leverage so compelling a target. The new one shown, at 2522.25, looks somewhat less appealing because there are three possible choices for the pattern’s point A. They produce a succession of rising targets at, respectively, 2520.00, 2522.25 and 2523.35. As a one-size-fits-all trade, I’ll suggest shorting a single contact at 2523.00, stop 2524.25. The main risk here is not getting steam-rollered, but of missing the trade because ES has turned from below our target. As always, the best way to neutralize this risk is to set up the trade on the one- or three-minute chart in ‘camouflage’ fashion. If you are comfortable with this tactic and you’re going to trouble yourself to use it, you should start looking for the ‘camo’ opportunity once ES hits 2519.75. This is a relatively low-risk way to try to catch a potentially important top. The odds will never be with us on this particular bet, but I am suggesting it anyway because of a gut feeling I have that the stock market’s amazing run-up is near an end. For an option-based play, check out my latest tout for DIA elsewhere on the home page. ________ UPDATE (Oct 1, 10:35 p.m.): The short I advised above is working perfectly Sunday night but it will need some close attention. The high so far this evening was 2523.50, leaving us three ticks to spare on the five-tick (!) stop-loss I’d recommended. The futures have fallen five points since to a so-far low at 2518.25. Cover half the position now — and use a 2523.75 stop-loss for the remainder. Night owls who did the trade will be on their own from this point forward, but the nearly-perfect entry should take the stress out of managing position risk.
