March 14, 2011
The equity markets have had increased volatility and continue to express concern over international events. It began in Egypt, spread to Libya and now the disaster in Japan and the potential issues resulting from Japan’s nuclear reactor has resulted in a very nervous market.
The ESM1 opened on its lows Friday then rallied all day to close near highs. This was probably a bit of profit taking and position squaring headed into the weekend and a trap for nervous longs who sold out on the open. The markets had another gap down on Monday and we are clearly in nervous, news driven whippy market.
It is probably best to consider reducing size and widening stops in order to participate and have a good plan. Do not be reactive in these types of environments or you can have many consecutive losing trades. Good traders have patience and this bump in the market is creating an opportunity, but it is still too early to benefit.
On ESM1 we are monitoring 1285.50, Friday’s low and after 1 hour of trading Monday the day’s range is contained within Friday’s total range as the market consolidates and processes the news.