In last night's Index Trader Wrap, we discussed how a trader might look to use our intra-day "pivot analysis" to controls a NASDAQ-100 Index Tracking Stock (QQQ) Jan. $27 straddle that may have been put on by traders ahead of yesterday evening's earnings release from Intel (NASDAQ:INTC) $17.64 -0.83%.
Now I'm going to use the analysis from last night, apply it to this morning's action, to "predict" that the major indexes will trade their S2 levels at some point today by their session's close.
Here is a QQQ intra-day chart with 5-minute intervals. It becomes very apparent to traders just how some of the things we discussed in last night's Index Trader Wrap have really come into play today, even though we were looking at things from a very "micro" point of view.
NASDAQ-100 Index Tracking Stock (QQQ) - 5-minute interval
I've "overlapped" two QQQ charts, with 5-minute intervals. The chart on the left shows the QQQ with retracement defined by TODAY'S given R2 and S2 levels. In essence, this helps the trader envision a potential range for today's trade. On the right, is the QQQ chart, but here I left YESTERDAY's retracement, which was defined by YESTERDAY's R2 and S2 level. Again, in last night's Index Wrap, we noted some "correlation" between today's S1 level, with YESTERDAY's 38.2% retracement.
Here are some things we will note from this morning's trading. The QQQ first 5-minutes of trading saw a high of $27.35, which was very, very close to today's R1 of $27.33, then really got "whacked" lower by selling. To me, this was a rather "bearish" type of open and hinted of "sell the news" type of trading. As such, in last night's Index Trader Wrap, we had put together a plan for our QQQ straddle, which the QQQ did NOT pass, and a QQQ straddle trader would have SOLD his/her QQQ Jan. $27 calls after the first 5-minutes of trading.
Then... note how the QQQ fell quickly to today's S1 of $26.86, which is also YESTERDAY's correlative 38.2% retracement (right chart). This hints that somebody, the MARKET, is indeed using that level as some type of action point. Perhaps a determined bear that "shorted" the open, has that as a short-term trading target.
In the market monitor, we noted the QQQ traded today's S1 of $26.86 and even dipped below that level. On the right chart, I've turned on the volume indicator. Note the LARGE spike in volume on the 5-minute chart. To me, this "proves" that the MARKET is indeed trading that level and there is INTEREST among market participants at that level.
It is the 5-minute CLOSE below the S1, that now has be thinking that at some point today, we will see a test of today's S2 levels.
While this is a "short-term" observation, traders can use and perhaps think about how this type of observation and thinking may now have any bulls that are looking for pullback entries, to be sitting on their hands right now and perhaps NOT initiating any bullish index trades today. This thinking would HOLD unless some type of break above today's PIVOT of $27.09 were found.
Conversely, a BEARISH trader begins to look at BEARISH trades on intra-day RALLIES back near $26.97, which looks to be a level that traders were willing to sell earlier this morning (see left chart). We also see some "corollary" resistance coming into play in the right chart, from YESTERDAY's pivot and 50% retracement of $27.04.
Anyway, I thought this would be a good opportunity to show traders in about as real time as we can get, how some of this intra-day pivot analysis can help a trader. Remember, we used this type of analysis last night to put together a trading plan for a QQQ Jan. $27 straddle for today.
The daily pivot analysis can hopefully help a trader, that is nearing a "decision point" in their trade to lay out a plan, then simply trade that plan as it relates to the intra-day levels for execution of that plan.
Swing traders, take note! We're not done yet and will begin using the very same type of intra-day analysis outlined above to use the weekly and monthly charts to define "pivots" and resistance/support levels for trading. The discipline will remain the same, just different time-period observations.