Tuesday, February 22, 2011

Large down gaps in the futures

Seeing a lot of risk aversion at the moment largely sparked by the situation in the Middle East. Futures are well down at the moment and as I've pointed out many times in the past that when you have very large gaps >0.5% and gaps that open above the highs or below the lows of the previous session, the odds of gap fill are low whilst the chance of a trending day is high. Therefore the best trade should we open around here (<1336 on the ES) is to fade the "gap fill" ie go with the direction of the gap. No doubt there will be a lot of the amateurs trying to buy this open and early morning weakness expecting us to rally as we have done for the last 2 weeks or so but I expect these "suckers" to get run over. I will be listening to Ben from Trader's Audio for clues to see whether the big institutions are net buyers or sellers off the open. I expect them to be net sellers in a big way meaning the locals will be forced to cover as the supply will become too much for them to hold.

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