Sometimes You Get Lucky

Fading the market is not my typical trade, even though I know that I should do it more oftern.

As the ES Futures was making a new low this morning, I noticed that the $TRIN was starting to trend down, which is a subtle indication that buying pressure is starting to increase as selling pressure is decreasing.

Based on a recent post by Dr. Steenbarger, I have started to routinely check the XLF (Financial Spider) in relation to the futures. I then noticed that as the ES Futures was making the same new low as mentioned above, the XLF was not confirming that low. As a matter of fact, the XLF was showing signs of strengthening. Always an important divergence to notice.

In addition, the NYSE Advance - Decline Line was also not confirming the new low in the Futures.

And, the moving averages of the $TICK was starting to make a higher high.

Another thing that I was considering was the fact that the market was near the low made several days ago.

As the fast moving average of the $TICK turned green, I entered a long on the June ES Futures.

Luckily, it paid off big this morning with a little help from an annoucement from Standard and Poor's as reported by Briefing.com:

"BRIEFING.COM] On Thursday, the stock market was down as much 2% on renewed credit fears and a weaker than expected retail sales report. The market then spiked off its lows on positive comment from a major credit rating firm. At midday the S&P 500 is down 0.6%.
Standard & Poor's said the bulk of write-downs on subprime securities may be behind banks that have already announced their full year 2007 results. S&P said "the magnitude of some write-downs is greater than any reasonable estimate of losses." The firm noted Citigroup (C 20.61, -0.60) and Merrill Lynch (MER 45.24, +0.32) have taken conservative valuations.
S&P said write-downs could reach $285 billion, from the current level of $150 billion. The firm's forecast is much lower than some other estimates, including UBS. UBS said last month it expects firms will face more than $600 billion in write-downs.
The financial sector saw the largest boost from the S&P report, as it is currently down 1.1% after being down as much as 4.0%. However, the sector is still a laggard. Credit concerns are once again weighing on the market, spurred by reports that Carlyle Group admitted one of its funds is close to collapse."

Charles