Were you too bearish after the jobs report this Friday?

Let’s set up the scene for Friday’s trading.  We had bounced from 160 SPY to 163ish before the report.  Then the pundits and traders began to battle at the 163.50 level.  At first it appeared the buyers had won sending the market towards 164 SPY, but as traders we knew this was an important technical level.  So a move up to here was not yet confirmation it would be a trend higher day.  We needed to clear 164 SPY as well.  SPY seemed to double top just in front of SPY 164 R (resistance) and then broke below 163.40, a level it failed to crack multiple passes on the open.  Was this a shorting opportunity?

On most trading days with the setup above we would want to short below 163.40.  We might also want to short in front of 164 if we had a bearish thesis, as the price action was offering confirmation as SPY could not trade above 164.  And then SPY broke the range to the downside when it traded below 163.40.  But this was a trade too bearish as SPY held the real level, premarket support near 163ish.

Later in the day many traders wondered if we would sell off into the close.   But trading statistics show this strategy was historical a loser.  Let’s take a look at a back-test that one of our quants did based on this setup that shows shorting into the close was too bearish.

 I wanted to test the idea of of a pullback to morning resistance in the context of a day like we had on Friday.

Here’s the test:

today’s Open > prev High

px @1030 > Open

then buy if the low of a 5min bar between 1400 and 1500 is below the high of the first half hour and hold to the close

2011-present (SPY)

Avg 10bps

21/37+

Std 35bps

t 1.7

Avg Win 32bps

Avg Loss 17bps

Rather than threatening the uptrend day, that pullback has actually been a sound buying opportunity.

Mike Bellafiore

The PlayBook

One Good Trade

no relevant positions