Last week I had a new trader in my office learning how to trade.  He worked on building options spreads, Vega trades, theta trades, Delta trades and running a portfolio.  One of the strategies that he was using each day was to trade the futures market – specifically the /ES S&P 500 E-mini futures contract – to supplement his portfolio.

Each day, starting in the morning about 6:30 AM, we would assess the market; start our daily routine and day trade the E-mini’s while we were working through each step of his portfolio.  Day trading is not for everyone.  Some traders just can’t handle the pressure, emotions and up and downs that come from day trading with leveraged products.  But for those who can, it can be a lucrative part of your trading business that presents an opportunity that is unique and interesting.

Before each day I like to set a profit goal for the day and work towards it.  I am a big believer in goal setting.  For me, it keeps me focused, moving forward and helps me maintain focus while I’m trading.  The goal can change from day to day, but the mindset remains the same.

Last Thursday, in the morning my new trader and I set down to trade and he wrote a goal down.  It was $500 for his day-trading.  Trade after trade, he started to profit.  And he reached his goal after about 1 hour of trading.  Once he hit it, I told him to stop trading.  But it was hard for him to do that.  In his mind he was doing great, why not go for more?  But as a veteran trader, I know that there are many trading days and you need to embrace successful days and move on.

But he was hesitant.  His instincts were to keep trading.  After four more hours of trading, he was still up $500 and hadn’t gained or lost anything from the first hour.  Lesson?  Stop when you’re ahead and spend your time and energy on something else.

It’s been 5 and ½ years since the market bottomed in 2009.  66 months.  In that time we’ve seen a political crisis, conflict around the globe, an entire global market inflate itself through a joint monetary policy that embraces printing money and inflation and yet we haven’t had a major setback.  When does it stop?  It’s hard to tell.  But when the market does turn around it will probably be sharp and sudden.  As a trader, this forces you to be quick with the trigger and move in and out of positions.

Interest rates are low, inflation is under control (according to government numbers), earnings are strong from companies but yet there’s a sense of skepticism and distrust from investors that looms out there.  Most traders you talk to will tell you that they are bearish on the underlying fundamentals of the market but they’re not taking bearish positions yet.  When will the bears show their teeth?  It’s hard to tell.  But you need to be ready and pounce when it does happen.  The opportunities that will arise from bearish triggers will be out there for you.

The S&P 500 is opening the week down slightly after a news-driven week of activity.  Markets are at highs and yet the downside risk is obvious and needs to be talked about.  If the selling starts, you should find and focus on bearish delta trades.

The Nasdaq chart is very similar to the S&P.  On a relative strength basis, Nasdaq stocks have outperformed most of the stocks in the market this year.

The dow is near all-time highs as well.  Watch for reversal candles this week as the news lightens up and traders have less to pump this market up with.

Out of all of the indices, the Russell 2000 is the weakest.  Small caps are the best indicator to use for leading market movement.  Selling the RUT against the other major indices is a good move as the pattern is more bearish and triggering below support.

Gold, Oil and other hard commodities are down relative to the recent dollar strength.  Federal Reserve policy has pushed the dollar higher as investors and traders have seen the decisions from the FOMC as bullish.  As the dollar rallies, there’s a significant correlation in the commodities market and crude and metals have responded.  Look for a correction in the next few weeks back into the mean.

Last week in the market was chock-full of news.  The federal reserve had a policy meeting where they kept interested rates where they’ve been, talked about the future and laid out a plan for eventually raising rates and reducing their bond portfolio.  Last week was full of news, this week will be very light in that department.

Light news weeks can be deceptively dangerous.  Just because there isn’t much going on this week does NOT mean that the market won’t be active.  Keep a close eye out on bearish triggers as the market tries to find itself after the FOMC meetings last week.

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