The prefect storm short trade

Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220 ext. 1.

The (DIA | Quote | Chart | News | PowerRating) and (QQQQ | Quote | Chart | News | PowerRating) continue to play a tug of war as mentioned in the last article. The FOMC meeting on the 28th (next Tuesday) is a major speed bump for the market. Thereafter, earnings season comes into play in April. During this valley period, we are just playing scalps on the best filtered setups that we can find while trying to save the ammo for the return of earnings season. In fact, this valley period is the best time to train oneself on filtering. Those who can survive the valley period will thrive in the peak periods.

The perfect storm is the best setup possible in any market. This is when three time frames converge with pups and/or mini pups. This morning we took a PERFECT STORM short trade on (AAPL | Quote | Chart | News | PowerRating).

Just to recap, pup patterns are when the 5-period simple moving average stalls sideways as the 15-period simple moving average continues to rise. Eventually, steam builds in the contracting trend channel to cause an explosive breakout above the 5-period moving average usually with upside targets at the upper Bollinger bands and vice versa for lower Bollinger bands.

Mini pups are when the lead %d stochastics stalls on the rise as the laggard %d slow stochastics continues to rise to form a wedge like breakout and vice versa for breakdowns.

This morning AAPL 13 and 60 min charts showed inverse pup breakdowns forming. We also spotted the potential for the three and 8 minute charts to form inverse pups. The one minute mini inverse pup was our trigger to enter the short at 61.40 at 9:46am. The three minute took a mini inverse pup thereafter which formed the domino effect of a PERFECT storm as the 3/8/13/60 min all converged for a perfect storm resulting to a hard selloff to the 13/60 minute lower Bollinger bands and pivot to lock the 60.90 overshoots, out + .50. This was a perfect trade on a perfect storm. Valley period require the best possible setups to take trades.

Peak periods will come back into the markets in April with the earnings season. We expect to see many more setups like the aforementioned in the peak periods with 40-100% increase in gains. Until then, tread lightly as we get past the FOMC speed bump on Tuesday heading into earnings in April! Good Trading!

Jea Yu