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What Will Follow Australia's Surprise Announcement?


Be patient, look for prudent entries, and don't ask "why."

Editor's note: The following is this morning's edition of Morning Thoughts from our FlexFolio by Quint Tatro. To receive Quint's Morning Thoughts daily, as well as access to his portfolio and trade alerts with every trade he makes, sign up for a FREE 14-day trial.

Most of the major media will point to the excellent quarter from Alcoa (AA) as to why our futures are ramping as much as they are. The initial bump after hours is in fact due to the Alcoa report, however the monster move we saw as evening turned to night was on the heels of a surprise report from Australia in which more than 40,000 new jobs were added.

Because we're such a global community, this news rippled quickly through the electronic markets smacking the US dollar and goosing our futures even more. It was because of this, I proposed to Mrs. T, that I forego sleep from now on and simply trade the futures market 24 hours a day. Needless to say, that didn't go over to well.

It's very challenging to get your mind around what's going on. The general consensus seems to be that the market simply moves higher, and while there isn't a trader I know who isn't concerned with the way in which the world is moving, they sure aren't ready to step in front of this fast moving freight train.

Furthermore, while we've seen some signs of weakness over the last couple days, that will be all but wiped out on the open after this gap -- considering the S&P 500 will have recovered almost every inch of its two-week sell off, in four easy sessions.

As a trader one must not ask "why," or if they do, they shouldn't spend too much time searching for an answer. Instead they must focus on the how, seeking to play whatever is working at the moment.

I've attempted to remain open-minded during this latest boost but still prudent in that I'll not simply jump at moves to have longs on my position sheets. My belief in any market is that if prudent entries develop, I'll take them. Throughout this move from March, we've had moments where bearish patterns have turned into bullish breaks that have been very hard to play, however, then we've seen many times when developing bullish patterns allow for prudent entries for the patient trader.

The first part has been tough to sit through, but the later has always been well worth the wait. At this moment, I'm watching us transition again from the first to the second and am waiting and watching for those entries to develop. If they do, I'll take them, if they don't, I won't.

My eyes this morning are focused on the key reversal FOMC day of September 23. This was a key day in my opinion, at which point the mood shifted quickly from break out to break down. Now that we've recovered the follow through down, I'll be watching to see how an attack on this level is handled. A move above would bolster the bulls even more and propels us toward the SPY $109.68 gap from October 3, 2008.

Patience and prudence folks, it's not always fun, but it will keep you in the game.

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