Point Of No Return

When an Index gets beyond the “Point of No Return,” it’s time to short the strongest indexes.

When day trading, I love to see indexes right after the opening get to the “point of no return.” What does that mean?

Here is an example:

Yesterday, March 10th, 2016, many indexes were all bumping up against overhead resistance on a daily. As I mentioned in the Simpler Options Live Trading Chat Room, I was watching the /TF carefully. The /TF, on a 78 minute chart, had already broken an ATR trailing stop. The /TF seems to lead the overall market.

point-of-no-return-ponr1

point-of-no-return-ponr2

The /TF’s started falling apart right after the opening, while the /ES’s held up pretty well.

point-of-no-return-ponr3

Once the /TF was down enough, the /ES HAD to take notice.

1) The first key was the /TF being down for the day.

2) The next was the /TF being way down for the day, which I feel was at least 10 points.

As seen on the following chart, the /TF’s topped out before 10 AM EST. The /ES didn’t 10:30, when the /TF was down 10 points.

point-of-no-return-ponr4

When I see this divergence, I want to short vertical call spreads in the /ES. Why? When I see extreme weakness in one major index, at the minimum the other indexes will have muted rallies.

Since the $SPX verticals expired the next day, a low risk play is to short the 2010-2-15 call vertical for 1.20. I actually shorted it 4 times at 1.20. 8 minutes later it was already 75 cents!

Learn more about Chris Brecher’ strategies, indicators, and how to find the most consistent trading patterns to day trade (stocks, options, futures & ETF’s), check out his next class at Simpler Stocks.

Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.

Leave a Comment