Solid earnings for Intel and Wells Fargo have provided a nice tail wind for stock index futures today. The Dow has rallied more than 100 points so far. It is particularly good news to hear from Wells Fargo, since most of the worst news over the past few weeks has come out of the financial sector. Wells Fargo seems to have bucked the trend this past quarter.While these intra-day charts don't demonstrate a very powerful rally, with erratic movements interspersed throughout, the bulls will take any form of encouragement they can find. In an environment like this, I will typically trade in even-numbered contracts (2, 4, 6, etc.). When the momentum wanes, as shown at various points on this 3-minute chart, I will liquidate an odd number of contracts (1, 3, 5, etc.). I will allow the other contract to remain. I do this for two reasons:
- The liquidated contract at a profit gives me some cushion against the possibility that the other contract might go negative, and
- The remaining contract allows me to hold onto the possibility that prices will continue indefinitely into the future. This permits me to maximize returns in a trending environment.
The one negative in the scenario is that since I still maintain some contracts during counter-trend moves, I can't trade those counter-trend moves.
