Demand shock?

Here is an hourly chart of day session e-mini trading. I think a demand shock just hit the market (green oval and wide range, green bar just above it). This demand shock is also a high volume, upside breakout from the 1153-68 trading area that has developed this week. If I am reading this correctly the market should not go very far back into this trading area and support should be found near 1066, just a shade below the horizontal green dash line.

The only potentially bearish potential I see in this chart is that the market has rallied exactly the same number of points as it did in its previous rally (blue rectangles). Moreover, it is still below the red dash descending trend line and below midpoint resistance at 1084 (purple dotted line). If this is really a demand shock the ES should move above these resistance points within the next day or so with little hesitation in the mean time.

Even if this is not a demand shock I still think any reaction from current levels will end at a low above Friday's 1041 low. I think a move to 1200 has begun.

 

Guesstimates on February 9, 2010

March S&P E-mini Futures: Today's range estimate is 1058-1076. I expect Friday's 1041 low to hold. A move to 1200 is underway.

QQQ: A rally to 50.00 has begun.

TYX (thirty year bond yield): I think this market is headed for 5.00%.

TNX (ten year note yield): I think that the market has begun a swing up to 4.30%.

Euro-US Dollar: This market is now headed for support near 131.00. Resistance above the market is at 141.00. Looking further ahead I think that a drop to 125 is likely over the coming months.

Dollar-Yen: A rally to 100.00 is underway. Support is at 90.00.

March Crude: I think the market is headed for 50.00.

GLD – April Gold: The longer term trend has turned downward. I expect gold to drop to 875 over the next few months. Resistance above the market is at 1120.

SLV - March Silver: I now think silver has started a down move that will carry it to 10.00 over the next few months. Resistance above the market is at 17.00.

Google: The next significant move should take GOOG above 700.

 

More evidence

Here is some more evidence that Friday's low ended the correction which started from the 1148 high in the ES. These two charts show the 5 day (purple line) and 10 day (red line) moving averages of the number of issues traded on the New York Stock Exchange which advance in price. Notice that both moving averages were higher last Thursday and Friday than at their low points of the previous week - yet the S&P 500 was lower than its previous week's low. These are bullish divergences. Coming as they have after these indicators dropped to "over sold" levels these divergences are more evidence that the correction has been completed.

 

Bull market boxes

Here is a daily chart of the cash S&P 500. I have drawn a stack of 87 point boxes (blue rectangles), starting with the one defined by the June-July 2009 reaction. Friday the market dropped to the bottom of the third box. In doing so it matched the percentage drop of last year's June-July corrections. These are two good reasons for thinking that Friday's 1041 low will hold.

 

Contrarian buying opportunity

Here is my latest post on "The Art of Contrarian Trading".

 

Guesstimates on February 8, 2010

March S&P E-mini Futures: Today's range estimate is again 1048-1068. I expect Friday's 1041 low to hold and a move to 1200 to begin soon.

QQQ: A rally to 50.00 has begun.

TYX (thirty year bond yield): I think this market is headed for 5.00%.

TNX (ten year note yield): I think that the market has begun a swing up to 4.30%.

Euro-US Dollar: This market is now headed for support near 131.00. Resistance above the market is at 141.00. Looking further ahead I think that a drop to 125 is likely over the coming months.

Dollar-Yen: A rally to 100.00 is underway. Support is at 90.00.

March Crude: I think the market is headed for 50.00.

GLD – April Gold: The longer term trend has turned downward. I expect gold to drop to 875 over the next few months. Resistance above the market is at 1120.

SLV - March Silver: I now think silver has started a down move that will carry it to 10.00 over the next few months. Resistance above the market is at 17.00.

Google: The next significant move should take GOOG above 700.

 

sold one unit at 1047.25 - playing defense but still bullish

 

Long one unit at 1047.25

 

Box update

Here is an hourly chart of day session e-mini trading. I have drawn boxes of about 25 points in height which I believe have been controlling recent trading. The bottom of the current box is near 1048. From there I expect the market to move up into the 1075-1100 box. This in turn would be the first stage of a sustained rally to 1200.

 

Guesstimates on February 5, 2010

March S&P E-mini Futures: Today's range estimate is 1048-1068. I expect the ES to do some base building in this range and then begin a move to 1200

QQQ: A rally to 50.00 has begun.

TYX (thirty year bond yield): I think this market is headed for 5.00%.

TNX (ten year note yield): I think that the market has begun a swing up to 4.30%.

Euro-US Dollar: This market is now headed for support near 131.00. Resistance above the market is at 141.00. Looking further ahead I think that a drop to 125 is likely over the coming months.

Dollar-Yen: A rally to 100.00 is underway. Support is at 90.00.

March Crude: I think the market is headed for 50.00.

GLD – April Gold: The longer term trend has turned downward. I expect gold to drop to 875 over the next few months. Resistance above the market is at 1120.

SLV - March Silver: I now think silver has started a down move that will carry it to 10.00 over the next few months. Resistance above the market is at 17.00.

Google: The next significant move should take GOOG above 700.

 

Low just ahead

Here is an hourly chart showing day session e-mini trading. I had thought that last Friday's low at 1066.50 would hold. But sellers came into the market in force this morning and pushed the ES below that low.

Now I think that the drop from the January high at 1148 will end near 1058, the point where it would equal the length of the 90 point drop of June-July 2009 (blue rectangle). It is worth noting that the 1062 level is the midpoint of the reaction from 1099 to 1026 in October-November 2009, while 1054 is the midpoint between the May 2008 top at 1442 and the March 2009 low at 666.

So I expect the ES to sink into the green oval later today or tomorrow on the employment number. But I also think that this is the last gasp of the corrective move downward and that a rally to 1200 will soon be underway.

 

Early Update

The ES has just shown high volume selling over a wide range, 30 minute bar almost entirely below 1083 support. This means that the market is headed for the 1055-60 range. From there I think a rally to 1200 will begin.

 

sold both units at 1082.00

 

Long second unit at 1085.00

 

Guesstimates on February 4, 2010

March S&P E-mini Futures: (Still long one unit from 1090.75) I think Friday's 1066 low ended the drop from 1148. Today's range estimate is 1083-1096. I expect a move to 1200 to develop over the next two or three months.

QQQ: A rally to 50.00 has begun.

TYX (thirty year bond yield): I think this market is headed for 5.00%.

TNX (ten year note yield): I think that the market has begun a swing up to 4.30%.

Euro-US Dollar: Resistance above the market is at 144.00. Support is at 137.50. Looking further ahead I think that a drop to 125 is likely over the coming months.

Dollar-Yen: A rally to 100.00 is underway. Support is at 90.00.

March Crude: I think the market is headed for 50.00.

GLD – April Gold: The longer term trend has turned downward. I expect gold to drop to 875 over the next few months. Resistance above the market is at 1170. Any strength above that level would mean that the market is instead headed for 1250.

SLV - March Silver: I now think silver has started a down move that will carry it to 10.00 over the next few months. Resistance above the market is at 19.40.

Google: The next significant move should take GOOG above 700.

 

Rhythm

Over the years I have found that the best way to identify the reversal of a trend is to look for a break in the trend's rhythm of reactions. Reactions within an extended move up or down show a strong tendency to be of the same length when measured along the price dimension. Sometimes they also show a tendency to last about the same number of days. It is this tendency which is the basis of my box theory of market action ( which I think shares many features with Darvas' original idea).

From this point of view the bull market which began from the March 2009 low point in the S&P is still going strong. This is clearly evident in the first chart above this post. This line chart shows the daily cumulative total of the difference between advancing and declining issues traded on the New York Stock Exchange. Notice that over the past 11 months there have been three reactions within the up trend, each of about the same size, and each ending when the 50 day moving average was touched.

The top chart shows the daily trading ranges in the cash S&P 500, together with its 50 and 200 day moving averages. The recent drop from the 1150 high matched the average length of the two preceding big reactions. It also stopped just a shade above midpoint support (dotted purple line). The downside penetration of the 50 day moving average matched the size of a similar penetration last July.

All of these observations tell me that the rhythm of this 11 months up trend is still intact. The implication is that new highs for the bull market lie ahead. As you know I think the S&P will reach the 1200 level during the next three months.

What would it take to cast some doubt on the bull market trend?

On the top chart I have drawn a green dash line at the 1030 level, the last reaction low prior to the top. Should the S&P drop below that level and below the 200 day moving average (red line) I would have reason to worry about the continuation of the bull market trend. But I probably wouldn't give up on it unless and until the 200 day moving average itself were to turn lower.

 

Long one unit at 1090.75

 

Guesstimates on February 3, 2010

March S&P E-mini Futures: I think Friday's 1066 low ended the drop from 1148. Today's range estimate is 1087-1100. I expect a move to 1200 to develop over the next two or three months.

QQQ: A rally to 50.00 has begun.

TYX (thirty year bond yield): I think this market is headed for 5.00%.

TNX (ten year note yield): I think that the market has begun a swing up to 4.30%.

Euro-US Dollar: Resistance above the market is at 144.00. Support is at 137.50. Looking further ahead I think that a drop to 125 is likely over the coming months.

Dollar-Yen: A rally to 100.00 is underway. Support is at 90.00.

March Crude: I think the market is headed for 50.00.

GLD – April Gold: The longer term trend has turned downward. I expect gold to drop to 875 over the next few months. Resistance above the market is at 1170. Any strength above that level would mean that the market is instead headed for 1250.

SLV - March Silver: I now think silver has started a down move that will carry it to 10.00 over the next few months. Resistance above the market is at 19.40.

Google: The next significant move should take GOOG above 700.