Testing Support

Contrary to my expectation the e-minis have just dropped below today's earlier low. But this situation is of great interest from a tape reading standpoint. We have just seen a high volume break back to the low of the 825-37 trading range. The high volume is relative to normal volume at this time of day. If support at 823 is going to hold the market will absorb this aggressive selling we have just seen. Indeed, it ability to do so would be very strong evidence that the swing down from 876 is over. I think this test will be successful and that the market will rally from here.

Wave Chart at 1:10 pm

Here is today's wave chart for the e-minis. There is a very good chance that the drop from 876 has been completed. We have just put in an up wave that is not only longer than the preceding up wave but has broken above its top - and this after two volume climaxes and a shorter down wave.

The market is likely to encounter resistance near 840 because at that level the rally from 825 will be 15 points, just the same as the rally from the electronic low at 833 this morning to the high near the day session open. But I think that any reaction will be limited to 10 points or so on the downside.

Even if this reading is wrong and the market drops below 825 today or Monday the rally we are seeing is the first sign that buyers are getting interested in this market at current levels. In any event the only thing still lacking on the bull side is strength above 840 on relatively high volume.

Wave Chart at 11:45 am

Here is the wave chart for today's e-mini trading. Support at 823 is nearby. We have seen two modest volume climaxes (red arrows). The last down wave was shorter than the preceding one. The moment of truth will come when the market encounters resistance at the purple dotted line (831). If it continues past resistance and then climbs above the green dashed line at 836 I will conclude that the drop from 876 is over. In any event I believe the market is now scraping bottom and that next week will be a generally bullish week.

Is This a Supply Shock?

Here is a 30 minute bar chart of day session e-mini trading over the past two weeks.

Some of you are wondering whether this morning's action is a supply shock.

I don't think so. My reason is a simple one. Volume today on this drop has been lower than at any time during the past six days, and volume on those days was none too high to begin with.
So I don't think the reaction from the 876 level has changed the direction of the trend which I think turned upward from 797 on January 20. This is not a supply shock.

Beginning of the End (of the reaction)

Here is a 5 minute bar chart of today's e-mini trading.

I think the market just experienced a volume climax (red arrows). Sometimes these indicate the immediate start of a rally. Other times the market moves a little lower on reduced volume before starting a rally. In any event the rally potential is now only to the 837 level (dotted purple line). The downside target (which probably won't be reached until this afternoon) is the dashed purple line at 823.

Wave Chart at 10:15 am

Here is the wave chart for yesterday's and today's e-mini day session. As you can see the bears are still in control of the market because the up wave that ended right after today's open was not much bigger than the preceding up wave while the subsequent down wave has been bigger than the preceding down wave.

My downside target is the dashed purple line at 823. I think that support in that area will hold because the volume on the latest downwave, indeed on the entire drop from 876, has been relatively low.

Meantime resistance above the market is now at 840, the dotted purple line.

Guesstimates on January 30, 2009

March S&P  E-mini Futures:  Downside target for the e-minis is still 820-25. The market has dropped as low as 833 this morning but then rallied to 846.50 after the GDP news. A move above 850 will tell me that the drop from 876 is over and that the market is headed for 900 and then for 1000.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.   

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD - February Gold: The market will probably reach 935 before it turns lower. Meantime support is at 865. I still think that we shall see the market resume its move down into the 550-600 range. 

SLV - March Silver: Silver has rallied to resistance at 1250. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. Google reached the 250-60 target zone and I think that its drop from 747 is over. 

Targets and Trend

Here is a 30 minute bar chart of the last two week's action in the e-minis. I think a reaction from yesterday's 876 high is underway but I don't see any supply shock yet. So I think that this reaction will end at a higher low. My best guess is the lower of the two dashed purple lines ( at 823), both of which correspond roughly to the midpoints of reactions within the move from 797 to 876.

At the moment it would take a rally above the green dashed line to convince me that the drop from 876 is over.

Wave Chart at 2:30 pm

Here is an updated wave chart showing today's e-mini trading. The bears are still in control - the second down wave was much more extensive than the first while the current up wave has still not matched the 9 point rally we saw earlier today. I think this rally will stall within the blue rectangle and probably not reach resistance at the dotted purple line.

Wave Chart at 12:30 pm

Here is an updated version of today's wave chart for the e-minis. So far we have seen two down waves and the second exceeded the first both in duration and extent. The current up wave is still shorter in duration and extent than the last one. Resistance stands at the midpoint of the last reaction (purple dotted line). The bears are still in control and unless we can see a rally to new highs for the day today I think the market is headed lower.

Wave Chart at 10:45 am

Here is my wave chart interpretation for today's action thus far in the e-minis. We have seen a 25 minute down wave which dropped the market about 9 points followed by a 6 point up wave which has lasted 45 minutes. This up wave has been slower (fewer points and more time) than the preceding down wave and has carried the market to the midpoint of the small trading area which formed near the open (dotted purple line).

This suggests that the bears are in control of this market and that it will drop below 850 before it rallies again. How much below 850? Hard to say, so I don't think the market is worth shorting here.

Locating Support

Here is a 30 minute bar chart of the last two week's e-mini day sessions. The market has dropped from yesterday's 876 high but as far as I can see the up trend which started from the January 20 low is still intact. The blue and green rectangles delimit the two reactions within this trend which have occurred thus far. Drawing rectangles of the same height from 876 give support projections of 851 and 838. The 851 level is also a bit above the breakout level (green dotted line) while the 838 level is the midpoint of the last two-day trading range prior to yesterday's breakout. This is even stronger support.

I am guessing that the market will hold 851 support - this is the most bullish outcome. A drop to 838 at this juncture would probably mean that the market will continue down at least to 825.

Guesstimates on January 29, 2009

March S&P  E-mini Futures:  I think the e-minis will drop into the 847-52 zone before moving higher. I am still expecting to see a demand shock sometime during the next couple of days to confirm that the market is headed for 900 and then for 1000.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: This market will probably continue lower to 126-127.  

March 10 Year Notes: The short term trend should carry the notes to 120. .  

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD - February Gold: The market will probably reach 935 before it turns lower. Meantime support is at 865. I still think that we shall see the market resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is now at 1250. Next downside target is 650.

Google: Resistance stands at 375. Google reached the 250-60 target zone and I think that its drop from 747 is over. 

Wave chart at 3:30 pm ET

Here is today's wave chart as of 3:30 pm. I bought a single e-mini unit at 867 near the dashed purple line after I thought that the first down wave from today's 876 high had ended. The market then put in a 20 minute up wave. There was no way to know this up wave was to be so brief until the market dropped below the low of the preceding down wave at 865.75. In any event I waited for the length of the drop from 876 to exceed 13 points (the length of yesterday's biggest reaction, then got out of my long on a small rally.

I have been expecting a buy shock to hit this market for the past several days but none has materialized. This is not an encouraging sign if you are bullish as I am. I still think there is a chance we shall see a demand shock tomorrow or Friday, but if one is to develop I think the 850 level must hold on any break from today's high.

Out at 864.00

Wave chart 2:45 pm

Here is an updated wave chart. The drop from today's high at 876 amounted to a little more than 10 points, more than the two previous down waves today but less that the two reactions we saw yesterday. Since the preceding up wave was a strong one and since I am basically bullish I bought one e-mini unit at 867.00, at the support indicated by the purple dashed line - this was the breakout level. If this trade is any good the purple dotted line will hold.

Long one unit at 867.00

Wave Chart at 2pm ET

Here is my wave chart interpretation of today's e-mini trading just before 2pm eastern time.

There are four waves depicted on this chart. The second up wave carried further and lasted longer than did the first up wave. The second down wave was smaller than the first. Both these comparisons suggest a market that is gathering strength. We haven't seen a high volume demand shock yet, but I suspect one may develop after the Fed news at 2:15 pm today. If so I don't think the market will drop below the purple dotted line.

Wave chart at 11 am

Here is today's wave chart as of 11am ET. It is constructed from the 5 minute bars showing day session e-mini trading.

The first wave was downward and lasted about 15 minutes while dropping the e-minis about 6 points. Note the obviously declining volume during this wave which made it likely that it was corrective. The subsequent up wave carried the market up about 9 points and has lasted 70 minutes so far. This shows that the bulls are in control right now.

However the volume has stayed lower than it was near the open. This together with the fact that the market has reached the 865.75 high of January 19 means that the bulls are not very confident or aggressive here. This implies that the market will probably react from here. Earlier I estimated a 11-13 point reaction, but since the bulls are now in control I think it is reasonable to expect nothing more than at 6-8 point break from here.

The Fed announcement will come out at 2:15 ET today and I expect a lot of volatility then. But I will try to be a buyer on whatever break comes after the news provided it doesn't push the market below 850.

Early Update

Here is a 5 minute bar chart showing trading in the e-minis during yesterday's and today's day sessions.

I have been looking for a demand shock which will show up as a wide range, uncorrected, high volume upmove, but so far none has appeared. Volume early today was higher than yesterdays unusually low volume at the same time but not as big as would accompany an early-day demand shock. After reacting about six points the futures have moved to their January 19 high at 865, but volume is lower on this move than it was earlier today. I am guessing that this means the market will react once more from these levels before moving higher as I expect it to.

Yesterday we saw two reactions of 13 and then 11 points (blue rectangles). A similar reaction from 865 would carry the e-minis down to 852-54 and I shall be an interested buyer near those levels. I also plan to get long if we see a high volume breakout above 865.

Guesstimates on January 28, 2009

March S&P  E-mini Futures:  Last night the market moved above the high of its 797-850 trading range. It is now  trading at 861.  I expect the electronic session high at 865 on January 19 to provide a reason for the market to react. But I think support in the 845-850 range will hold. Initial upside target is 900.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: This market will probably continue lower to 126-127.  

March 10 Year Notes: The short term trend should carry the notes to 120. .  

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD - February Gold: The market will probably reach 935 before it turns lower. I still think that we shall see the market resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is now at 1250. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Afternoon Update

Here is a 30 minute bar chart of the past two weeks' day sessions in the e-minis. I commented on this chart yesterday.

Not much has changed. Today's trading shows lower volume and a narrower range than yesterday's - normal behavior for a market that remains stuck in a trading range (two red lines). Volume has shown a general tendency to decrease as the market has traded sideways.

The past two days ranges have centered on the 838 level (purple line). It is worth noting that this is also midway between the 739 November 21 low and the January 6 high at 943. I think the market is now oscillating to just about dead center of this range, a process that Richard Wycoff noted in his work. He called it the process of "sharpening down to a point" because he visualized the price action as converging to the apex of a triangle (on its side).

In any case these narrowing fluctuations are setting the market up for its next phase. I think the breakout from the near term 797-865 range and from the 739-943 range will be to the upside. But in any case the first sustained high volume move away from the midpoint of the past two days will probably indicate the direction of the breakout.

Buying and Selling Waves

Here is a 5 minute bar chart of the e-mini trading during today's day session.

Richard Wycoff wrote what I think is the best single book on tape reading entitled "Tape Reading and Active Trading". Actually, he published it as part of his bigger stock market course which has been out of print for many years.

In any event, the fundamental method that Wycoff advocated was wave chart analysis. In Wycoff's day (1900-1930) there were no computers, so he contructed his wave charts by hand as an average of the prices of 5 actively traded leading stocks of the day. He tracked their prices intraday and calulated the average price at what he thought were the extreme points of intraday swings. Today we can actually trade the averages so our wave chart would be contructed from actual trades in the Spiders or the e-minis.

The way to analyze a wave chart is to compare the length and duration of buying (up) waves and selling (down) waves to one another. This involves a certain degree of artistry and judgement founded on experience because it is sometimes not very obvious where these waves begin and end.

Here is how I think Wycoff might have analyzed today's action thus far. A buying wave lasting about 20 minutes developed from the open and carried the e-minis up 8 1/2 points. Volume was moderate during the upwave compared to previous activity at the same time of day. There followed a 25 minute selling wave which dropped the market 13 1/2 points. This wave occurred on higher volume than the previous buying wave and carried the market down more points than the previous buying wave carried it up. So by 10:15 am ET the wave chart was forecasting a bearish day - at the very least sellers were in control of the market and the tape reader would be inclined to sell rallies.

The next buying wave carried the market up 6 points and did not last as long as the previous buying wave. This confirms that the sellers are in control. But the subsequent selling wave carried the market down only six points while lasting 25 minutes, the same as the previous selling wave. This is an indication that the sellers were pulling back from the market. If the next buying wave can show definite strength by lasting longer and carrying further and either of the two preceding buying waves there is a good chance that the buyers can reassert their control of this market.

I just looked at my 5 minute bar chart and I see that the market has rallied for 30 minutes and has gone up 12 points (not shown on the chart above!). This tells me that the buyers are once again in control of this market and therfore that there was NO supply shock this morning.

Sellers in control

Here is a 5 minute bar chart of day session trading in the e-minis yesterday and today.

I was bullishly inclined at the open and followed what appeared to be an increasing volume move above the 840 level. However, sellers soon became aggressive, especially after the consume confidence number was released at 10 am ET. I have highlighted with arrows the highest volume bars since yesterday morning's. All of them were wide range down bars and this pattern is a clue that sellers are now in control of the market. In other words, a supply shock may be underway. If this is the correct reading of the situation then I would not expect any rally to retrace more than half of today's range (purple dotted line is resistance).

The fact that the market has shown a pattern of increasing volume on the downside after a lower top is also another bearish clue.

Out at 835.25

Long one e-mini unit at 842.25

Guesstimates on January 27, 2009

March S&P  E-mini Futures:  I think today will be a bullish day in the e-minis and I want to get long near the open. Support stands at 825.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: This market will probably continue lower to 126-127.  

March 10 Year Notes: The short term trend should carry the notes to 120. .  

Euro-US Dollar: The euro will probably continue down to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will also drop down into the 30-35 zone.

GLD - February Gold: The market will probably reach 935 before it turns lower. I still think that we shall see the market resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is now at 1250. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Late Update

Here is a 30 minute bar chart showing day session trading in the e-minis over the past two weeks.

The market has been trading sideways over much of that time between the two red lines. I thought this morning's early rally was the start of a breakout move above the top line but there was no follow through. On the other hand the drop from today's morning high didn't build much volume, and today as a whole looks like a low volume day compared to the preceding six days.
It is normal for volume to drop as the market trades sideways.

After a day like today it is generally a good rule to follow the first sign of increased activity which develops as the market moves away from today's center of gravity ( green line drawn through today's range of trading). This afternoon I thought the market was about to break downward from this center of gravity but it did not. So now it is a matter of waiting until the market shows its hand by moving one way or another on visibly increasing volume.

I do see one moderately bullish clue in this chart. Today's center of gravity was visibly higher that those of the preceding week. This sort of clue is often an early indication of the start of a substantial move out of a trading range.

Covered at 835.25

Short one unit at 830.50

Down

Here is a 5 minute chart of today's e-mini trading. The market has broken below the red line representing support at 828.50. This happened on increasing (but still not high) volume (upwards sloping red line). I now think the market is headed back below 800.

If the rhythm of the drop from today's high is maintained any rally from current levels should be limited to 6-8 points (blue rectangle). The purple dotted line is drawn at resistance at 834.50. So any rally from 825 or so should stop at 831-34.

Early Afternoon

Here is an updated 5 minute bar chart of the e-minis. The market broke below the breakout point (purple line) a few minutes ago so I got out of my long position. As I write this it has dropped further and retraced essentially all what I thought would was a demand shock this morning ( green arrow).

Since the e-minis are still trading above most of Friday's range and because the drop from today's high point has yet to show significant downside volume I am going to give the bull side the benefit of the doubt. I have drawn a red line at the 828.50 level which is the midpoint of the late reaction on Friday. If it is broken I shall presume that the e-minis are headed back below 800.

Sold both long units at 835.50

Demand Shock

Here is an updated 5 minute bar chart of the e-mini day session. I think this morning's breakout is a demand shock, although volume was not as high as I would have liked.

If the breakout is indeed a demand shock then I don't think the market will spend much if any time below the breakout point, the purple dotted line.

I believe that a move to the S&P 1000 level has begun.

Bought second unit at 837.75

Breakout

Here is a 5 minute bar chart of day session e-mini trading Friday and today. I think the market has just staged a high volume breakout above Friday's high. I think the odds now favor staying above today's open at 832.00 but there is a more obvious support level at 828-29, the midpoint of Friday's late reaction. In either case I expect today to be bullish and I think the day's high will be around 860 or so.

Long

I just purchased one e-mini unit at 831.00. I am betting that the market will not go below 825.00.

Guesstimates on January 26, 2009

March S&P  E-mini Futures:  I am expecting the e-minis to open near 825 and to continue upward from there. The 810-15 zone should be support today in any event.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: This market will probably continue lower to 126-27.  

March 10 Year Notes: The short term trend should carry the notes to 120. .  

Euro-US Dollar: The euro will probably continue down to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will also drop down into the 30-35 zone.

GLD - February Gold: The 885 level was broken Friday and the market will probably reach 935 before it turns lower. I still think that we shall see the market resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is now at 1250. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Update of last 5 minute chart

Here is the 5 minute chart I posted earlier updated to the close.

Late Update

Here is a 30 minute bar chart of e-mini trading during the past two weeks. You can see that the market this week made six distinct swings through the 800-40 range. Today was constructive not simply because the market rallied back to unchanged for the day, but also because the rally started right from the open. This is only the third time this month that the market has been able to perform bullishly from the open.

There are no supply or demand shocks visible to me on this chart. Today's rally occurred on only modest volume. I think there is a good chance that next week will see a lot of bullish action, and if so the market should open Monday unchanged to higher and continue upward from there.

Support

Here is an updated 5 minute bar chart of the e-minis. A reaction earlier this morning carried the market down nearly 10 points (first red rectangle). A reaction of similar size from 825 would carry down to 815-16. Note also the purple dotted line. This is roughly the midpoint of the preceding reaction and such levels often provide support in an ongoing trend.

So I think that the reaction that started from the 825 level today will end no lower than the 812-16 zone.

Up

I think this market has given a definite indication that it is headed higher from here. As yet there is no visible demand shock. However, the rally from this morning's low has exceeded the length of yesterday's late rally (blue rectangles). The e-minis have put in a wide range, high volume up bar which has carried the market well above 815 resistance (red line). This, coupled with the fact that we have traded up from the open, makes me think we shall see a demand shock later today. In the meantime I think the low indicated by the purple dashed line will hold.

Normal Rally

Here is a 5 minute chart of the yesterday's and today's e-mini day session.
So far we have rallied during the first half hour, but not even as much as yesterday's late rally (blue rectangles). There is resistance near 815 (red line). Unless and until the market can show strength on increasing volume above the red line I have to suppose that it is headed lower.
The one positive thing that I see on this chart is that the market has rallied more than 5 points from today's open (red arrow). This is a definite departure from its behavior so far in January and is a clue that buyers are interested at these levels. If they can push the market visibly above 815 I will turn bullish.

Guesstimates on January 23, 2009

March S&P  E-mini Futures:  The e-minis broke below yesterday’s low early this morning and thus canceled the implication of yesterday’s demand shock. I don’t have any conviction about the direction of the next move from 803, the latest print I see. I do think that the 785-90 zone is support beneath the market. I also plan to follow any high volume rally above 815.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: The short term trend has carried the bonds below 130 and this market will probably continue lower to 126-27.  

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .  

Euro-US Dollar: The euro will probably continue down to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: I think March crude will also drop down into the 30-35 zone. After that a rally to the 50.00 level should develop.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Late Update

Here is an updated 5 minute bar chart of the e-minis. The market gave up all of the advance associated with a demand shock that started from the 815 level. However, the volume on the break showed a modest tendency to drop while the latest rally from shows higher volume than on any bar during that drop. So I am going to stick with my view that the trend has turned upward and that the 797.50 level reached on January 20 will hold. If I reading things correctly the market should start upwards from tomorrow's open and stay above it all day.

Out at 821.50.

Long one unit at 831.00

New Demand Shock

Here is a 5 minute bar chart of the e-mini action today. I think a demand shock just hit the market - it started from the 816 level. This means that the short term trend is definitely upward now.

No buyers, but no aggressive sellers either

Here is an updated 5 minute bar chart showing day session trading over the past two days. Earlier today I said that I would follow selling below 816 if it occurred on increasing volume. In the event I did not see the kind of persistent increase in volume that would indicate aggressive selling " at any price". Instead every break was followed immediately by a rally and the volume stayed quite modest as compared, for example, with yesterday's early break.

Another reason why I don't think that the mid-day weakness today represents a supply shock is that demand or supply shocks usually take place during the first hour or two of trading or during the last hour or two unless there is some surprising news in the middle of the day.

For these reasons I don't think there is enough evidence to justify a definite view about the direction market's short term trend. I'll let you know when this changes.

Out at 814.50

Long one unit at 820.00

Waiting

Here is a 5 minute bar chart of the past two day sessions in the e-minis. The 820 level is the green line. The blue dotted lines delimit today's trading range thus far.

I got long near the open but sold my longs on the wide range, increasing volume break below 820 (red arrows). This proved to be premature because there was no follow through selling. But I always prefer safe to sorry to keep losses small.

At the moment the market is stuck in neutral with no aggressive buying or selling visible today. I think the breakout from this blue-dotted range will be to the upside. But I plan to follow a breakout in either direction provided it occurs on visibly increasing volume.

Out at 818.50. Selling on volume below 820.

Long one unit at 822.50

Pre-Open

Here is a 15 minute bar chart of the e-minis showing all trading over the past 36 hours. Yesterday's demand shock has been completely retraced, but then so was the preceding supply shock which had started at 841. I am going to give the more recent demand shock the benefit of the doubt and will lean on 820 (green line) as my indicator of near-term trend direction. Until it is broken on significant volume I shall presume the near-term trend remains upward.

Guesstimates on January 22, 2009

March S&P  E-mini Futures:  The short term trend is upward and I think that 825 will be support today. Initial upside target is 900 and I still think that the market will rally to 1000 over the next two months.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00.  

March Bonds: The short term trend should carry the bonds to 130.   

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .   

Euro-US Dollar: The euro will probably continue down to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: I think March crude will also drop down into the 30-35 zone. After that a rally to the 50.00 level should develop.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range.  

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

 

Demand Shock

As you can see in this updated 5 minute bar chart of the e-minis the market has just reached a new high for the day on the day's highest volume bar but one. This together with the fact that the e-minis are trading above 825 resistance makes it likely we are seeing a demand shock. This means that the short term trend has turned upward once more. The shock began at the 820 level so the market should hold above there if my prognosis is to prove correct.
It is worth noting that this shock began at just about the same level as the last demand shock on January 15 which started from 821. This is a common phenomenon arising from the fact that the same people are responsible for both. And this observation makes it likely that this indeed is a demand shock, not just a deceptive rally.

Moment of Truth

As you can see on this 5 minute bar chart the e-minis have moved to a new high for the day on a burst of volume. However, the market is still below what I think is resistance at 825.

I think that this high volume bar will turn out to be climactic instead of the start of a demand shock. But this is only an educated guess. If we should see high volume buying above the 825 level it will mean that a rally to 900 and above is underway.

Covered at 810.00

Short one unit at 805.50

The e-minis have dropped a little below yesterday's close and I see a series of high volume selling episodes on the 1 minute chart. It now looks like the market is headed for 785-90. If so it won't go back above 815.

Still No Buyers

Here are 30 minute and 5 minute bar charts of recent e-mini trading during the day sessions. Today's early rally developed volume that failed to match the volume of previous down bars at the corresponding time of day recently. Moreover, the rally has now been completely retraced. Still no sign of any demand shock so the short term trend remains downward.

I got short near the open anticipating a drop back to yesterday's low, but instead the market rallied to 820 on relatively high volume. I got out since it seems to me that this market could easily rally to 825 or so without disturbing the downtrend's rhythm.

I now suspect that yesterday's close (green dotted line) will be support today and a rally to 825 or so may well start from there. But at the moment this is just guesswork. In any case the worst I think we'll see today on the downside is 785-90.

Covered at 818.75

I just covered my one short unit at 818.75. A high volume up bar is developing.

Short

I just shorted one e-mini unit at 815.00. I am betting that the market will stay below 820.

Guesstimates on January 21, 2009

March S&P  E-mini Futures:  Downside target remains the 760-70 zone.  I am looking for today’s low in the 785-90 range.  Any high volume strength above 825 will mean that the market is headed above 900 again. I still think that the market will reach the 1000 level over the next two months.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00.  

March Bonds: The short term trend should carry the bonds to 130.   

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .   

Euro-US Dollar: The euro will probably continue down to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: I think March crude will also drop down into the 30-35 zone as compared with its current price of  40.40. After than a rally to the 50.00 level should develop.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range.  

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

 

Sellers Still in Control

Here is a five minute bar chart of today's e-mini trading. I still think the bears are in control of this market. We saw a minor volume climax (red arrow) when the market broke last week's low at 812.75. The market has since dropped below the low of this climax bar but volume has dropped so there is a chance that a modest rally is imminent.

I covered my short position because the range from yesterday's 865 high is more than 50 points and today's daytime range is already more than 30 points, both facts suggesting that a modest rally is due. However, unless and until high volume buying occurs above the 825 level (red dashed line) I am expecting still lower prices tomorrow.

Covered both units at 811.00

Shorted a second unit at 827.25

Short

I just shorted one unit of the e-minis at 828.00. I am betting that the market will stay below 833.00.

Supply Shock

Here is a 30 minute bar chart of the e-mini day session over the past week.

This morning the start of the last demand shock at 821 was hit and this means that that shock is now a spent force. More importantly, this first half hour of trading today showed a high volume, wide range downmove. I think this is a supply shock, and if so the short term trend of the market has turned back down once more. The downside potential in my opinion is to the 760-75 range.

I have drawn a dotted line at the 831 level. For the moment this should be resistance above the market.

Guesstimates on January 20, 2009

March S&P  E-mini Futures:  Sunday night the market opened strong and reached the 865 short term target. Monday it dropped more than 30 points and has traded as low as 832.50.  The key level for me is 821.  As long as the market holds above that level I shall remain short term bullish and look for a move into the 875-80 zone this week. I still think that the market will reach the 1000 level over the next two months.

QQQ: Strength above 30.00 will mean that the Q’s are headed for 34.00.  

March Bonds: The short term trend should carry the bonds to 130.   

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .   

Euro-US Dollar: The euro has dropped below support at 132 so it will probably continue down further to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: March crude is trading more than 5 dollars above the now expired February contract.  I think March crude will also drop down into the 30-35 zone as compared with its current price of  40.40. After than a rally to the 50.00 level should develop.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range.  

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

 

Looking Bullish

Here is an updated 30 minute bar chart of the e-minis. You can see that the market continued to rally after my last post. It more than retraced what was potentially a supply shock today, thus eliminating that possibility. All that is left is yesterday's demand shock. This means that the trend is upwards. I expect next week (which really begins Tuesday in the U.S.) to be a bullish one for the e-minis.

Supply Shock????

Here is a 30 minute bar chart of the e-mini day session trading this week.

I thought the market would hold support near yesterday's close at 840. It dropped a full 15 points lower than that. Worse, the volume on that drop was significantly higher than the volume at the corresponding time of day previously this week. The question I am mulling over is whether this selling spasm is a genuine supply shock or not. If it is, the short term trend has turned downward.

Here is how I am going to play this. If the market drops as low as 821 it will have retraced 100% of yesterday's demand shock. In this circumstance I will conclude that today's action constitutes a genuine supply shock and that the short term trend has turned downward.

Unless and until 821 is hit I am going to give yesterday's demand shock the benefit of the doubt. My guess is that nothing much is going to happen for the rest of today's session since banks and exchanges will be closed in the U.S. on Monday.

Early Action

Here is a 5 minute bar chart of the e-minis covering yesterdays day session and today's thus far.

I thought the market would rally during the first hour so I bought a small reaction from the open which occurred at the red arrow. However, the market then dropped more than 5 points below the open, and with current levels of volatility this made it likely that a more substantial reaction down close to yesterday's close (green line) was likely instead. So I got out on a small rally. The subsequent second lower top is another indication that the very short term trend has turned downward.

The volume on this break from the open has so far been moderate - less than on yesterday's early break at the same time, and less than the volume of the correction of yesterday's afternoon rally. So I think the odds are good that this is a normal correction of the uptrend rather than a supply shock.

I do expect the support near the green line to hold and anticipate another attempt to get long near there.

Sold second unit at 851.50.

Sold one unit at 849.25

Added

I just bought a second e-mini unit at 855.00.

Long

I just bought one e-mini unit at 851.00. I don't expect to see the market trade below 845.

Guesstimates on January 16, 2009

March S&P  E-mini Futures:  The short term upside target for today is 865. Support stands at 840.  Strength above 870 will mean that the market is headed up to 1000.

QQQ: Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: The short term trend should carry the bonds to 130.  

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .  

Euro-US Dollar: The euro has dropped below support at 132 so it will probably continue down further to 127.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

February Crude: Crude has reached the 30-35 target zone. The next development should be a rally to the 50.00 level.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range. 

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Late Update

Here is an updated 5 minute bar chart of the e-minis. Following this afternoon's demand shock sellers stepped in. The market dropped from its rally high at 848.50 all the way down to 829. this was slightly below the halfway point of the rally(horizontal green line) and retraced about 70% of the demand shock itself (which I think started at 821). This is perfectly normal. As I look at my quote screen I see that the market has rallied back to 841. This is a sold indication that the demand shock is still controlling the market's trend. Tomorrow should be a bullish day. I expect to see the e-minis make it up to the 865 level tomorrow or Monday.

Demand Shock

How do you determine the trend of the market? Everone has a favorite method, but I like to use what I call demand and supply shocks to identify the path of least resistance.

A demand shock is simply a high volume, uncorrected, fast, wide range upward move. A supply shock is a high volume, uncorrected, fast, wide range downward move. When you see a demand shock the trend of the market has turned upward. When you see a supply shock the trend has turned downward.

In the 30 minute chart you see above this post the downward trend in the e-minis is clearly identified by a succession of supply shocks (red arrows). Each such shock was followed either by a further drop in price or by a sideways trading range. Today, for the first time in over a week, I think I see a demand shock. This is the reason for my belief that we have begun a rally of 40-50 points.

The main thing to keep in mind about demand and supply shocks is that the market never retraces them all the way. In fact, it generally never retraces as much as half the shock. There fore, as long as a demand shock has not been substantially retraced it is safe to buy reactions. As long as a supply shock has not been substantially retraced, it is safe to sell rallies.

High Volume Buying

Here is a 30 minute chart of the e-minis showing the entire drop from last week's high at 942.75. The market just put in a wide range, up bar. Just as important is the fact that the buying which produced this rally occurred on the highest volume seen on any up bar during the entire drop.

I think this means that the market is about to rally at least 40-50 points. If I am right about this then I don't think the market will trade below 818.

Rally

Here is an updated version of the 5 minute bar chart of the e-minis that I posted this morning.

As you can see the market has broken above the high of the last reaction on the way down to the low at 812.75 (red line). This initial rally will probably carry up about 25 points or so to the vicinity of yesterday's close and the midpoint of yesterday's trading range(blue line).

Early Action

Here is a 5 minute bar chart of the e-minis covering yesterday's daytime action and today's thus far.

The most significant fact that stands out in this chart is that today's early selling occurred on very high volume, the highest volume the market has seen this year with the exception of the half hour of trading which followed the release of the employment number on January 8. This shows that the sellers are still in control of this market. I expect support to come in near 815 which should prove to be very near today's low.

A normal rally from 815 would carry the market up about 15 points. A rally bigger than that would mean that a 40-50 point rally will have begun.

Guesstimates on January 15, 2008

March S&P  E-mini Futures:  The market is headed for the 815 level.  Resistance stands at 850.

QQQ: I think that the market will drop to 26.50.

March Bonds: The short term trend should carry the bonds to 130.   

March 10 Year Notes: The short term trend has turned downward and should carry the notes to 120. .   

Euro-US Dollar: The euro will probably drop to 132 before a substantial rally can start.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

February Crude: Crude should reach the 30-35 target zone before rallying to the 50.00 level.

GLD - February Gold: The 885 level is still resistance and the market should resume its move down into the 550-600 range.  

SLV - March Silver: I still think this is a bear market.  Resistance above the market is at 1165. Next downside target is 650.

Google: Google has reached the 250-60 target zone which should be the end of its drop from 747.

Late Update

Here is an up-to-date version of the 30 minute bar chart of the e-minis I posted this morning. It still look like the third bar of the day was indeed climactic. However, the subsequent rally was very weak and this makes me think that the market will drop further, probably to 815 or so, before we see a rally of as much as 30 points. Meantime I think the 850 level will be resistance.

Out

I just covered my short unit at 843.75. I still think that the 850 level will be resistance the first time up.

Short

I just shorted one e-mini unit at 840.75. I am betting that the market will drop for the rest of the session.

Out

I thought we would get more of a rally than we did. I just sold my long at 836.00 and and I plan to get long again near 833 or lower. I doubt that we shall see another serious selling wave until later today.

Long

I just bought one e-mini unit at 834.00. I don't expect the market to trade below 830.

Volume Climax ?

Here is a 30 minute bar chart of the e-minis from last week's top at 942.75. You can see that volume during the first 90 minutes of trading was higher than for any corresponding period during the drop. Moreover, the last 30 minute shows the highest volume of all aside from the break on the employment number last Friday.

This makes me suspect that enough buyers have been entering the market to support it near the 835 level. The key think is to watch the follow through now. If support near 835 is going to hold then I don't thing we'll see any trading below 830.

The prognosis then will be for a rally at least to the 850 level. Also keep in mind that we have seen an uncorrected drop of more than 100 points in a week. So a 15 point rally from here could easily be the start of a 30-40 point rally to a lower top which then would be followed to a drop to 810.