Here is a 5 minute bar chart of Friday's e-mini day session and the first 30 minutes of today's.The market has broken below all the lows it has established over the past three months except for its November 21 low at 739. The last two important low points are at the levels of the dotted purple lines. Volume during today's first half hour was very high by recent standards (green arrow). The question now is whether this is a high volume breakout that portends much lower prices, or a high volume shakeout that will quickly be reversed.
Since the market is at the lower end of its three month trading range, I am leaning towards the shakeout theory rather than toward the breakout theory. If I am right we shall see a rally back above the 800 level during the next couple of hours. Should we finish today or tomorrow above 805 (the higher of the two purple lines) I think a substantial rally will have started.
6 comments:
Carl,
in principle I agree with what you have stated about demand and supply shocks with regard to volume ...
but for this weeks action we have to take into account fridays option exp. and especially certain strikes with high OI which are clustered around the 760 to 810 area.
I still believe strongly that this weeks low wherever it might finally be should be faded .
cheers
Susn
So far, this is a breakout below the bottom of the range and on high volume...that said, we would need a close today at or below these levels and probably confirmation tomorrow. I'm not sure what fridays options expiration has to do with todays action. Fading a break out of a 3 mth old trading range can be dangerous.
It appears that the market is preparing for a major move down, but not before it traps a few bulls and shakes out a few bears!
Ultimately, the fundamentals always win out.
My comment # 3 above pertains to a longer-term but in the near future, over the next couple of days, at least, the market should be going up because it is technically oversold and the market is still in a trading range.
Curt,
if I may... let me explain that XXX exp. weeks are very tricky in taking volume into consideration when it comes to mkt. diretions (my comment was directed towards Carls volume analysis).
MM and other big players can on a ST basis according to their option book influence price i.e strikes.
Knowing how OI changes on days like today gives you clues to where these players would like the mkt. to be this friday, therefore
during these weeks volume can be distorted due to these internal factors and therefore breakouts have to be looked at in a different light . For instance I would give it over 60% odds that tomorrow we will look at a reversal tuesday pattern if my hunch is proven correct with the 760-810 strikes I was mentioning earlier. I trade 100s of ES options every day and the OI phenomena has been apparent many,many times.
sorry...i was thinking you were talking about last friday and not this friday, yikes!! I agree that strikes with large OI positions can act as targets. I trade crude and nat gas and have seen the same phenomenon but only on expiration as traders are delta hedging positions. Needless to say, this is a very difficult market to trade. tks for the explanation.
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