Tomorrow's Range

Here is a five minute bar chart of today's e-mini action. I think the market just put in a selling climax (red arrows) at midpoint support (purple dotted line). If I'm right then tomorrow's range will be about 25 points with its low near 792 and its high near 817 (blue rectangle).

Weakness below 790 on increasing volume would mean that I was faked out by the move above the 800 level and that the short term trend is indeed downward. Failing that, however, I am expecting a bullish day tomorrow.

Trend Up

Here is another look at today's e-mini wave chart. The market has moved visibly above my estimate of today's high which was the 800 level. The market has retraced more than half its drop from the high at 830.50 last week. The current up wave is the biggest of the day. Volume has shown a definite tendency to increase on the rally over the past 90 minutes.

I think the picture is now a bullish one. I now estimate a 25 point daytime range for today with a high near the 811 level (blue rectangle). Support should be near the 794 level (purple dotted line).

The upside target for the next week or so is 875.

Wave Chart

Here is today's e-mini wave chart. The market has been drifting upward today on low volume. The top of my range estimate is the 800 level (blue line). Unless volume picks up dramatically to the downside I think the low end of today's range will now be 780, not 775.

The current upwave will tell us a lot about the market's strength or weakness. I expect it to end below 800, but any higher volume strength above that level will flip me to the bull side.

The midpoint of today's range is the dashed red line. Weakness below that level will be very bearish.

Covered at 792.50 but will get short again

Range Estimate

Here is a chart of today's e-mini trading. I still think my range estimate of 800-775 is viable. I got short a unit at 789 because the market had been trading sideways for 30 minutes and I didn't want to let it go down without me. If I don't see good results in the next hour or so I probably will get out and try again later, hopefully at a better price.

I think resistance today is in the 797-800 range and it is pretty strong. Therefore, any strength above the 800 level on good volume would make it likely that the reaction from last week's high at 830 is over.

Short one unit at 789.00

Guesstimates on March 31, 2009

June S&P  E-mini Futures: I think today’s range will extend from 800 down to yesterday’s low near 775. I also expect the market to continue this reaction until it reaches the 750 level. Once this reaction is complete I shall be looking for a move to 900. QQQ: The 29.00 level is support and I think the Q’s are headed for 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 115.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: The reaction in the euro should end near 131.00. I still think that the euro is headed for the 141.00 level.

Dollar-Yen: Then yen is headed for the 104.00 level.    

May Crude: I think May crude is on its way to the 58.00 level.  

GLD – June Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

4 pm Update

Here is a five minute bar chart of today's e-mini trading. I have drawn a blue rectangle to represent my estimate of tomorrow's daytime trading range - about 20 points from 790 to 770.

Today's volume was relatively low - especially in light of the steady drop all day which carried the market below last Wednesday's low at 787. This low volume partly explains why the day's range was 5 points narrower than I had expected this morning. On the other hand slow activity on the way down is consistent with my view that we are seeing a normal reaction in an uptrend. I think it will last through this week and carry the market down to 750 or so. Near the low I expect to see a sudden upsurge in volume, perhaps in response to some negative news.

Once this reaction is complete I expect to see the market rally to 875 and then into the 900-910 range.

Update at 2 pm

Here is a five minute bar chart of today's e-mini action. My range estimate for the day is the blue rectangle. I still think the day's low will be near the 770 level. However, I think we have just seen a minor selling climax (red arrows). If I'm right about this then I think the market will first rally 9-10 points, about the same as previous rallies over the past two days of trading (dotted purple rectangle). This would bring it up to resistance which I now think is at the dashed red line.

Revised Range Estimate

Here is a five minute chart of today's e-mini trading. I now think the day's high has been seen at 795. My estimate for the day's low is 770 (blue rectangle). The purple dotted line is midpoint support based on a previous reaction from 801 to 761. I expect the e-minis to bounce from there back to midpoint resistance near the dashed red line.

Volume so far on this decline has remained relatively low and this is consistent with my view that the drop from 830 is just a reaction in a continuing up trend.

A short introduction to the history of human stupidity

This is the title of a book written in 1932 by a fellow named Walter Pitkin. Mr. Pitkin had a wealth of material to work with. The copy I have on my bookshelf is 574 pages in length, all 8 point type. Some "short" introduction!

I am reminded of the wisdom this book contains whenever I get a comment like this one which came in this morning:

Anonymous said...

good luck Mr. eternal bull!

you missed the biggest bear market in our lifetime because:

1. you are a perma-bull
2. it is unpatriotic of you to be bearish
3.you're afraid to go bear as that would make you less of an American
4. all of the above?

3/30/2009 09:24:00 AM

I generally don't publish comments like this one, but it happens to provide me with a teachable moment.

The goal of any investor or trader must be to outperform the "buy and hold" strategy by a big enough margin to justify the time and expense put into the effort.

Should this objective bias an investor or trader into favoring the bull or bear side of the market?

I think it should! Why? It is a historical fact that the U.S. stock market has outperformed every asset class (bonds, real estate, cash, commodities) over the past 200 years. It is also a fact that the market spends more calendar time going up than going down.

Let's frame these facts in another way. Suppose you had to make a choice at the start of each year whether to be fully invested in the stock market or instead fully invested in cash. What would your best choice be? The answer is simple - each and every year you would choose to be fully invested in stocks! If you make any other choice you would almost certainly do worse than the buy and hold strategy.

A lot of people delude themselves with the thought that they can consistently and successfully predict the advent of bull and bear markets. But to beat the market in this way an investor has to make two good decisions in a row - he must "sell high" near the top of a bull market and "buy low" near the bottom of a bear market. If he gets even one of these decisions wrong he will do worse than buy and hold.

Suppose that our hypothetical market timer gets things right 70% of the time - the probablility that he successfully buys low or sells high is 0.70. This is a pretty high level of skill. What are the odds that he will make two consecutive correct decisions? Probability theory tells us the answer is 0.70 x 0.70 = 0.49 - only 49%. So half the time our skilled market timer makes at least one incorrect decision and consequently does worse than buy and hold! In the long run his results will only match buy and hold - not a very high return on the skills which produce his 70% accuracy rate for single decisions !

The moral of this story is simple. If you want to beat buy and hold, it almost never pays to predict a bear market unless your skill level gives you at least an 80% or higher chance of getting it right, and also an 80% or higher chance of getting in near the bottom of the bear market. Any less skill than this won't help you.

Our anonymous commenter probably didn't sell near the top of the bull market. But even if he did, I can assure you that he will remain bearish throughout the next bull market - the time when buy and hold prospers. And I can also assure you that the attitudes exhibited in his message are those of an investor who does worse than buy and hold over time spans of 5 years or more.

Guesstimates on March 30, 2009

June S&P  E-mini Futures: At this morning’s low of 789.50 the e-minis have already dropped about 40 points from Thursday’s high. I think today’s range will be about 20-25 points with a low near 775. I think this is just a normal reaction in an uptrend. It may last as much as 7-10 calendar days and drop the market to the 750 level. When it is complete I expect the e-minis to begin a move to 900.

QQQ: The 29.00 level is support and I think the Q’s are headed for 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 115.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: The reaction in the euro should end near 131.00. I still think that the euro is headed for the 141.00 level.

Dollar-Yen: Then yen is headed for the 104.00 level.    

May Crude: I think May crude is on its way to the 58.00 level.  

GLD – June Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Why I covered

I thought that the market was staging a high volume breakout below 812 so I got short at 811.50. Thirty minutes later the e-minis were trading above my entry price. Volume remained moderately high during this 30 minutes of sideways action.

This is not the right rhythm for a breakout move. I always expect fast results on this kind of trade. When I don't get them, especially if the day had seen relatively low trading activity, I suspect a shakeout instead of a breakout and get out of the trade.

Covered at 813.00

Out of the Box

Here is a five minute chart of today's e-mini trading. It looks like the market is falling out of the range box on increasing volume (red arrows). The fact that this breakout occurred immediately after an wide range up bar on high volume (green arrows) is especially bearish. I now think that the high of the day is in place. A 25 point range would put the low of the day near 796 (blue rectangle). If the market is indeed going down then I don't think we shall see it rally even as far as the purple dotted line, the midpoint of this morning's trading range near 816.

Short one unit at 811.50

Out at 813.75

Headed Up

Here is the five minute bar chart for the e-minis. My range estimate is the blue rectangle extending from 812 to 835.

This morning I was a little concerned that the market was about to break out from this rectangle on the downside. The bar highlighted by the red arrows broke out of the first 30 minutes trading range to the downside and the entire day thus far could easily be a downside breakout below the low associated with the dashed red line.

In the event the bar that concerned me now looks more like a climax bar than a breakout bar. When the market moved back above the dashed red line this presumption became strong so I went long one unit. If I am reading things correctly we have seen the day's low.

Long one unit at 817.25

Guesstimates on March 27, 2009

June S&P  E-mini Futures: Today’s range should be similar to yesterday’s. I am expecting a low near 812 and a high near 835.  A break below the 812 level on substantial volume would mean the at drop of 40-50 points has begun.

QQQ: The 29.00 level is support and I think the Q’s are headed for 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 115.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen is headed for the 104.00 level.    

May Crude: I think May crude is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Update at 3 pm

Here is a five minute bar chart showing today's e-mini day session. Volume has been generally low all day. This lack of activity has prevented the market from reaching either of the range estimate limits I expected for today (blue rectangle). Dullness at the top of a rally like this usually means that the market is about to begin a substantial reaction. There are two midpoint support levels to watch in this regard. The midpoint of the day session range (dashed red line) and the midpoint of the first hour reaction (dotted purple line). A drop from the 829 high that is as big as today's early reaction would put the market at 817 (purple rectangles).

I suspect that the market is about to break these support levels because it has been rallying on reduced volume all day. If it does break them I think a 40-50 point drop from the high will then develop. This would bring the e-minis down to the midpoint support at 781.

Is This a Bull Market?

As far as I am concerned, a bull market is a trend that carries the averages up at least 60% from their lows and that lasts at least 18 months. Janet has asked if I think this is a bull market.

Yes, I do. But I remind you that I completely missed the panic of 2008. And I thought in my 2009 stock market forecast that a new bull market started from the November low in the s&P at 742.

That said, I offer the following observations. First, at the March 6 low of 666 the S&P had dropped 58% from its 2007 high. Adjusted for inflation, the drop from the year 2000 high amounted to about 66%. These are BIG numbers. Unless you expect a replay of 1929-32, and I do not, then no bear market during the past 100 years in the U.S. has been as deep.

At the March 6 low I can only describe public sentiment and professional sentiment as depressed and hopeless. I base this assessment on 40 years of observing the investment scene closely and systematically. Of course, things can always get worse - and people who have believed that they will have been right over the past 12 months.

But the situation is so extreme that I think that even a return to just mild pessimism would be enough to produce a bull market in the averages. A 65% move up from the March low would put the S&P at the 1100 level, not all that far away.

So I think we are seeing the first stage of a new bull market. I think it will be a reluctant bull. I foresee it developing along the lines I described in my 2009 forecast. I shall have more to say on this subject in another post.

Comments

People wonder why I don't respond to reasonable questions posed by commenters. The answer is simple. I don't have the time or mental energy to do so. Trading, posting and running the rest of my life takes all my attention.

After much trial and error I think I have found a blog format that I can maintain indefinitely, without suffering the "burnout" that affects so many other bloggers. But doing this requires that I conserve my energy and don't burn it up in idle conversation.

I am a great believer in simplicity, both in trading methods and in life. Applying the simplicity principle to this blog I find that posting my thoughts as I trade works best. In this way the blog does not demand much extra mental energy from me. So while many of you pose interesting questions, I simply don't have the energy and time to answer them. Sorry.

Looking Ahead to Support and Resistance

Here is an hourly chart of the cash S&P 500 covering the last five months activity. I have highlighted the support and resistance levels I can compute using midpoint methods.

By far the most important level is the midpoint of the November-January rally. This resistance level stands at 842. On the way down from the January top you can see a trading range that lasted about three weeks. The midpoint of this range is 840. So I think the market will stall for at least a couple of weeks once it reaches the 840-45 range.

The most prominent support level I can see for the market now is the midpoint of last week's reaction which carried from 803 to 766 in the cash S&P. This support level is at 784 which corresponds to the 781 level in the e-minis. I think that sometime during the next couple of weeks we shall see the market trade near that level.

Range Estimate

Here is a five minute bar chart of the e-mini day sessions. I am sticking with my range estimate of 805-835 for today (blue rectangle). I put the low of the range at the midpoint of yesterday's big break from 823.50 to 787.00.

I think yesterday's late rally was a small demand shock (green arrows). If I am right about this the market will not go below 805 and should be trading at 845 within a couple of days.

Guesstimates on March 26, 2009

June S&P  E-mini Futures: I think that yesterday’s late rally which continued overnight is a decisive rejection of prices below the 800 level. This implies that the market is on its way to 845 or so. Today I expect to see a daytime range of 805-835.

QQQ: The 29.00 level is support and I think the Q’s are headed for 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 115.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

May Crude: I think 40.00 is support for May crude and that the market is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Late Update

The e-minis rallied from a late afternoon low at 787 all the way back to 812 (so far). The midpoint resistance level I am using stands at 811 and any strength above that level would mean that the market is headed for 840.

40 point break underway

Here is a 30 minute bar chart of e-mini day sessions over the past two weeks. The market has dropped below the low of my range estimate and below yesterday's low on increasing volume - high volume for the time of day. These two facts are good reasons to believe that a reaction about as big as the last one - 40 points or so (blue rectangles) - is underway.

The low should develop in in the 780-85 range, pretty close to midpoint support (lower dotted purple line) which stands at 781. In the meantime the market should not go above midpoint resistance ( formerly a support level) at 811.

New Range Estimate

Here is a five minute bar chart of today's e-mini day session. I was long two units anticipating a move to 827-30 today. However, the market subsequently dropped below the midpoint of the reaction from 821 to 801, a level that should have been strong support (purple dotted line). This makes me think that the high of the day has been established. Since I still think we shall see a 25 point daytime range (blue rectangle) and I am looking for today's low near 798.

In retrospect the two high volume bars I pointed out this morning (red arrows) were if fact climax bars. I dismissed this possibility because the market had not rallied even half a day from yesterday's low. Confronted with the same circumstance again I would make the same call for the same reason. Climax bars generally appear after the trend they are ending has developed normal duration and extent.

Out of both units at 810 - a point below midpoint support

Today's range

Here is a five minute bar chart of today's e-mini day session. I am long two units.

I think we have seen the day session low and that the high will be near the 830 level. I am betting that the two high volume bars highlighted by the red arrows are breakout bars, not climax bars. If so then the midpoint of today's daytime range thus far (red dashed line) will act as support.

Plan B support is the midpoint of the reaction from Monday's 821 high to yesterday's 801 low - the 811 level.

Long second unit at 817.25

Long one unit at 812.50

Guesstimates on March 25, 2009

June S&P  E-mini Futures: I again estimate that today’s daytime range will be 30 points or so with the low near the 800 level. The market is getting close to the 840 target and I think that we shall see more and more sideways, trading range action as that target is approached.

QQQ: The 29.00 level is now support and I think the Q’s have started a move to 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

May Crude: I think 40.00 is support for May crude and that the market is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Headed for 797-801

Here is a five minute bar chart of today's e-mini day session. I think we have seen today's high at 820 and that the market is now headed down to the lower end of my range estimate at 797-801. The purple dotted line at 797 represents midpoint support based on yesterday's early afternoon reaction, while the 801 level is the midpoint of yesterday's day session trading range.

My guess is that the market will put in a 25-30 point trading range tomorrow with its low pretty close to whatever low we establish today.

Habits of Markets

Here is a thirty minute bar chart of e-mini day session trading over the past two weeks. Tape reading is largely a matter of being sensitive to habits that markets develop and using this information to anticipate the beginnings and the ends of market swings. Volume of trading will either reinforce a conclusion based on a market habit or warn that the habit is changing.

E-mini activity during the rally from the March 6 low is a case in point. On this chart we see three consecutive upthrusts (green rectangles), each measuring 55-60 points. Yesterday's late action put the market at the top of its third rectangle. Volume of trading was the highest in two weeks (red arrows) - right at the top of the rectangle and at the top a 160 point, two week rally.

This was strong reason to believe that a buying climax occurred late yesterday and that the market was about to leave its trending mode and enter a trading range mode. Remember that buying climaxes are usually followed by a reaction and then somewhat higher prices on reduced volume. This is what I am expecting now.

After the market moves above the top of the climax bar at 821 it will be setting itself up for another substantial reaction. My best guess is that such a reaction will carry it down to the midpoint support I have indicated near 781 (purple dotted line).

797-801 then up

Here is a five minute bar chart of day session e-mini trading. I think the market will find support in the 797-801 range. 797 is midpoint support (purple dotted line). 801 is the midpoint of yesterday's day session range (dashed red line). My range estimate for today is now 797-827 (blue rectangle). I think yesterday's last 30 minutes of trading was a buying climax. If I'm right about this I don't think the market will be able to move much above yesterday's 821 high for a few days.

Guesstimates on March 24, 2009

June S&P  E-mini Futures: I estimate that today’s daytime range will be 30 points or so with the low near the 800 level. The market is getting close to the 840 target and I think that we shall see more and more sideways, trading range action as the market approaches 840.

QQQ: The 29.00 level is now support and I think the Q’s have started a move to 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

May Crude: I think 40.00 is support for May crude and that the market is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Late Update

The midpoint of today's range is now 801 so I am revising my range estimate for tomorrow to 800-830.

Tomorrow's Range

Here is a five minute bar chart of today's e-mini trading. The market has marched past the upper limit of my range estimate(blue rectangle) for today of 780-805 and I regard this as a very bullish development - it shows that sellers were not able to muster enough ammunition to keep the market within the 760-800 range where I thought it would stay for a few days.

I think tomorrow's daytime range (green rectangle) will be 25-30 points, about the same as today's. I think the low will be somewhere near the midpoint of today's range which at the moment stands near 796. The midpoint of today's afternoon reaction is at 797 which gives me added confidence in this guess.

So far on the way up from Friday's low reactions have run about 10 points - there have been three of them. My guess is that the next reaction will be bigger, maybe 15-20 points, but at the moment this is just a guess.

My "impossible" 840 target is within sight and I think the market will get there in the next week or two.

Reaction

The e-minis rallied to just above Thursday's high and have now started to react downwards. I estimate that this reaction will run 10 points or so (purple rectangle) and will hold near the day's midpoint so far (dashed red line). Later today we should see a move to the top of my range estimate near 805 (blue rectangle).

Hysteria Takes Hold

I do a lot of reading and web-browsing to try to get a sense of the spirit of the times. I believe that despair has engulfed the elite opinion makers and leaders in the USA. The latest product of the House of Representative, the 90% tax on bonuses, is a clear symptom of the now mindless response that people have to developing events in the financial crisis.

The latest cover of Time magazine is also interesting from this perspective. It depicts a bomb labeled AIG with a burning fuse, described by the caption as a weapon of mass destruction. The fact that the fuse is burning conveys a sense of potential disaster ahead.

Paul Montgomery's magazine cover indicator would rate this cover as a buy signal for AIG stock which would become actionable about a month from now. If AIG is a buy then the financial crisis is just about over. This squares with my belief that sentiment is so bearish now that even a return to just modestly bearish sentiment levels would push the S&P over the 1000 level.

Added later: I just appended this week's Newsweek cover to this post. It makes my point exactly.

Revised Range Estimate

Here is a five minute bar chart of the e-minis for the last two day sessions. My original range estimate this morning was 770-795 (dashed rectangle). Two significant things have happened since then that affect this estimate.

First, from its electronic high at 791.75 this morning the market reacted to 781.25 (second purple rectangle. This reaction was the same size as Friday's late reaction (first purple rectangle) and the market proceed to move to new rally highs. This establishes a rhythm to the move up from Friday's low and makes me think that the market can make it to new highs for the rally. There is resistance near 805 and I think that will be the ceiling for today.

The second development was the breakout above the high of a relatively indecisive first 30 minutes of trading. This represented a small trading range and the upside breakout was evidence that selling was still too weak to send the market downward from the open.

In any case I now think that we have seen the day's low and that the day's high will be near 805. If I am right about this I think any reaction will be limited to 8-10 points (third purple dotted rectangle) and will hold midpoint support defined by the first 30 minutes of trading today.

Guesstimates on March 23, 2009

June S&P  E-mini Futures: I don’t think the market is going to escape from its 760-800 trading range for a couple of days at least.  I estimate today’s daytime range will be 770-795. The 840 level is still my target for this move up from 666.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

May Crude: I think 40.00 is support for May crude and that the market is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Out at 765.50

Plan B

Here is a five minute chart of today's day session in the e-minis. My range estimates of lows at 772 have been proven wrong. The market has dropped below the 770 level on increasing, though not heavy, volume. Since I am long one unit from 769.75 I have to play defense now.

My plan B is that the market will hold support that stands at the midpoint of the March 16-17 reaction which went from 771 to 746. The midpoint is roughly 759 (purple dotted line). Volume today is still visibly below yesterday's, so I think today's range won't be any bigger than yesterday's which was 24 points. So my new range estimate (blue rectangle) is 25 points, putting the low for today at 760.

I also want to point out a potential selling climax (red arrows). Sometimes the market reverses right after the climax bar, but more frequently it drops a little below the climax low on less volume before rallying substantially.

How big a rally might we get by the close? I think the most we are likely to see would be a move back to the midpoint of today's range which right now is at 773.

I am still very bullish on this market and expect Monday to be an up day.

Long one unit at 769.75

Range Revision

Here is a five minute bar chart of the last two e-mini day sessions. The market has been very dull today, drifting lower on decreasing volume (green line) and decreasing volatility (converging purple lines). So I now estimate we shall see only an 18 point range today. The low is still projected at 772 while the high is at 790.

The dullness we are seeing is in my view very bullish. Declining prices are not bring sellers out of the woodwork - a big contrast with their behavior during the past six months.

Today's range

Here is a five minute bar chart of the last two e-mini day sessions. My range estimate for today is still 772-800 (blue rectangle). A drop from today's high that equals the length of yesterday afternoon's drop (green rectangles) would carry the market down to 772, another reason for thinking that we haven't yet seen today's low.

Should the market show some volume above 785 (red dashed line) I would conclude that the day's low has been established and that the market is headed for the top of the blue rectangle.

Guesstimates on March 20, 2009

June S&P  E-mini Futures: The e-minis dropped to 771 early this morning but have since rallied 12 points.  I am sticking with my daytime range estimate of 772-800 for today. The 840 level is still my target for this move up from 666.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

May Crude: I think 40.00 is support for May crude and that the market is on its way to the 58.00 level.  

GLD – April Gold: I think the market is headed below 700. Resistance above the market is at 955. A close above the 960 level will flip me back to the bullish column and mean that a move to 1100 is underway.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Tomorrow's range

Here is a five minute bar chart of today's e-mini trading. I have drawn a blue rectangle to represent my estimate of today's range that I made this morning. I think tomorrow's range will be very similar. I am guessing that we shall see a low near 772 early in the day and then rally the rest of the day back close to the 800 level.

Yesterday's buying climax set up a few days of basically sideways action. However, I don't think this market will break more than 40 points during that time. The worst I see on the downside is 765. I expect the market to resume its move to 840 sometime next week.

Wave Chart at 2:20 pm

Here is today's wave chart for the e-minis. The latest rally lasted longer than I expected it to, but did not carry the market above resistance illustrated by the dotted purple line and the two purple rectangles. The up wave lasted longer and carried further than the preceding up wave. This means that the bulls are getting interested in the market once more.

I think the current down wave will carry the market down to the range estimate low at 775 (blue rectangle). I think tomorrow will be a bullish day and will probably carry the market to or above the 800 level.

Wave chart at 12 pm

here is today's wave chart for the e minis. I think we just completed the second down wave of the day, a longer and deeper wave than the first down wave. It ended in a selling climax (red arrows) but because it was longer than the previous wave I think the market will rally for about an hour and then make a low pretty close to the low end of the range estimate at 775 (blue rectangle). Resistance is currently at the midpoint of the last rally (purple dotted line). A rally from 778 that is as big as the earlier rally today would carry the market up to 787 or so (purple rectangles).

Once this reaction is complete I expect the market to rally to 805. My best guess is that level will not be reached today, but we should see it early tomorrow.

775 then up

Here is a five minute bar chart of the e-minis covering the past two day sessions. Today's range estimate appears as the blue rectangle. The lower edge is at 775 and I think the market will be a buy there for a rally to 805. I do NOT think the first 30 minutes of trading today is the start of a supply shock. Volume is visibly lower than on yesterday's potential supply shock which was negated when the overnight trading range extended above 792.

My best guess is that the market will experience a several days of basically sideways action before it moves up towards my840 target.

Guesstimates on Mach 19, 2009

June S&P  E-mini Futures: The e-minis are trading at 796 as I write this, so we did NOT see a supply shock on yesterday’s last hour reaction. But the response to the Fed announcement was definitely a buying climax, so I think the market will trade sideways for a few days. Today’s range estimate is 775-805. The 840 level is still my target for this move up from 666.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: The bonds jumped a remarkable 8 points on the Fed news yesterday, but I don’t think the longer term bearish picture has changed. Resistance above the market is 132-16. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Resistance above the market is at 125-20.  Next downside target is 118.

Euro-US Dollar: I believe that the euro is headed for the 141.00 level. 130.50 is support.

Dollar-Yen: Then yen will probably react to 94.20 and then head for the 104.00 level.    

April Crude: The 30-35 zone is long term support. The 50.00 level is resistance.

GLD – April Gold: I think the market is now headed below 700. Resistance above the market is now at 955.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Supply Shock ???

Here is a 30 minute bar chart showing the e-mini day sessions for the past week. I am growing more confident that the high volume up move after the Fed announcement was a buying climax (green arrows). This by itself would indicate a several day pause in the up trend. But on the way down from today's high (so far) at 800.50 we saw volume as high as on the way up. (red arrows). If the market stays below 792 I think the odds are good that this is a supply shock. A supply shock in this situation would turn the short term trend down. I would then expect a drop of 50 - 75 points from today's high before a new up trend can start.

I am expecting a daytime range of about 30 points tomorrow, but I can't yet make any estimate for the location of its high and low.

Update at 2:30 pm

Here is a five minute bar chart of today's trading in the e-minis. My original range estimate is the blue dotted rectangle. I have adjusted it to make this morning's low the low of the rectangle (solid blue rectangle).

The market has reacted very bullishly to the Fed announcement. However, we must remember that at today's high it is up almost 130 points in about 8 trading days. So I am inclined to think that the very high volume bars you see associated with the Fed upsurge constitute a buying climax. If so the market will not move above the 800 level before it drops below 780.

Initial support on the way down is at the purple dotted line near 770 which is the midpoint of the reaction from yesterday's high to this morning's low. The next support level is the mipoint of the Monday-Tuesday reaction from 771 to 746 - roughly the 759 level. I think that tomorrow is shaping up as a down day and that a reaction of 40-50 points will be the next significant development.

By the way, I think the Fed announcement is very bullish for the stock market. The Fed plans another big expansion in its balance sheet which will take the form of big purchases of longer term debt of all kinds. This will push more liquidity into the economy and some of this liquidity will find its way into stocks.

Update at 1 pm

Here is the updated 5 minute bar chart of the e-minis. The market broke out of this morning's trading range to the upside. It is headed for the upper edge of today's range estimate (blue rectangle) near the 783 level. Support is at the midpoint of the reaction from yesterday's 777 high to this morning's 762 low - roughly the 769 level (purple dotted line).

At the moment my best guess is that we shall see at least one 40 point break before the market moves above the 800 level.

Update at 11:40 am

Here is a five minute bar chart showing the e-mini day session. About an hour ago the market bounced very quickly off of support which stood at the midpoint of yesterday's range (green dotted line). I only caught on to what was happening well after the bounce started. Nonetheless, I was (and am still) expecting the market to move up to the top of my range estimate (blue rectangle). So I bought a second unit on the theory that late is better than never.

But as you can see the market did not follow through. I sold my add on the way down at 765.75 when volume started to pick up on the downside in the one minute chart. Afterward the market rallied to a lower top (second last bar on the chart) and then put in a wide range break down bar. This action kicked me out of the second half of my position. By this time it had become obvious that the opening price was at the high end of the day's trading activity thus far, and I never like to be positioned in the wrong end of any range that lasts for more than a couple of hours.

At the moment I think that the market will probably have to drop to the purple support line to find more buyers. There is a Fed announcement at 2:15 pm today and this will probably put a wet blanket on activity until then.

Sold rest of position at 766.00.

Sold one unit at 765.75

Long second unit at 769.50

Time Stamps on Posts

Blogger puts a time stamp on every post. The stamp is the time at which I begin typing the post. Most of my posts take several minutes to write and assemble graphics for. So there will always be a delay between the time stamp and the time you see the post.

This is the reason why I report trades using only the title line. It is much faster.

The Market at 10:30 am

Here is a 5 minute bar chart of e-mini day sessions. I am long a single unit from 768.00. I think the trend is upward and it generally makes sense to get long near the open in such circumstances. If we are going to the top of my range estimate for today (blue rectangle) the market should go no more than 8 points or so below its open at 769.

I have drawn what I think should prove to be three important support levels that I expect to stop the reaction from yesterday's 677 high. The lowest of the three is the purple dotted line that represents the midpoint of the reaction from Monday's high to yesterday's low. The green dotted line is the midpoint of yesterday's range. Finally, the blue dotted line is the midpoint of yesterday's afternoon reaction.

So far today the volume is lower than it was yesterday when the market was rallying from its early low. Any pick up in volume which accompanies a drop below the support levels I have just cited would make me believe that the day's high is in place and cause me to revise my range estimate.

Long one unit at 768.00

Guesstimates on March 18, 2009

June S&P  E-mini Futures: I again expect a day session range of 25-30 points today. The high should be near 783 and the low near755. Yesterday was generally an up day, so I think we shall see early strength today and then spend most of the day heading downward.  The 840 level is still my target for this move up from 666.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: I think the long term trend in the bond market is now definitely downward. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 118.

Euro-US Dollar: I now believe that the euro is headed for the 141.00 level. 127.50 is support.

Dollar-Yen: The yen has nearly reached the 100.00 level. There is as yet no indication that the move up from 87.00 is over, so I now estimate that the yen will reach 104.00 before a substantial reaction begins.   

April Crude: The 30-35 zone is long term support. The 50.00 level is resistance. I think the market has started to stabilize.

GLD – April Gold: I think the market is now headed below 700. Resistance above the market is at 945.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Torrow's range

Here is a five minute bar chart of today's e-mini trading. My earlier suspicion that the day's high had been made proved wrong. While today was a low volume up day, I think the market has to go still higher to find enough sellers to produce a reaction of as much as 40-50 points.

My revised range estimate for today which I showed you when the market first hit 762 is the blue rectangle. The green rectangle is my current estimate for tomorrow's range. I think it will be about as big as today's. Its high should be near 783 and its low near 758 which is also the midpoint of today's range (red dashed line). The Federal Reserve announcement is due at 2:15 pm tomorrow but while it will produce a little more volatility when it comes out I don't think it will end up affecting the market's trend at all.

Suspicion

Market's sometime develop habits that persist for a few days and then disappear. The e-minis rallied about 21 points from this morning's low and made a top about thirty minutes later than yesterday's high was made. Volume during the later stages of today's rally was feeble. I have a very strong suspicion that we have seen today's high and that the market is headed down to 730. If the drop from today's high carries below 759 (purple dotted rectangles) it will be the biggest reaction of the day. If it drops below 755 it will violated support (horizontal purple dotted line). I think we shall see a print below 755 during the next 90 minutes and if we do we shall have strong evidence that the drop from yesterday's high has further to go.

New Range Estimate

Here is a five minute bar chart of today's e-mini action. I covered my short position on the bar indicated by the pair of red arrows. During that bar the market broke above the 759 level I thought was resistance on high volume (red dashed line). Since I am still bullish looking ahead more than a couple of days, I chose to interpret this bar as a high volume breakout instead of a climax bar.

This means that I must revise by range estimate. I now think we have seen the day's low and that the market will make today's high near 771, with a reasonable chance of reaching 775. If this is correct then any reaction should amount to no more than 6-8 points (purple dotted rectangle) and should hold midpoint support (purple dotted line).

Covered two units at 762.00

Dow headed for 8000 - 8250

Here is a daily chart of the Dow Industrial average covering the past six months. From its November low near 7500 the average rallied about 1500 points. A similar rally from its March 6 low near 6500 would carry it to 8000 (blue rectangles). The midpoint of the November-January rally was roughly the 8200 level. This will also be a resistance level on the way up. So I expect the current rally in the Dow to carry into the 8000-8250 zone.

Notice also that the volume on the rally from the March 6 low is definitely higher than was seen on the rallies from the October and November lows. This tells me that the drop from yesterday's high is only a reaction in an ongoing uptrend and that there is more strength to come.

Short second unit at 753.50

Short one unit at 757.25

Rally to 758-60 then down

Here is a five minute bar chart of today's day session in the e-minis. My range estimates is outlined by the blue rectangle. The market is trading in the upper part of its estimated range. If it is going to visit the lower boundary near 735 I don't think it will rally more than 6-8 points from its open at 752 (purple dotted rectangle).

The drop from yesterday's high at 771 may last into tomorrow and carry the market down into the 725-30 range. In any event I think we shall soon see a resumption of the move up to 840.

Guesstimates on March 17, 2009

June S&P  E-mini Futures: I again expect a day session range of about 25 points today with a high near 760 and a low near 735. This market will probably drop into the 725-30 zone over the next couple of days before resuming its move to 840.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: I think the long term trend in the bond market is now definitely downward. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 118.

Euro-US Dollar: The euro is headed down to 122.50. Resistance above the market is at 130.50. If this is broken substantially the market will probably head for the 141.00 level.

Dollar-Yen: The yen has nearly reached the 100.00 level. There is as yet no indication that the move up from 87.00 is over, so I now estimate that the yen will reach 104.00 before a substantial reaction begins.   

April Crude: The 30-35 zone is long term support. The 50.00 level is resistance. I think the market has started to stabilize.

GLD – April Gold: I think the market is now headed below 700. Resistance above the market is at 945.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410. 

Reaction Underway

Here is a thirty minute bar chart of the day session e-mini action over the past two weeks. Today the market got to within a couple of point of the top of my range estimate which was 773. Volume steadily decreased as the market rallied. Even though this is normal for mid-day trading, I thought it was significant because the market usually rests in mid-session, and only rarely trends then. If it does trend on low volume as it did today, a substantial reaction is generally not long in developing.

In any event I estimate that this reaction will run somewhere between 20-23 points, roughly the same size as previous reactions in the uptrend (blue rectangles). Midpoint resistance near 748 catches my eye (purple dotted line). A reaction to that level would be exactly 23 points. So I am guessing that the market is now on its way down to 745-50.

Why 840 ?

Here is a daily chart of the cash S&P 500 and its daily trading volume (Thanks to StockCharts.com!).

In the current, high volatility environment I prefer to day trade the e-minis. However, the same methods that give me an edge over very short term fluctuations can also provide insight into what the market is doing over longer time frames.

I can illustrate this idea by explaining how I came up with my current 840 upside target for this rally from the 666 level. First of all, I noted that the last rally, the one from the November 21 low at 741, carried the index up a little more than 200 points. A rally of similar size now would carry the average up to 866 (blue rectangles). I also like to use the midpoints of reactions to compute likely support and resistance levels. In this case the midpoint of the rally from the November 21 low was about 840. So I am using this lower number as my target while recognizing that the market could easily go 25 points higher than that without disturbing the rhythm of the bear market.

A note on volume: People put too much emphasis on whether or not volume is expanding or contracting during a price trend. My own view is that the most important comparison to make is between level of volume during the current price trend and the level of volume during previous trends in the same direction. On this score it is clear that the S&P 500 volume during this rally has generally been higher than the volume on any previous rally during the past 6 months. This is a clue that this rally is not over and that the 840 level is a reasonable target.

Why I sold my longs

Here is a five minute bar chart of today's e- mini session. I was long two units but sold them both at the green arrow. Why? The red arrows point to a 5 minute bar that I thought was either a breakout bar or a buying climax at the time, but I didn't know which. If it was a breakout bar the market would have continued up right away or after at most hesitating for 10-15 minutes. Instead we saw a steady decline of more than 25 minutes which broke below today's open (purple dotted line) and retraced more than half of that wide range bar. I concluded that it was probably a buying climax bar and so I got out.

I am still looking for a chance to get long again. I would only consider getting short near the top end of my range estimate for today (blue rectangle).

Sold 2 units at 760.50

Update at 10:30 am

Here is a five minute chart showing today's day session in the June e-minis. I am long two units at the green arrows. I went long because I believe the trend is upward. In an uptrend the market generally advances from the open. If so I thought it was unlikely that it drop more than 5 point from the open (purple dotted rectangle). The blue rectangle is my range estimate for today - low at 748 and high near 773.

Long second unit at 761.50

Long one unit at 759.75

Guesstimates on March 16, 2009

June S&P  E-mini Futures: I expect a day session range of about 25 points today with a high near 773 and a low near 748. It is likely that the next 40-50 point move from here will be downward, but I also think the market will reach the 840 level in a few weeks.

QQQ: The 26.00 level is still support and I think the Q’s have started a move to 35.00.  

June Bonds: I think the long term trend in the bond market is now definitely downward. Next downside target is 117.  

June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 118.

Euro-US Dollar: The euro is headed down to 122.50. Resistance above the market is at 130.50. If this is broken substantially the market will probably head for the 141.00 level.

Dollar-Yen: The yen has nearly reached the 100.00 level. There is as yet no indication that the move up from 87.00 is over, so I now estimate that the yen will reach 104.00 before a substantial reaction begins.   

April Crude: The 30-35 zone is long term support. The 50.00 level is resistance. I think the market has started to stabilize.

GLD – April Gold: I think the market is now headed below 700. Resistance above the market is at 945.

SLV - May Silver: Silver is still holding 1240 support but I think this level will soon be broken.  If it is the market will be on its way below 800.

Google: I think that its drop from 747 is over. Support is at 290. Next upside target is 410.