Friday, May 29, 2009
Why I got out
Here is a five minute bar chart of e-mini day session trading. I was long 2 units but sold my position at 908.00. Why?I thought that today would be a generally up day. On such days the market usually doesn't trade much below its open. Today's open in indicated by the red dotted line.
The initial break on the purchasing manager news was a little discouraging, but not definitive. It carried the market down about 9 points, the size of the biggest reaction on the way up from yesterday's low. It also halted near yesterday's close. I thought the market would rally after that break so I added to my initial position. I expected a quick move to new highs for the day on good volume.
What happened instead was a market that struggled upward on diminishing volume (slanted red line). It made it near back to the day's high. This kind of feeble rally made me nervous because I could see that most of the day's activity had occurred at levels below the opening price, not a bullish sign.
I wanted to give the market a chance to break out to the upside. But I resolved to get out of my longs on any sign of weakness. This weakness indeed developed and I stopped myself out at 908.00.
I am still bullish, but it is starting to look like today is going to be a narrow range day. One thing I don't want to see is a break below the 900 level on increasing volume. That would mean that the market is headed down into the 855-65 zone.
A few more comments on bonds
During the past year there has been a big divergence between the performance of treasury securities and the rest of the bond market - corporates, junk bonds, and mortgage securities. The credit of non-treasury securities was called into question and the prices of these securities dropped substantially as their yields went through the roof.
I expect the yields on treasury securities to rise over the coming months. But I think that the yields on junk bonds, corporate bonds, and mortgage backed securities will fall and while their prices rise. This process of returning to a more normal relationship with treasury securities will probably continue for the next year.
After that both markets will probably start moving up and down together as normal credit conditions start to prevail.
Guesstimates on May 29, 2009
June S&P E-mini Futures: I estimate that today’s day session range will be 905-925. The e-minis are on their way into the 950-80 zone.
QQQ: The next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 115.
Euro-US Dollar: The euro has reached the 140.00 target but as yet there is no sign of a top. Support is at 135.50 and I think the market will continue upward to 144.00.
Dollar-Yen: The yen will probably drop to 91.50 and then begin a move up to 105.00.
July Crude: Crude has reached the 64.00 target but there is still no sign of a top. Nex upside target is 69.00. support is at 60.00.
GLD – June Gold: The market is headed for new highs near the 1050 level.
SLV - July Silver: Silver is headed to 1700.
Google: Support is at 360. Next upside target is 450.
Thursday, May 28, 2009
Supply shock ? - Never Mind !
Here is a 30 minute bar chart of e-mini day session trading. I thought I saw a supply shock this morning but the market has since retraced all of the shock bar (horizontal green line). The prices below 890 have been decisively rejected (green rectangle). This means that long time frame buyers were taking advantage of this morning's selling to increase their long positions.Consequently I now think we have seen the day's low. I estimate that today's range will be 887 - 908 (blue rectangle). Contrary to the inference I drew earlier today from the supply shock I think this market is now headed for 950-80.
The bond market
Here is a daily and a monthly bar chart of the yield on the U.S. 10 year treasury note. For nearly 27 years I had been a long term bull on treasury note prices and told everyone willing to listen that yields on treasury securities were headed much lower. But about six months ago, on December 1, I decided that this trend toward lower yields and higher prices was nearly complete. I announced this change from bull to bear on treasury note prices in this post (red arrow).Where do we stand now? I think we shall see yields on treasury notes and bonds trend generally upward for the next 20 years. The current bull market in yields (bear market in bond prices) should last 18-24 months and carry yields up to one of the midpoint resistance lines shown on the monthly chart (purple dotted lines). The lower line stands at 5.45% and the upper one at 6.65%.
I have noticed a lot of commentary on blogs and the financial press which asserts that this ongoing move upward in bond yields somehow spells disaster for the U.S. economy.This is such a completely wrong- headed view that I barely know where to begin in criticizing it.
Bond yields are determined by two things: expected inflation and the expected real (adjusted for inflation) rate of return on capital investments made to keep the economy growing. A rise in yields means that both of these expectations are headed higher. The fact that people are now expecting more inflation than they were six months ago IS EXTREMELY BULLISH for the U.S. and the world economy. It means that there is a growing belief that the expansionary monetary and fiscal policies undertaken by the Federal Reserve and the congress will be effective.
Yes, these policies WILL increase the rate of inflation from current levels. BUT this will not have nearly the adverse economic effects rising inflation had during the 1960's and 1970's. Back then income tax rates were not indexed for inflation. Consequently inflation increased marginal tax rates in the economy and had a contractionary fiscal effect on real economic activity. But tax rates are now indexed for inflation, so a rising price level will not in itself have adverse consequences for the level of real economic activity.
There is another reason why increasing bond yields will be economically beneficial in current circumstances. They will enable banks to become very profitable again. The Fed is keeping short term rates very, very low and will continue this policy for a long time to come. Meanwhile longer term treasury bond yields are rising. A bank can therefore borrow short term money, invest it in the bond market and hedge the risk of falling bond prices. The result is an almost risk free return of about 4% currently. This will do wonders for bank balance sheets and profitability!
People - remember this. The Fed WANTS longer term bond yields to rise. A rise in yields indicates that monetary and fiscal policies are being SUCCESSFUL in achieving their goals of stopping the drop in the economy and setting on a course toward growth.
How does the Fed arrange for a rise in yields? By "printing money" of course. By financing a good part of the Federal deficit of course. By doing these things it engineers an upward move in the prices of existing assets, in commodities, and in inflationary expectations. This medicine is exactly what the doctor ordered as a remedy for the deflationary "fear" shock that hit the economy last fall.
Enjoy!
Supply Shock
Here is a 30 minute bar chart of e-mini day session activity. The market broke sharply this morning and volume was the highest downside volume seen for the past two weeks (red arrows). This looks like a supply shock and I think it is telling us that the e-minis are on the way down into the 855-65 zone. If this is the right interpretation midpoint resistance near 896 (purple dotted line) should hold.The high of the day has been seen and I estimate that the low will be near 877 (blue rectangle).
Guesstimates on May 28, 2009
June S&P E-mini Futures: I estimate that today’s day session range will be 888-908. It the e-minis should spend more than 30 minutes trading below 888 I will conclude that the market is headed for the 855-65 zone. Barring that I am going to stick with my view that a rally into the 950-80 zone is underway.
QQQ: The next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 115.
Euro-US Dollar: The euro has reached the 140.00 target but as yet there is no sign of a top. Support is at 135.50 and I think the market will continue upward to 144.00.
Dollar-Yen: The yen will probably drop to 91.50 and then begin a move up to 105.00.
July Crude: Current upside target for crude is 64.00. Support stands at 57.00.
GLD – June Gold: The market is headed for new highs near the 1050 level.
SLV - July Silver: Silver moved above 1450 resistance and is now headed higher to 1700.
Google: Support is at 360. Next upside target is 450.
Wednesday, May 27, 2009
Quick update
Update at 3 pm
Here is a 30 minute bar chart of the e-mini day session. This afternoon's break surprised me, but it failed to develop significant volume (pair of horizontal green lines). Moreover, it carried the market down only as much as the last break did (purple rectangles). So I think the up move which began Tuesday is still viable and will carry the market up into the 950-80 over the next few weeks.I sold my long position at 898 because I didn't expect the market to trade visibly below 900 today. When the market does something unusual in the context of my assessment of the trend direction I like to step aside. This gives me a chance to watch the market from a less biased perspective. If I find that I am still confident in my original views then I can reestablish my position. I usually have to do this at some price concession, but this is the price I pay to stay in business - it is the premium on my catastrophe insurance.
I think tomorrow's range will be 900 to 925 (blue rectangle). I think the 895-900 zone will prove to be support.
Noon update
Here is a five minute chart of today's e-mini day session. I think we have seen the day's low. Why? The market broke about seven points in seven minutes on high volume right after the home sales number came out (green arrows). Normally this sort of action is followed by further price declines. But in this case the market immediately stabilized and began to creep upward. I think this shows strong support near the 905 level. So I am revising today's range estimate to 905-925 (blue rectangle).
Guesstimates on May 27, 2009
June S&P E-mini Futures: I think today’s range will be 900-920. A rally into the 950-80 zone is underway.
QQQ: The next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 115.
Euro-US Dollar: The euro has reached the 140.00 target but as yet there is no sign of a top. Support is at 135.50 and I think the market will continue upward to 144.00.
Dollar-Yen: The yen will probably drop to 91.50 and then begin a move up to 105.00.
July Crude: Current upside target for crude is 64.00. Support stands at 57.00.
GLD – June Gold: The market is headed for new highs near the 1050 level.
SLV - July Silver: Silver moved above 1450 resistance and is now headed higher to 1700.
Google: Support is at 360. Next upside target is 450.
Tuesday, May 26, 2009
Tomorrow
Here is a five minute chart of today's e-mini session. A reaction started from the top of today's range estimate (first blue rectangle). I think the market will find support near the 900 level which I estimate will be the low of tomorrow's day session range. I am looking for tomorrow's high near the 920 level.I think that a rally into the 950-80 range began with the demand shock that hit the market during the first hour this morning.
Update at 2 pm
The market is at the top of the revised range estimate for today (blue rectangle). After this morning's demand shock there have been only very small reactions. This is more evidence that this shock is the real deal. I think the e-minis next reaction will be 8-10 points (purple rectangle). Midpoint support is at 902.50 (purple dotted line).I expect this market to rally into the 950-80 range during the next month.
Demand Shock
Here is a 30 minute bar chart of the past 10 days' e-mini day sessions. Volume during today's first 60 minutes was very high (green oval) and the market went straight up from its open. This is a very clear and very powerful demand shock. It is saying that the drop from 930 is over and that the market is now headed for 950 or higher.I now estimate that today's range will extend from 879 to 910 (blue rectangle).
Guesstimates on May 26, 2009
June S&P E-mini Futures: I think today’s range will be 865-885. I think the e-minis will drop into the 855-65 zone this week. From there a rally to 952 should begin.
QQQ: Support is 32.50. Once the reaction is over the next upside target will be 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro has reached the 140.00 target but as yet there is no sign of a top. Support is at 135.50 and I think the market will continue upward to 144.00.
Dollar-Yen: The yen will probably drop to 91.50 and then begin a move up to 105.00.
July Crude: Current upside target for crude is 64.00. Support stands at 57.00.
GLD – June Gold: The market is headed for new highs near the 1050 level.
SLV - July Silver: Silver moved above 1450 resistance and is now headed higher to 1700.
Google: Support is at 360. Next upside target is 450.
Friday, May 22, 2009
Update at 10:30 am
Here is a five minute bar chart of e-mini day session trading. I think today's range will be about as wide as yesterday's - 15 points or so. I think we have seen the low at 882.50, so the high should be near 897 (blue rectangles).So far the rally from yesterday's low looks like a normal correction within a downtrend from 923.50 reached on Wednesday. I expect this downtrend to drop the e-minis into the 855-65 range next week. The only think that could alter this prognosis is increasing volume on a rally above the 900 level.
Remember that the U.S. markets will be closed Monday.
Guesstimates on May 22, 2009
June S&P E-mini Futures: The
QQQ: Support is 32.50. Once the reaction is over the next upside target will be 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro is headed up to 140.00.
Dollar-Yen: The yen will probably drop to 91.50 and then begin a move up to 105.00.
July Crude: Current upside target for crude is 64.00. Support stands at 57.00.
GLD – June Gold: The market has traded above 945 for two consecutive days. This means that it is headed for new highs near the 1050 level.
SLV - July Silver: Silver moved above 1450 resistance and is now headed higher to 1700.
Google: Support is at 360. Next upside target is 450.
Thursday, May 21, 2009
Tomorrow
Here is a five minute chart of today's e-mini day session. It has been a day characterized by a few quick but shallow selling spasms separated by listless, sideways trading. Activity has been much lower than yesterday and about the same or a tad lower than on previous down days within this three week trading range. This is consistent with my hypothesis that we are seeing consolidation, not a reversal, and that the market will reach the 950 level during the coming month.Meantime I think the e-minis will probably drop into the 855-65 zone before beginning a sustained rally. I estimate tomorrow's range will be 870-890 (blue rectangle).
Range revision
Here is a five minute bar chart of today's e-mini day session. I have revised my range estimate to 875-895 (blue rectangle). I shorted one unit on the breakout below the dashed red line. I put a lot of emphasis on comparing the action of the market once I have taken a position to its normal action in similar circumstances. In this case I was shorting well "in the hole". I expected a fast break on good volume to develop quickly. Instead volume dropped dramatically and the bar ranges narrowed. Almost 30 minutes after I got short I showed no results. This was evidence that the selling pressure is light. And I don't want to be short in such circumstances because it won't take many buyers to stage a substantial rally.At the moment I am sitting on my hands and will wait for a rally of 6-8 points before shorting again. If the market goes straight down without me, so be it.
Guesstimates on May 21, 2009
June S&P E-mini Futures: The e-minis have spent most of the time since yesterday’s close trading below the 900 level. This means that the market is headed down to 855-65. I estimate today’s range will be 880-900. I still think that the market will rally to 952 or higher over the coming month.
QQQ: Support is 32.50. Once the reaction is over the next upside target will be 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro is headed up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
July Crude: Current upside target for crude is 64.00. Support stands at 57.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Wednesday, May 20, 2009
How big a reaction?
Here is a 30 minute bar chart of the last few days' e-mini day session trading. Today has been a day dominated by sellers. The volume on the downside has been moderately high as compared with volume on down days over the past two weeks. The question I am mulling over now is just how big a reaction is underway.Since I think this market is headed for 952 over the next couple of weeks I begin my assessment with a willingness to give the uptrend the benefit of the doubt. This is what you see illustrated in the chart above. The bullish way to read the past two days activity goes like this. There has been a range of about 9-10 points (green rectangle) which has contained most of the trading. This morning we broke to the upside, but sellers rejected this upside excursion (top blue rectangle). Now we are breaking to the downside (bottom blue rectangle). A downside break as big as the upside excursion would carry the market down to 898 or so. If the buyers are just waiting to spring a trap on unwitting sellers, this market will drop to 898 and then spring right back into the green rectangle.
If on the other hand the sellers get even more aggressive below 898 and buyers hold back, then I think this market will probably drop into the 855-865 range before beginning its next swing upward.
Revised range estimate
Here is a five minute chart of e-mini day session trading. The market broke below both support levels (second purple rectangle and purple dotted line) so I conclude that the day's high is in place at 923.50. I estimate that the low will be 900 or so.Today the market rallied to within 5 points of its previous high and the subsequent break has been uncorrected. This is not a supply shock so far, but it does show that the sellers have a lot of ammunition and are well motivated. Any weakness below 900 on increasing volume will mean that the market is headed back to 875 and quite probably to 865.
Update
Here is a 5 minute chart of e-mini day session trading. I no longer think this morning's rally was a demand shock - too much has been retraced by the subsequent reaction. But no matter. Demand shock or no, the short term trend is still upward. I am looking for the e-minis to reach the 952 level in a week or two.Meantime I am still long one unit. A drop from today's high that is as big as yesterday's late reaction would carry the market down to 913-14 (purple rectangles). Plan B support is the midpoint of the same reaction, 910-11 (purple dotted line). I am sticking with my range estimate for today (blue rectangle). I think there is a good chance of seeing the 930 level later in the trading session.
Probable demand shock
Here is a 30 minute bar chart of the past 10 e-mini day sessions. It looks like a demand shock hit the market this morning - volume was unusually high and the first hour of trading took the e-minis straight up. If this is the correct interpretation of this morning's activity then we have already made the day session low. I am conservatively estimating the high at 930, but I think a move to 935 today is only a little less probable.
Guesstimates on May 20, 2009
June S&P E-mini Futures: The market is on its way to 952. I estimate that today’s day session range will be 905-925.
QQQ: Support is 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro is headed up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
July Crude: Crude has reached resistance in the 59-60 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Tuesday, May 19, 2009
Blood from a rock
Well, my patience finally ran out. The e-minis moved a tick above their day session high (lower dashed red line) but still couldn't take out the early morning electronic high at 915.75 (higher dashed line). At the same time there were high volume bars visible on the one minute chart above (red arrows) that couldn't push the market higher. This convinced me that selling at the top of the range was still strong, so I sold my long position for a small profit.I am still bullish on this market and expect tomorrow to be another generally higher day.
What changed?
Earlier today I sold my long position at 912 - heeding the voice of intuition. It was worried that the market was about to break 10 or more points before heading higher.In this sort of situation I watch the market's progress closely, comparing it to what would be normal if my intuitive leap was to turn out to be a good one. Were sellers coming into the market?
For 30 minutes or so the market traded sideways. Then a volume increase on a down bar suggested that sellers were getting more aggressive (red arrows). But volume did not build as the market dropped (green sloping line). Instead, the e-minis dropped to the low of what now was looking like a potential trading range (green dashed rectangle). The fact that the pace of this decline was slower than the pace of the first drop in this potential trading range (red sloping lines) was another hint that no downside breakout was imminent.
So, since I am basically bullish, it made sense to take a chance and repurchase half of my long position near the low of this potential trading range. Right afterward the market rallied off of its low, putting in an increasing range, up bar. At this point I repurchased the rest of my position.
If I am reading this market correctly it should not drop below the low of the green dashed rectangle. I now think that the 925 level can be reached today.
Sometimes I just get the urge to sell
Here is a five minute chart of the e-mini day session. I just closed out my long position at 912 even though I was looking for 925 as today's high. What happened?Over the years I have found that I sometimes hear the voice of intuition whispering that I should close out a position. More often than not it turns out to be the right thing to do. When this happens nowadays I act immediately and ask questions later. Today was one of those times.
So what was it about today's action that encouraged the voice of intuition to speak out? I think a several considerations were at work.
First of all, yesterday was a strong day - the e-minis rallied with barely any reactions. It would be unusual to see two such "straight up" days in a row. So sometime today drop of 10 points and maybe more is likely to develop.
Secondly, the day's electronic high was 915.75, and this morning's day session rally couldn't take out that high. This bothered me, especially because this morning's rally ended at what could be interpreted as a volume climax (red arrows).
The drop from the day session high lasted longer than the drop earlier in the day session, but it carried just the same distance down (purple rectangles) and held midpoint support (purple dotted line). Again, I was disappointed to see the market drop even that far after failing to take out this morning's electronic high.
Finally, today is a more active trading session than yesterday's, a good sign for a continued rally, but the market was not making the upside progress normally associated with this increase of activity.
So when the market rallied to 912 and started to trade sideways, I think my intuitive side was happy with today's small profit and suggested I book it and look for another chance at a better price.
I am still bullish, though not as bullish for today as I was earlier. I expect to be a buyer later today. The worst I anticipate on the downside is the 900 level, but I doubt the market will drop even that low. I also think we shall see at least 920 on the upside today.
Range revision
Here is a five minute chart of today's e-mini day session. I am long two units at an average of 907.50. I think we have seen the day's low. It developed just a tad above midpoint support at 903. This level was actually two supports at one price. The midpoint of the late rally from 894 to 912 on May 12 was at 903. And 903 was the midpoint of the swing from the October top at 1067 to the November low at 739.I estimate the high for today will be near 925 (blue rectangle). If I am correct then the midpoint of today's early reaction from 910 to 903.50 (purple dotted line) will act as support for the rest of the session.
As you know I think this up swing will carry the e-minis to 952 or so, the midpoint of the rally from the October low at 837 to the October high at 1067.
Guesstimates on May 19, 2009
June S&P E-mini Futures: The market is on its way to 952. I estimate that today’s day session range will be 900-920.
QQQ: Support is 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro is headed up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
July Crude: Crude has reached resistance in the 59-60 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Monday, May 18, 2009
Why I got out
Here is a five minute chart of today's e-mini day session. I just sold my long position at 903. That was 7 points shy of the top of my range estimate at 910 (blue rectangle). Why didn't I wait for more profit before getting out?Well, the honest answer is that I wanted to book a decent profit - over the past few days I have been spinning my trading wheels without making any progress. This sort of consideration alone usually isn't enough to push me out of a position, so what else was going on that tipped the scales? I expected today to be a breakout above the high of the past two days (red dashed line). So far it has been, but the market has been only slowly creeping upward on very moderate volume. This lack of enthusiasm concerns me. Then, the e-minis hit midpoint resistance at 903 (purple dotted line) - a level computed from the rally from 894 to 912 on May 12. At the same time it put in a high volume bar (first red arrow) followed by an even higher volume bar with a narrower range than the first. This looked like a potential buying climax at midpoint resistance. Once I saw this I waited for 10 minutes to see if more buyers would show up. They didn't so I got out.
I am still bullish and think the market is headed for 952. However, a reaction of 8-10 points would be normal here. In any event I shall be looking for another chance to get long tomorrow.
Breakout Ahead
Here is a five minute bar chart of today's e-mini day session. It is unusual for the market to trade in a narrow range around the opening price for as long as it did this morning. The fact that it did so near the high end of its recent trading range made me think that its failure to reject these high prices meant that it had to go still higher before it could find more sellers.So far this is what is happening. The e-minis raised their trading range (horizontal green lines), volume started to increase on the advance, and we saw two increasing range, higher volume bars to the upside (green arrows). I think this means that the market is preparing to break out above the high of the last two days (red dashed line). My range estimate for today (blue rectangle) reflects my expectation that an upside breakout from this trading range is imminent. If it happens, then I will conclude that the e-minis are on the way to 952.
Guesstimates on May 18, 2009
June S&P E-mini Futures: The market has been trading between 875 and 895 for three days. Today I am not going to make a range estimate until I see the market’s action after the open which should be near 890. I plan to follow the first sign of relatively high volume activity, whichever way it takes the e-minis. In any event I am still looking for a move to 952 which should start from a low made this week.
QQQ: Support is now 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Resistance is at 125-00. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Resistance is at 122-16. Next downside target is 118.
Euro-US Dollar: The euro is headed up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
July Crude: Crude has reached resistance in the 59-60 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Friday, May 15, 2009
Why I covered
Here is a five minute chart of the e-mini day session. A little while ago I covered my two short units at 878.00. Here was my thinking.First, the market had gotten as low as 876.75, close to the low of my range estimate of 875 and to midpoint support at 874. You may wonder why I had shorted a second unit at 879.25 so close to these levels.
Well, one never really knows what the market will do. I believe there is a good chance we shall see the 865 level early next week. The high volume breakout bar (red arrows) had the possibility of starting a wide open break to below 870 today, so I wanted to have a full position if this were to happen. In the event the market went a bit lower on reduced volume and then started trading sideways again. In these circumstances I felt I had given the market a fair chance to accelerate downwards, but since it instead was trading sideways again near support levels I chose not to press my luck. So I covered.
The net result for today is a small loss. But I see this as a successful day in light of the erratic nature of the day's trading.
Yet another revision
Here is an updated version of the point and figure chart I showed you in an earlier post this morning.After a breakout from a base the market might sink back into the base a little and often will react to the descending trendline you see on this chart. So I regarded a reaction to the 890 level as perfectly normal. But when the e-minis dropped to 888 the sideways action near today's high now looked like it could support a drop to 886, a new low for the day, and thus negate the earlier bullish indication of this chart. Once I saw this the only logical thing to do was dump my long position.
Now what? Frankly, I can't even make an educated guess. Whoops! The market just broke further so I just shorted a unit at 885. This now looks like a downside breakout. So I am back to the view I held this morning - the reaction will probably continue to 865 or so. Today's range is likely to be 875-895
New range estimate
Here is a point and figure chart - one point boxes, 1 point reversal - for the e-mini day session. I created this chart using Linnsoft's Investor R/T software.I was bearish coming into the open and shorted the market twice with no results. Experience has taught me that when that happens the long side is probably the place to be. This chart convinced me this was the case. Once the market rallied from the day session low at 886.25 as high as 891 a breakout from a narrow base was evident. The subsequent rally completed the breakout from the entire base. I count 24 columns across the 888 price line in this base (horizontal green line). This projects a target for this swing at 911 (vertical green line). I am also now projecting a day session range for today of 886-906, so I don't think this target will be reached in today's trading.
If I am reading the market's condition correctly we are in the early stage of a move to 952. The price action thus far today makes a drop below yesterday's low at 878.75 unlikely.
Guesstimates on May 15, 2009
June S&P E-mini Futures: I am looking for a day session range of 872-888 today. The odds now are that the market will continue down to 865 early next week before it begins a rally to 952.
QQQ: Support is now 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
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 up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Thursday, May 14, 2009
Why I got out
The e-minis rallied just about 18 points from today's low, thus matching the length of the previous rally. This put the market right at the top of the second purple rectangle, late in the day, after a steady rally that did not attract much bullish enthusiasm or volume. Then the e-minis started to come off their highs and this made it likely that the sellers were taking advantage of this second, 18 point rally to unload some positions. So I decided to accept a small profit and await developments.
It is starting to look like the rally which started today is going to end at a lower top - perhaps the top has already been seen. I hope to be able to see the situation more clearly near tomorrow's open. In any case I plan to follow whatever side (bulls or bears) shows the greater strength and activity soon after tomorrow's open.
Tactics
Here is a 30 minute bar chart of the e-mini day session for the past 10 days. I am long two units and think that the low of the reaction from 928 was seen early this morning in electronic trading at 878.75.Volume on the advance today has been unimpressive thus far (green line). So I have to entertain the possibility that this rally will end at a lower top and be followed by a drop to 865-75. How high might the e-minis get first? The previous rally on the way down was 18 points and an 18 point rally from today's low would carry to 897. There is midpoint resistance at the lower dotted purple line near 903. Averaging these two level makes 900 my first target. The second target is the higher purple dotted line at 913 - also midpoint resistance.
Right now there is no way for me to tell whether this rally will end at a lower top or not. Because I expect to see the 952 level later this month I have to be aggressively bullish on any sign of a new advance. But if the market fails to generate more volume on the way up from here I plan to be aggressive taking profits as well.
Why I got long
Here is a five minute bar chart of the e-mini day session. My original range estimate for today was 873-890 (solid blue rectangle). I was expecting to see the low of the day early in the session. The market had traded as low as 878.75 earlier this morning - midpoint support was at 873. This was not as close an approach as I like to see. On the other hand, a strong market is hard to buy at ideal spots. So when I saw the e-minis establish what appeared to be a somewhat higher trading range after the early break (higher green line) I concluded that it was about to leave behind yesterday's afternoon trading range (lower green line) and start a move to 952. I couldn't afford to let the market leave the station without me on board so I bought one unit as soon as I reached this conclusion.
In the event I had to sell at 884.00 because it then appeared that the move to 888.75 was a shakeout, a false breakout. The first loss after a shakeout is the best one to take.
I still think the odds are good that we have seen the low of the day, so I am changing my range estimate to 880-900 (blue dotted rectangle). If I am reading things correctly this reaction is probably over.
Guesstimates on May 14, 2009
June S&P E-mini Futures: I am looking for a day session range of 873-890 today. The worst I see on the downside for this reaction is 867. Once this reaction is complete I expect the e-minis to rally to 952.
QQQ: Support is now 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
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 up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Wednesday, May 13, 2009
Reaction nearly complete
Here is an hourly bar chart of the e-mini day session (courtesy of Linnsoft's Investor/RT software). The market has dropped about 50 points from its high - about as much as it had dropped twice previously on the way up from 666 (purple rectangles). It has dropped close to midpoint support which stands at 874 (purple dotted line). There is an outside chance that the e-minis will drop all the way to 867 - the midpoint between the October 1067 high and the bear market low at 666 (red dashed line).In any event this reaction is nearly complete. Tomorrow I will be looking for a day session range of 873-890. The next up leg should carry the e-minis up to 952.
Revised range estimate
Here is a five minute bar chart of day session e-mini trading. The market opened a lot lower today, but downside volume was less than at the same time yesterday (red arrows). This level of activity is consistent with my hypothesis that we are seeing only a normal break in a continuing up trend, not a big reversal of that trend.I think a rally of 8-10 points from this morning's low would be normal (purple rectangle). I have positioned the high of my new range estimate there and still think the market will drop to 880 later today (blue rectangle). As long as midpoint resistance based on yesterday's afternoon rally holds (purple dotted line at 903) I shall stick with my view that the market is headed down to support at 875 over the next couple of days.
Once this reaction is complete I think the e-minis will rally to midpoint resistance at 952.
Guesstimates on May 13, 2009
June S&P E-mini Futures: Contrary to my expectation the e-minis made new lows for the reaction after trading below 904 in
QQQ: Support is now 32.50. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
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 up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Tuesday, May 12, 2009
Tomorrow
Here is a 15 minute bar chart of the e-mini day sessions. I think a new up swing has begun from today's low at 894. I expect it to carry the market to 952 which is midpoint resistance between the 1067 high in October and the 837 low earlier that same month.I expect tomorrow's day session range to extend from 904 to 925 (blue rectangle). The 904 level is the midpoint of today's day session range (purple dotted line).
Going up
Here is a 15 minute bar chart of the e-mini day session courtesy of Linnsoft's Investor/RT. The market didn't quite make it down to the low of my range estimate at 890. It has rallied back above the 898 low (red dashed line) and the trading that occurred below that level, a potential breakout level, was on very low volume.In contrast the rally back above the 898 low developed good volume (green arrows) - in fact higher volume than the first time the market rallied from 898 (green arrows). The rally has been bigger than yesterday's too (purple rectangles). These two facts have convinced me that a new upleg has begun. I expect it to carry the e-minis to 952, the next strong midpoint resistance level.
Sellers in Control
Here is a 15 minute bar chart of the e-minis for the past 3 days. It comes courtesy of Linnsoft's Investor/ RT charting program. This software does real time charting using your preferred data feed. I like it very much.In this morning' s guesstimate (sorry for the screwup and delay in getting it posted !) I said that I expected the e-minis to rally out of yesterday's trading range. But sellers showed up again during the first hour today. Today's first hour volume is visibly higher than yesterday's at the same time (red arrows). It is even higher than near yesterday's close, an unusual development. Note that the high volume bar near yesterday's close was also a down bar. Finally, selling came into the market today at the same level it did yesterday, so I conclude that the same sellers are getting more aggressive and haven't yet run out of ammunition.
For these reasons I am revising my day session range estimate for today to 890-913 ( blue rectangle) and am assuming we have seen the day's high already. If I am right about this then this reaction should carry the e-minis down to 875 over the next couple of days.
Guesstimates on May 12, 2009
June S&P E-mini Futures: I think this market is about to rally close to the 952 resistance level. I expect today’s day session range to be 908-928.
QQQ: Support is still at 34.00. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
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 up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 55.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Monday, May 11, 2009
Dead Center
Here is a 30 minute bar chart of the last 10 e-mini day sessions. The market was dull today, trading in a narrow range which was centered right at the midpoint of a bigger trading range (red rectangle). I think there is going to be a substantial move from here. The trouble is that I can't tell which direction is the more likely one.I plan to follow the direction in which activity increases. A break from here would carry the market down to midpoint support near 875 (purple dotted line). A rally would carry it up to midpoint resistance at 952 (heavy red dashed line).
Looking bullish
Here is a five minute bar chart of today's e-mini day session. After the early break I thought this market would drop to 900 or a bit lower. But then the bearish cylinders started to misfire. By 1:30 pm New York time (the time on this chart is Chicago time, one hour earlier) the market had still not broken its low of the first half hour. This is not what I expect to see in a bearish market so I covered the rest of my short position.I was lucky in my timing. A minute later the market rallied a quick three points and broke out above several highs made today (green dashed line). Volume jumped (green arrows). And all of this happened after a higher low was established (green horizontal lines). So I bought one unit on the breakout.
If I am reading the market correctly, the e-minis will not drop below the low of the wide range breakout bar. I think this market could rally to 925 during the rest of the session.
Trading range
Here is a five minute bar chart of the e-mini day sessions. I shorted one unit at 911.25 after the market had rallied a little more than it did late Friday (purple rectangles). I am betting that the market will return to the low of its recent trading range (red rectangle) before it retraces more than 1/2 of its move down to this morning's low (red dashed line). That said, I shall reverse my position if the e-minis show strength above that 1/2 point.I don't think this break is the start of a bigger reaction. My reason? Volume this morning has been moderate, visibly lower than on the last break on May 7 which began this trading range.
Guesstimates on May 11, 2009
June S&P E-mini Futures: Today’s day session range will probably extend from 900 to 920. I still think the market will reach 952 before it drops as low as 880.
QQQ: Support is still at 34.00. Next upside target is 39.90.
June Bonds: A bear market is underway in the bonds. Next downside target is 115.
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 up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 54.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Friday, May 08, 2009
Why I got out
Here is a five minute bar chart of today's e-mini day session. I was long two units at an average of 914.50 and sold those units a few minutes ago at 926.00. My range estimate for today was 910-935 (blue rectangle). Why did I sell my long position nearly 9 points below the level I estimated would be today's high?The market is constantly giving you new information about its condition. The hardest thing to learn in trading is how to make appropriate adjustments to this new information as it appears. In this case I knew that yesterday's day session high was 927 (red dashed line) and was the highest level yet reached during the rally from the March 6 low at 666. Today is Friday and activity was definitely slowing down as trading progressed and was not very high to begin with, even after the release of the employment number this morning. So when the e-minis took out the 927 high on a high volume bar (red arrows) I sat up and took notice. The question was whether or not this was a high volume breakout to new highs or a "running of the stops" before another break.
In the event I noticed that volume immediately dried up after the breakout and the market started to drift lower. This did not look like a high volume breakout. At that juncture I decided to accept my 10 point profit instead of taking the risk that the market would break 10 points or more from 927.
I still think we shall see the e-minis trade in the 940-50 zone next week.
Update at 1 pm
Here is a five minute chart of the e-mini day session. I have moved my estimate for today's high back to 935, giving the range estimate of 910-935 (blue rectangle) that I first proposed in this morning's guesstimate.At this juncture I think the market will hold support which I estimate now stands near 916.75, the midpoint of today's day session range (purple dotted line). I expect to see the e-minis to reach the 940-50 range next week.
Interest rates, commodity prices, the dollar, and the stock market
I have another view on the auctions.
The entire problem experienced by the stock market and the economy over the past 7 months has been an "uncertainty" shock. People became fearful because the value of assets and the banks that held them was called into question. Assets were therefore priced on the basis of the worst that could happen. People began to anticipate economy wide deflation. For this reason the preferred asset was treasury securities. Commodity prices fell (gold, silver, especially crude oil) and the dollar strengthened. All these things were manifestations of a monetary policy that was too tight in the face of this uncertainty shock.
But the worst is now over, and the markets are beginning to realize that. The fact that yields on treasury securities are rising and that auctions are "failing" shows that people no longer expect widespread asset price deflation - that the Federal Reserve's policy of reflation/inflation is working. This is going to pull the economy out of its slump. Asset markets are slowing returning to normal. Commodity prices are strengthening and the dollar is weakening - also signs of reflation.
So for these reasons I regard rising interest rates, rising commodity prices and a falling dollar as very, very bullish for the stock market. These phenomena reflect the success of the U.S. governments reflationary policy in staving off a second great depression.
The Test
Here is a 30 minute bar chart of the e-mini day sessions. I got long early this morning because yesterday's late rally had continued all the way up to 922.50 (not shown on this chart) in electronic trading this morning. So yesterday's supply shock was almost completely retraced. Moreover, volume on yesterday's late rally was high (green lines). While it was not at demand shock levels, the volume told me that the market had decisively rejected yesterday's low at 898 as a fair price.After I got long I expected the market to move quickly to and above the 930 level. Instead, sellers came back in at almost exactly the same levels as yesterday (red arrows). Once this became apparent I dumped my long position. I wanted to see if the sellers still had enough ammunition to push the market below 900.
Preliminary indications are that that selling this morning was not as strong as yesterday. Volume during the first hour was lower (red lines) , and almost half of that came while the market was rallying. I think that yesterday's close at 908 will be support today. I am revising my range estimate slightly to 910-930. Right now I think that the market will rally into the 940-50 range before it breaks below 905.
Guesstimates on May 8, 2009
June S&P E-mini Futures: Yesterday’s supply shock was substantially retraced in electronic trading. For this reason I have to abandon my “50 point break” scenario. I now think the market is headed up to resistance near 952. If I am right about this then the e-minis will not trade below yesterday’s close at 908. I estimate today’ daytime range as 910-935.
QQQ: Support is still at 34.00. Next upside target is 39.90.
June Bonds: I don’t think the longer term bearish picture has changed. Next downside target is 115.
June 10 Year Notes: I think a bear market in the notes is underway. Next downside target is 118.
Euro-US Dollar: The euro moved above 133.35 resistance and this means that it is headed up to 140.00.
Dollar-Yen: Then yen is headed for the 104.00 level. Support stands at 95.55.
June Crude: Crude has reached resistance in the 58-59 range. A drop to support near 54.00 would be normal. I think the market has a good shot at 64.00.
GLD – June Gold: I think the market is headed below 700. Resistance above the market is now at 945.
SLV - July Silver: Silver is headed for 750. Resistance is at 1450.
Google: Support is at 360. Next upside target is 450.
Thursday, May 07, 2009
Tomorrow
Here is a five minute chart of today's e-mini day session. I think tomorrow's range will extend from 885 to 910 (blue rectangle). The 885 level marked a short term top on the way up and the 910 level is midpoint resistance (purple dotted line).As I wrote earlier today, I expect this break to end somewhere in the 865-880 range, probably early next week. After that the market will resume its advance to the 952 midpoint resistance level.
Carl,
Yesterday's weak auction and the subsequent effects upon rates are an issue for the rally. The government does not want 30 year rates to be up here, and, now that the stress tests are out of the way, there is no longer as much incentive for them to hold up the market. Rather, they may want to drive money into bonds.