Friday, June 05, 2009


Here is a five minute bar chart showing the last two days' e-mini day sessions. A supply shock hit the market this morning. Typically these shocks are not retraced even halfway, but this was has been almost (but not quite) completely retraced - and by a rally that was almost as fast as the preceding break.

When I saw the market rally as fast as it did I decided not to go short until the situation became clearer to me. Ordinarily I would have tried to short this market on the rally to 942-43.

One reason why the fast rally made me suspicious of the supply shock was the fact that the preceding break halted just below the midpoint of yesterday's day session range (green dashed line). The break didn't quite equal the size of the last break (purple rectangle) when measured from this morning's electronic high at 957.50. Both of these facts showed underlying strength in the market because buyers were willing to step in at these obvious support points and were not shy about doing so.

So far most of today's trading activity has occurred above yesterday's midpoint - this despite the apparent supply shock this morning. And, to top things off, the trend established yesterday (orange dotted line) appears to have resumed after the sellers and then the buyers had their innings this morning.

All in all, these observations lead me to conclude that this supply shock was a false alarm. The sellers were met by equally aggressive buyers, and the net effect so far has been bullish relative to yesterday's activity. So I now think that for the rest of the day the market will trade in the range it has already established (blue rectangle). If I am reading the situation correctly I think the e-minis will hold above 936 for the rest of the day.

Right now my best guess is that Monday will turn out to be a bullish day with a day session range of about 20 points.


Narayana said...

If we do break the 935 level that was met with buying this morning, I think all that buying volume will turn around and add fuel to any drop.

John M said...

There's a nice chart I saw on another blog that shows the relatively poor volume of the entire rally off the year lows. We are also hitting our heads on the 200MA.

It will be interesting to see if those broader 'warning signs' play out, or if we completely ignore them and move higher. If so, it wouldn't be the first time the market has sent one signal and done something else entirely.