Thursday, October 01, 2009
What now ??
Here is an hourly chart of day session e-mini trading. I had thought that yesterday's low at 1041.50 would hold, but it didn't. Now what?
Whenever I confront a market that seems to be trendless I always remind myself of the bigger picture. In this case I am still convinced that the move up from the July low at 866 is not yet complete - certainly there is no technical evidence that would suggest such a completion. Moreover, I think a new bull market started at the March low of 666 and that it will continue through most or all of next year. So I have a strong bullish bias at the moment. The worst thing I can do is miss an up move because I let short term bearish evidence influence my market positions too much.
When I look at the chart above I conclude that the most likely move from current levels will be down to the 1015-1020 zone (green oval), near midpoint support at 1015 and the lower boundary of the bearish trend channel I have drawn. This conclusion follows naturally from the fact that yesterday the market established a lower top and lower tops are usually followed by lower lows.
But there is a fly in this short term bearish ointment. I have drawn red ovals and red arrows to highlight three instances of high volume selling during the past week. Each ended in the vicinity of the 1040 level and there was little follow through selling in each case. This is unusual behavior. Normally one selling squall, let alone three, is followed by substantially lower prices. Since this didn't happen I infer that the market is being supported near 1040 by longer time frame buyers. This is bullish looking ahead over the next month, but doesn't by itself preclude a drop to 1020 over the next couple of days. Nonetheless, If the market should show strength above the 1050 level I would conclude that a move to 1120 has begun.
Tomorrow the employment number comes out at 8:30 am. The market often establishes short term extremes on this news. So if we are to see a low near 1020 I think it will come tomorrow or Monday. For the rest of today I think we are going to see the e-minis trade essentially sideways. I think most of today's range has been established already and that traders are going to sit on their hands until the news comes out tomorrow morning.