Thursday, October 27, 2011
sell the news
Here is a 10 point box, 1 box reversal point and figure chart of the December e-minis going back to the July high.
As you can see the market this week has broken above the top of a 10 week trading range. The question now is whether this portends a move to 1500 or whether instead it is a false breakout.
For the time being I am going with the false breakout scenario. The breakout has been accompanied by news of the temporary resolution of the European debt crisis, and in my experience it is better to sell bullish news than it is to buy it. I might also note that at this morning's high the cash S&P has just kissed its declining 200 day moving average. finally, as you can see on the chart, a point and figure count across the base area associated with the October 4 low shows a potential rally to 1280-90, not far from today's high in the ES so far of 1273.25.
If I am right about this action being a false, upside breakout then the e-minis will soon drop back below the top of this trading range which stands at 1230. This in turn would be the beginning of a move to 950 or so.
If instead the market starts to accept prices above 1230 as fair value over the next week or two I will have to reassess my longer term bearish scenario.