Update at 3:50 pm

Here is a five minute bar chart of the e-minis showing the past two day sessions of trading.

The first thing that strikes me about this chart is the relatively high volume, downside breakout early this morning. After such action one expects the market to consolidate briefly and then continue down later in the day. But today this didn't happen. Instead we saw 6 hours of trading sideways in a narrow range and even one high volume upside bar late in the day. This tells me that the sellers are having a hard time mustering their bearish forces despite the help of relentlessly bad news in the media.

I think that what a market fails to do often conveys more information than what it does do. In this case the fact that there was no immediate follow through to the early downside breakout makes it even more likely that this move below the 800 level will turn out to be a brief shakeout which will probably end in the 760-70 range this week. The shakeout should be followed by a high volume rally that should carry the market well above 900.

2 pm Update

Here is an hourly chart of the e-mini's day session trading for the past month. This chart gives me a little more perspective on this morning's activity.

You can see the two low points that I have marked as the breakout points by purple dotted lines. While this morning's volume was climactic with respect to the last few days action you can see that it wasn't very unusual compared to volume over the past month. I think this means that today's price range is much closer to the end of the downtrend from the January 6 top at 942 than to its beginning. A month from now I think today will look like a shakeout, not a downside breakout.

In the meantime I still think it likely that the low I am expecting will develop in the 760-70 range sometime this week.

Wave chart at noon

Here is the e-mini wave chart for the past two day sessions. You can see the volume climax (green arrow) which developed early today. So far it has led to a period of sideways action, but I think that the day's low will not be far from the day's early climactic low - I think the 780-85 range is a likely spot.

In the meantime the market has stayed below the lower of its two breakout points (purple dotted lines) - the one corresponding to the January 20 low point. As long as the second, higher dotted line holds I think the ultimate low will be in the 760-770 range and will be reached this week.

Breakout or Shakeout ??

Here is a 5 minute bar chart of Friday's e-mini day session and the first 30 minutes of today's.

The market has broken below all the lows it has established over the past three months except for its November 21 low at 739. The last two important low points are at the levels of the dotted purple lines. Volume during today's first half hour was very high by recent standards (green arrow). The question now is whether this is a high volume breakout that portends much lower prices, or a high volume shakeout that will quickly be reversed.

Since the market is at the lower end of its three month trading range, I am leaning towards the shakeout theory rather than toward the breakout theory. If I am right we shall see a rally back above the 800 level during the next couple of hours. Should we finish today or tomorrow above 805 (the higher of the two purple lines) I think a substantial rally will have started.

Guesstimates on February 17, 2009

March S&P  E-mini Futures:  Since Friday’s close the e-minis have dropped more than 20 points. This cancels the implication of what appeared to be a demand shock late Thursday. The short term trend is downward and is likely to carry the market down into the 760-70 range. I expect today’s low to be 780-85. Resistance above the market is at 810.  

QQQ: The Q’s are headed down to 28.50 or so.  

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has broken below support at 127.50 and now is headed down to 122.50.

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: March crude has entered the 30-35 target zone. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold has decisively breached the 935 level and this market is now headed for 1100.

 SLV - March Silver: I now think silver is headed for 1750.

Google: Resistance stands at 375. I think that its drop from 747 is over.

 

Update at 3:15 pm

Here is a thirty minute bar chart of the e-mini day session for the past two weeks.

I was long 2 units but I sold them both after the market failed to keep its nose above 829 late in the trading session. I still think the demand shock (green arrows) is controlling this market and that the short term trend is upwards. But my line in the sand is the purple dotted line I have drawn through Wednesday's low points. This line is important because it first of all is the line which marks yesterday's action as a "false breakout to the downside". Secondly, if you look closely you will see a very symmetrical, inverse head and shoulders formation with neckline at 838 and shoulders in the 819-23 zone. A break below these shoulders on significant volume would be a bearish indication.

Remember that U.S. markets are closed Monday.

sold 2 e-mini units at 828.25

Doomed, I say, Doomed !!!

I was browsing through the web sites I like to visit and ran into this headline on Market Watch - the fine print is fun to read, too. Draw your own conclusions.

Long second unit at 824.00

Wave chart at 12:30 pm

Here is today's e-mini wave chart at 12:30 pm. I thought that support near 830 would hold, but instead the market put in a longer down wave which so far has carried to 825. My plan B in this situation is for today's range to equal Wednesdays range which was about 17 points. That would put today's low near 822.50 - the purple dotted line - quite near the high of yesterday's initial rally also.

However, once my projected 830 support was broken I sold half of my long position. My reason was simply that the market was not doing what I had expected and was trading below yesterday's close and today's open - not something I like to see when I am bullish.

However, I am still confident that the trend is upward. Weakness below 820 today or Tuesday (markets are closed in the U.S. on Monday) would mean that I'm wrong and that the market is headed below the 800 level.

Sold one unit at 829.50

Wave Chart at 11:10 am

Here is today's wave chart for the e-minis. So far it has a bullish look - the last up wave was bigger than the down wave that preceded it. I still think that support is centered at 830, the purple dotted line. From the open the market dropped about 7 points (blue rectangle). A similar drop now would take it to support near 830. I expect the market to finish the day near 850 if I am reading things correctly.

Added one unit at 833.75

Long one e-mini unit at 830.50

Guesstimates on February 13, 2009

March S&P  E-mini Futures:  I think the e-minis are headed for 900 and above. Support today is at 830.

QQQ: Support is at 29.00 and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: March crude has entered the 30-35 target zone. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold closed over the 935 resistance level again yesterday.  I think the market will quickly trade back below it, but if it doesn’t I’ll be looking for new highs in the gold market.

SLV - March Silver: There is resistance at 1380, but if the market closes above there it will be headed for 1750.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

Trend is Up

Here is a 30 minute bar chart covering the past two weeks' day sessions in the e-minis. I think this is a genuine demand shock - very high volume and a very fast move, even though it got started with a mortgage rescue rumor. If I am reading the market correctly any reaction should hold the midpoint of today's range - right now this is about the 819 level.

Upside target will be 900 and higher.

Demand Shock ????

We have just seen a fast, high volume rally off of the day's low. I suspect that this is a demand shock and if so the market will hold the 815 level (halfway point of today's range thus far) on any retracement. I will be very confident that the short term trend has turned upward if the red line at 825 (today's high) is taken out on good volume today or tomorrow. The purple dotted line on the 30 minute bar chart is the midpoint of yesterday's range - also a resistance point but less important to me than the 825 level.

3 pm Update

Here is a 5 minute bar chart for the e-minis over the past two days. The market has just made a new low for the day and the question I have been considering is just how much lower might it go today or early tomorrow.

To make a guess I like to rely on the market's recent habits. The first red rectangle you see represents the distance this morning's low was from yesterday's low - about 11 points. The second red rectangle shows an 11 point projected drop from this morning's low - the bottom of the rectangle is at 797. The first blue rectangle measures the length of the drop from yesterday's late rally high at 836 to this morning's low at 808 - about 28 points. The second rectangle projects a 28 point drop from today's 825 high - again we come up with 797.

Over the past month we have seen lows at 806.25 and at 797.50. My guess is that more sellers will come in when those lows are broken. So I estimate that the next rally will start roughly from the 790-95 area.

Why I covered

This morning I shorted two e-mini units figuring that resistance at 819.50 would hold. My working hypothesis was that the market was weak, and I knew that if so rallies would tend to get shorter until the low was reached.

But instead we got a rally that was as long as yesterday's biggest rally. While this does not mean the trend has changed, it is an indication that the selling pressure and buying pressure are coming into balance. Moreover, at today's 825 high the day's range was as big as yesterday's. This made me think that we might not make new lows for the day.

So after the market fell away from my plan B resistance at 825 I was watching carefully to see if much selling pressure would develop. Instead I saw dullness in the 820-21 area which would have been minor support if the market had decided to go higher than 825 right away. So I covered one unit there. I covered my second unit at 816.50 because, although more selling pressure was evident, the market had returned to the day's midpoint - a fair price given the day's fluctuations thus far. I was playing defense instead of shooting for a substantial profit because it seemed to me that the buyers and sellers were of equal strength and the odds were good that the day's range was already in place.

Covered second unit at 816.50 - now flat

Covered one short unit at 821.00

Wave chart at 11:45 am

Here is the e-mini wave chart at 11:45 am. I thought the rally from the day's low would be shorter than the last upwave (of about 17 points) - I expected it to end near the dotted purple line. However, as usual, I have a plan B - the rally will carry the market up about 17 points (blue rectangles). This would put resistance near 825. Any strength beyond that, espescially if accompanied by relatively high volume, would be the first indication that the short term trend may be turning upward.

Shorted second unit at 814.25

Shorted one e-mini unit at 818.00

Wave chart at 10:15 am

Here is the e-mini wave chart for the past two days. We have just seen the longest down wave on this chart. It was accompanied by fairly high volume - not as high as on the supply shock, but higher than on any other portion of the decline from 873. This makes me think that the drop has further to go even though the market has gotten close to my initial 805 target. At the very least I think today's low will be somewhere in the 790-800 range.

Meantime a normal rally now would be shorter than the last up wave which amounted to nearly 17 points. I am guessing that a rally would halt near yesterday's low at 819.50 which would make the rally about 12 points in length. If the market breaks still lower first, I shall still use the 10-12 point yard stick as a guide to the likely size of the next rally.

Guesstimates on February 12, 2009

March S&P  E-mini Futures:  I think the e-minis are headed for 805 and possibly lower. Resistance today again stands near the 834 level.

 QQQ: Support is at 29.00 and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.   

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: March crude has entered the 30-35 target zone. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold closed over the 935 resistance level yesterday.  I think the market will quickly trade back below it, but if it doesn’t I’ll be looking for new highs in the gold market.

SLV - March Silver: There is resistance at 1380, but if the market closes above there it will be headed for 1750.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

3 pm Update

Here is the 5 minute e-mini bar chart for today. Earlier I said that I was inclined to sell a rally to the purple dotted line if volume remained moderate. As you can see we just hit that level and went a couple of points higher. But we also have just put in the highest volume bar of the day at a price level where volume should have remained moderate. This makes me think this rally still has legs and will continue up into the 836-40 range. However, I still think the short term trend is downward.

Wave chart at 2 pm

Here is today's e-mini wave chart. I got short early in the day but around 1pm Eastern time I covered at 828.00. At the time the wave chart still looked bullish enough to support yet another rally to 836 or higher.

In the event the market broke instead and now the wave chart is definitely looking bearish again. The only issue is whether or not a rally is likely from 821 and if so how big will it be.

I note that the highest volume bar of the day occurred as the low bar of the day so far (red arrow). The significance here is that the high volume developed above yesterday's low at 819.50 and was unable to drive the market below that low (dashed red line) . Evidently enough bullish money was willing to take a stand at 821 despite plenty of willing sellers. This makes me think the market is about to rally again, probably to the midpoint of the day at 830. As long as volume remains moderate on the rally I plan to sell it near there (dotted purple line).

Covered both units at 828.00.

I just covered my short position. I plan to get short again on any rally close to or above 836.00

Anticipating Failure

Here is today's from page of the New York Times. What caught my eye was the sub-heading beneath the headline: "Wall Street Reacts with a 4.6% Plunge".

The use of the word "plunge" to describe yesterday's market action is indicative of the media's and the public's attitude towards fiscal stimulus by congress and monetary/financial action by the Fed and the United States Treasury. I think there is plenty of skepticism about the ultimate effectiveness of government rescue operations. In fact, among the blogs and commentators I read each day, I'd say the prevailing attitude is one of ridicule and cynicism towards these efforts. If I didn't know better, I'd even think that there are many people who actually hope that rescue efforts will fail and that the economy will soon fall off of another cliff.

If I am reading public attitude correctly I think it is consistent with the view that the stock market is very sold out already. The selling that seems to follow every rescue announcement is having less and less effect on the market averages. Indeed, the S&P is now trading just a little below the intraday low it reached on October 10, more than 4 months ago. In the meantime a torrent of bad and discouraging news has not succeeded in driving the market lower and keeping it there.

All in all I think the next big surprise market-wise is going to be a big rally, not a big drop.

Wave chart at 11 am

Here is the e-mini wave chart for the past two day sessions. I am currently short 2 units. Since I think the trend is down I want to stick with my shorts so long as the upper purple dotted line contains most of today's trading. I also want to see the volume stay light on any rally from here.

Ideal resistance is at the lower dotted line but that has been tested once and is not likely to hold on a second test. The wave chart is now actually a bit bullish since we have seen a shorter down wave which followed a longer up wave (both comparisons are to the preceding wave in the same direction). So I think it is likely that the market rally into the 837-40 zone before it takes out yesterday's low. If I am wrong here it will probably be because the market goes straight down from here and this is another reason why I want to maintain my short position.

Short second unit at 834.00

Short one e-mini unit at 831.25

Guesstimates on February 11, 2009

March S&P  E-mini Futures:  I think the e-minis are headed for 805 and possibly lower. Resistance today stands near the 834 level.

 QQQ: Support is at 29.00 and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The 935 level is resistance. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: The next stop will be 1325. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

Wave Chart at 2:45 pm

Here is today's wave chart for the e-minis. It looks like selling pressure is gradually easing. The down waves are getting shorter, making smaller inroads into new low territory, and the volume is gradually dropping with each downward thrust.

A move above resistance line A will mean that the market is headed at least for B and quite possibly for C. I think the next rally will amount to 15 points or so, but it should be followed by another substantial drop.

Covered 2 units 824.00

Short second unit at 830.00

Resistance

Resistance has now come down to 836.00 from 842.00

Short one unit at 837.00

Wave Chart at 12:15 pm

Here is today's wave chart for the e-minis. The trend is clearly downward and we have seen a high volume supply shock today. The market has already rallied about 8-9 points on three separate occasions (blue rectangles). My guess is that the current rally will be a little bigger but it probably won't go much past resistance (purple dotted line) at 842.75.

I think we will see the e-minis trading at 825 before the day is done. My initial downside target for the drop from 873 is 805.

Supply Shock

Here is a thirty minute bar chart showing day session e-mini trading for the past week. You can see that a supply shock developed after the Treasury announcement at 11:00 am this morning (red arrows). This means that the short term trend is definitely downward and should carry the market down at least to 825 and probably lower than that.

Wave chart at 11:05

Here is the e-mini wave chart as of 11:05 am. The Treasury announced its latest financial rescue plan at 11:00 am. The initial market response sent the e-minis up exactly to the resistance level mentioned in the last post although this frankly surprised me. The market came off immediately and five minutes later a huge volume of sales sent it below 850. I covered at 847.50 because a market like this is hard to read.

Resistance now is at 853 (lower purple dotted line). We have already had two 9 point rallies today and I like to use that as a measuring stick for subsequent rallies. I see temporary support at 840 and a rally from there will probably peter out at 848-50.

Covered at 847.50

Wave chart at 10:30 am

Here is the e-mini wave chart for yesterday's and today's day sessions. It is clearly bearish. Not only is there an obvious sequence of lower lows and lower highs, but the latest down wave was longer than the preceding down wave and the last up wave was shorter than the up wave that preceded it. Moreover the highest volume bar of the past two days occurred as a down bar on the latest down wave.

Resistance is at the midpoint of this morning's rally, roughly 862 (dotted purple line). That rally was about 9 points in length (first blue rectangle) and a rally from the current low at 853.25 of that length (second blue rectangle ) would also carry the market to 862.

However, if this market is as weak as I think it is I don't think we'll see a rally as big as even 8 points until the e-minis drop to 845 or so.

Short one unit at 855.50

Out at 858.00

The e-minis have dropped all the way back to the open after first putting in a good rally from there. This is potentially bearish and I think the wave chart for the day has just turned bearish too.

Long one e-mini unit at 860.50

Guesstimates on February 10, 2009

March S&P  E-mini Futures:  Any high volume selling which drives the market below the 859 level today would be short term bearish. In the meantime I shall maintain my short term bullish stance and try to get long near the open. Whatever its short term direction I still think that this market is headed for 1000.

QQQ: The short term trend is upward and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The 935 level is resistance. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: The next stop will be 1325. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over.

 

Wave Chart at 3:30 pm

Here is today's e-mini wave chart as of 3:30 pm.

The market has rallied strongly from its reaction low although at the moment volume is not too impressive. Even so the up wave is longer than the last up wave and the market has recovered its support level at 864. I think support now has moved up to the midpoint of today's reaction - roughly the 866.50 level (purple dotted line). As long as the market holds that level I think it is preparing for a breakout above 876.

Wave Chart at 2:30 pm

Here is today's wave chart for the e-minis. After selling my long position at 872.50 this morning I repurchased my longs at the first two horizontal red arrows. I was leaning on support at the purple dotted line and the wave chart still looked bullish, although at the second arrow we had already seen an up wave that was shorter than the preceding one. I sold my longs at the third horizontal red arrow because now the wave chart looked bearish - the market put in a longer down wave after a shorter up wave - and trading volume looked like it was increasing on a wide range down bar below support.

I still think this may simply be an extended reaction in a short term uptrend, but weakness below the 859 level would mean that a drop of 35-50 points (at least) is underway.

Out of both units at 861.50

Added second long unit at 865.00

Long one unit at 865.25

Wave Chart at 11:30 am

Here is the e-mini wave chart as of 11:30 am. I still think the trend is up so I am interested in identifying levels where the market is likely to find support.

What stands out in this chart is the trading area which formed Friday afternoon between 859 and 869. The midpoint of this are is 864 (purple dotted line) and is likely to be support.

I also note that the reaction from Friday's late high to this morning's low was about 10 points (blue rectangle) and a similar reaction from today's high at 873 would stop a t 863. If this market is strong it won't get to either of these supporting levels so I would guess that 865 will prove to be support for this reaction.

Why I Got Out

I sold my two units at 872.50 for two reasons. First, the 876.00 high was nearby. Second, while volume was high on the bar which made the day's high at 873.00, its volume was lower than the bar of 10 minutes earlier.

I am still bullish and expect to take another long position on a reaction of 8-10 points which I think is quite likely here.

Out both units at 872.50

Added one unit at 866.75

10:15 am

Here is a five minute bar chart of the e-mini day sessions starting with Friday's. I am long from the red arrow. Most of Friday's activity developed between the green and the red dashed lines. The midpoint between these two lines is the purple dotted line. I am betting that the market won't spend much time below the purple line. If it does I'll get out and reevaluate the situation. I still think that it will take obvious selling activity below the green dashed line to turn the short term trend downward.

Long one e-mini unit at 862.25

Guesstimates on February 9, 2009

March S&P  E-mini Futures:  The e-minis dropped as low as 852.75 early this morning. Weakness below 850 today would mean that the short term trend has turned down once more. But I think it more likely that the market will hold the 858 level and then rally to it’s January 28 high at 876. Whatever the short term direction I still think that this market is headed for 1000.

QQQ: The short term trend is upward and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.   

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The 935 level is resistance. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied past resistance at 1250 so the next stop will be 1325. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

Out at 866.50

The e-minis are getting close to my target zone for the day so I decided to put my profit in my pocket.

Observation on Comments

There has not been a single comment offered or posted on any of today's posts!

I think market and economic pessimists are dumbfounded by a market that rallies after employment news this morning that has widely been described as "horrific".

A Second Demand Shock

Here is a 30 minute bar chart of the e-mini day sessions for the past week. I think we saw a second demand shock this morning right after the open (green arrows). Note the very high volume - nearly 350 thousand contracts - the highest 30 minute volume number we have seen over the past two weeks with one exception (which was also on the buy side).

I am projecting that this demand shock will ultimately carry the market up about 31 points - same as yesterday's. This would bring the e-minis to 867 - or even to 874 if you want to start the measurement from today's day session low instead of from the low of yesterday's late break.

Added one e-mini unit at 855.00

High Volume Breakout

Here is the e-mini wave chart as of 9:50 am. We have just seen a high volume breakout (green arrows) above the February 4 high at 849.50. If this is a bullish as I think it is the market should not spend much if any time trading below the breakout level (green dashed line). I think the market will reach the 870-75 zone later today.

Long one e-mini unit at 844.00

Guesstimates on February 6, 2009

March S&P  E-mini Futures:  The employment number came in a bit worse than expected this morning but as I write this the e-minis are up 4 points. So far this is positive performance in the face of bad news and as such is more evidence that the short term trend is upward.  The 835 level should be support today and the next upside target is 875-80. I think the market is on its way to 1000.

QQQ: The short term trend is upward and the next upside target is 32.50.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.   

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro has traded sideways after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The 935 level is resistance. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied past resistance at 1250 so the next stop will be 1325. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

Wave Chart at 3pm

Here is the wave chart for the e-minis covering yesterday's and today's day sessions. I think the short term trend is upward because of this morning's demand shock. As you can see the market has settled into a 10 point trading range at yesterday's high point, evidently waiting for tomorrow's employment number. If the bullish tenor of the market is to be maintained we should see support at the 835 level (purple dotted line). The market should not spend much if any time trading below there.

Next upside resistance is at 880. This trend should carry the market well above the 900 level before it is interrupted by a reaction lasting a week or so.

Wave Chart at 12:15 pm

Here is the wave chart for the e-mini day session over the past two days. As I said earlier today I think the trend is now upward because there was a clearly defined demand shock earlier in the day. The market is now near yesterday's high and we have just seen a high volume bar (red arrows) followed by a modest further advance on declining volume. Since the high volume bar occurred so near yesterday's high - a level that should be temporary resistance to the up move - I think this bar is climactic in nature and that a reaction is now underway.

I expect this reaction to drop the market about 10 points or so, to the higher of the two purple dotted lines. If this proves to be too optimistic the worst we should see on the downside is the lower dotted line at the 830 level. I think this market is now headed for 900 and higher.

De Nile is not just a river in Egypt

I think the hardest thing to do as a trader is to accept the evidence the market puts before your eyes and then to act on it. This is always the case when your current market view is being contradicted by this new evidence.

I find it is plain silly to argue with the market. Sure, it is possible that this new evidence doesn't mean what you think it means, but so what? We are playing a statistical game as traders. That means that we have to push our money into the pot when we think we have the best hand - when the market is giving us information that gives us an edge on other traders.

Even if we do this there is no guarantee that we will win the pot, i.e. that our trade based on this new information will make money for us. Sometimes we get unlucky, sometimes the situation changes but the market doesn't tell us until our position shows a loss. But this is the nature of the trading game. Luck plays a large role in any given trade, but over a large number of trades it is skill that matters. Poker players understand this fact and that is why so many good traders are good poker players too.

Demand Shock

Here is the updated 30 minute bar chart on which I commented an hour ago.

The picture has changed completely. The market just put in a very wide range up bar on the highest volume seen since the low on February 2. This is a clear example of a demand shock. If so I don't think we'll see any prints below 825, and I think it more likely that the 828-30 area will be support now.

A demand shock like this one coming after a higher low means that the market is now headed for 900.

Covered two units at 826.00

Short second unit at 820.75

Selling Pressure

Here is a 30 minute bar chart showing day session e-mini trading over the past week. This morning's opening bar showed higher volume than yesterday's opening bar and higher volume than the opening bar on February 2 (which also was a down open). I think this means that the selling pressure is still substantial and that the trend remains downward as indicated by yesterday's supply shock.

I have drawn a purple dotted line across the 825 level - I think this will be resistance today. Note that a rally from today's low thus far at 816.75 which matched the size of yesterday's late rally (blue rectangle) would carry the market back to 824-25 also.

I think there is a very good chance that we shall see 800 later today.

Short one e-mini unit at 824.25

Guesstimates on February 5, 2009

March S&P  E-mini Futures:  The short term trend in the e-minis is downward and will probably carry the e-minis into the 750-75 zone. Resistance above the market today is at 835.

QQQ: Support below the market is at 26.50.

 March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The 935 level is resistance. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied past resistance at 1250 so the next stop will be 1325. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over.

 

Long Term point and figure chart for S&P 500

Here is a scan of the point and figure chart I keep by hand for the cash S&P 500. It is a three box reversal chart with each box representing ten S&P points.

An important fact about markets is that they rarely make a big move without first trading sideways to an extent that is roughly proportional to the extent of the big move. This is one reason why point and figure charts can be very valuable.

The chart above shows the action in the cash S&P since October 2008. The sideways action since the October 10 low near 840 until the present is already twice as wide as the sideways action at the 2002-03 low. That prior base supported the move to the October 2007 high of 1576. Even the portion of the base which has formed since November itself would support a move to 1600. Any move on high volume above the 950 level would for that reason be very bullish long term.

Supply Shock

Here is a 30 minute bar chart of the e-mini day sessions for the past two weeks. I think a supply shock just hit the market (red arrows). We had an unusually wide range down bar accompanied by volume higher than any bar but one (which was an up bar) during the past nine days.

A supply shock from a top lower than 876 means that the market is probably headed for the 750-775 zone. But it will be important that going forward the market stay below the level at which the supply shock began - 841.50.

Wave chart at 1:45 pm

Here is today's wave chart for the e-minis. I had expected support near 841 to hold and the market move above 850 later today. But during the past 15 minutes a selling squall has developed sending the market below its early low on markedly increased volume. The entire picture for today is now a bearish one.

Since we have seen no demand shock on the way up, I have to conclude that the short term trend is now downward and that it will carry the market below 800. In the meantime the 837 level looks like resistance now.

Out at 834.75

I sold my long e-mini unit at 834.75. It looks to me like the short term trend is turning down again.

Long one unit of e-minis at 841.50

Fear and Loathing in Davos

Over the preceding months I have documented pretty thoroughly the remarkably pessimistic outlook investors share for the stock market and the economy. The February 9, 2009 issue of Newsweek has a funny column by Daniel Gross recounting his experiences at the World Economic Forum recently held in Davos, Switzerland.

Here are a few choice quotes:

[In Davos] the only bull market was in pessimism.

[The CEO's who attended] were treated to an avalanche of doomsaying.

Voices from hedge-fund manager George Soros to historial Niall Ferguson spun elaborate tales of catastrophe. Ferguson concluded that the U.S was destined for a decade of extremely lame growth. Economists were universally downbeat.

This year, failure and depression were [the chic topics].

[F]ew summiteers had the audacity to hope. The overwhelming consensus was things are really bad and getting worse.

I think this is yet more evidence that the U.S stock market is thoroughly sold out and that the next big move will be upward.

Wave Chart at 10:30 am

Her is the e-mini wave chart covering yesterday's and today's day sessions. This chart is still a very bullish one because down waves have consistently run 8-10 points while the up waves are lengthening. However there still no demand shock evident because volume is still moderate, about the same as yesterday's at the same time.

I sold my long at 847.45 because buying pressure was falling as evident by the shortening upthrusts today and declining volume as the market approached the 850 level. My guess is that a reaction similar in size to the preceding down waves will soon start. Support (dotted purple line) stands at 841.

Sold long unit at 847.75

Long one e-mini unit at 835.75

Guesstimates on February 4, 2009

March S&P  E-mini Futures:  The short term trend in the e-minis is upward and the next upside target is 855.  I am still expecting to see a demand shock in the next day or two, but if we don’t get one I think this market won’t be able to make it even to 876, last week’s high, before it turns lower again.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00.  

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The market nearly reached the 935 resistance level Friday. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied to resistance at 1250. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over.

 

Short term trend is up

Here is a 30 minute bar chart of the e-mini day sessions over the past two weeks. The move today above 827 has turned the short term trend upward. Even so, I don't yet see a demand shock in this market - volume on the breakout was modest compared with the recent past. Support is at 827 (purple dotted line), roughly at yesterday's high point. I expect to see a demand shock in the next day or so. Should one fail to develop the market would then probably make a top below 876 and then drop below 800.

Sold two units at 835.00

I was looking for a strong finish to the day but the market has stalled so I sold my longs.

Wave Chart at 2:15 pm

Here is today's e-mini wave chart as of 2:15 pm. the market has just staged a high volume breakout above the 830 level (vertical green arrows). If this is a genuine breakout I think that we won't see more than a 4-5 point reaction before the market enters the 837-40 zone in which I anticipate today's high.

Wave chart at 11:45 am

Here is today's wave chart for the e-minis. Right now I think it is moderately bullish. Bullish because the second up wave of the day was longer than the first while the second down wave was shorter than the first - and because the latest down wave is holding above support. But only moderately bullish because the market has yet to show any strong volume breakout above the 830 level. I am expecting one later today.

Long second unit at 827.00

Wave Chart 10:30 am

Here is the e-mini wave chart as of 10:30 am today. I am long a single unit from 825.50. I got long near the open figuring that if today was to be a bullish day the market would rally above the 830 level early in the day. This didn't happen. My plan B was that the market would hold support a the midpoint of yesterday's big reaction (purple dotted line) and at the 1/2 point of the day's range (green dotted line). So far the market has been holding these support levels.

The wave chart itself isn't telling me much. Up and down swings are both getting shorter and are moving through a trading range of 818-827. There is a positive aspect to this action. The mid point of this range is roughly 823 somewhat higher than the 820 support level. If you look at the chart this fact shows up as a tendency to spend time at the upper end of yesterday's trading range, an area that attracted strong selling yesterday. Today the sellers don't seem to have as much ammunition. This is a clue that the market will have to go higher, if only to find more sellers.

Long one unit of e-minis at 825.50

Guesstimates on February 3, 2009

March S&P  E-mini Futures:  I thing the e-minis will break out over the 830 level today. If this happens on increasing volume we shall have a solid indication that the reaction from last week’s 876 high is over.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00. 

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.   

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway. 

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway. 

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD – April Gold: The market nearly reached the 935 resistance level Friday. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied to resistance at 1250. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over. 

Out at 823.75

I just sold my single long unit at 823.75. The market has faltered at its earlier high of 827.25 and it is getting late in the day. While I suspect this market is about to turn higher, selling activity below the 820 level today or tomorrow would be a bearish indication.

Wave Chart at 3:30 pm

Here is an updated wave chart for the e-minis. I am still long a single unit. I was a little distressed by the market's inability to hold support at the purple dotted line near 817, but I always have a plan B for these situations. In this case I was willing to bet that the market would not spend much time below 814, the low of the preceding down wave.

As you can see the current up wave has started to show some good volume, and if it can carry to new highs for the day I plan to hold this trade overnight. Otherwise I'll get out near the close. In the meantime I don't expect to see any prints below 820.

I still have the very strong intuition that this market is trying to turn things around and begin a new uptrend.

Wave Chart at 1:30 pm - Long one unit at 819.50

Here is the wave chart for the e-minis as of 1:30 pm today. The second upwave of the day didn't carry the market visibly past 827 (dashed green line) so there has been no confirmation of a new uptrend yet. But this second upwave made the entire rally from the open the biggest rally we have seen since last week's high at 876. If the current downwave can hold support at 817 (dotted purple line) then I would expect the next upwave to carry the e-minis well above 827. So this is a low risk buying opportunity and I just bought one unit at 819.50

Wave Chart at 11 am

Here is the wave chart for the e-minis over the past two days.

Speculation is all about anticipation - anticipation of changes in market trends and in public psychology.

The e-minis have been dropping steadily from last Wednesday's high at 876. The wave down which ended near this morning's open was larger than the previous two down waves, showing the bears in control of the market. The subsequent rally this morning ended below resistance near 823 and the market has backed off about 7 points from the rally high. None of these observations suggest that the drop from 876 has ended.

Yet there are some straws in the wind. The four highest volume, five minute bars Friday were up bars which occurred on the rally from the late day low at 817.50 (two of these bars I have deleted from the chart to make it easier to see the volume pattern). In fact the last half hour of trading Friday showed the highest upside volume of any 30 minute bar during the last two weeks with one exception which itself was an up bar. Today's two highest volume 5 minute bars (aside from the opening bar) were also up bars. Finally, the last down wave on the chart has so far been the shortest one visible and has lasted about an hour now, just about normal for a corrective wave.

All in all I think this market is trying to change its trend to up from down. A move above 827 now would confirm that indeed the drop from 876 has ended.

Near the Open

Here is a 5 minute chart of e-mini day session trading. The support at 823 (dashed purple line) has failed which means that it now serves as resistance above the market. Any rally strong enough to carry above the high of the last reaction near 827 (green dashed line) would be good evidence that the drop from 876 is over.

Right now I think the e-minis will drop to 775-90 before a sustained upswing can start.

Guesstimates on February 2, 2009

March S&P  E-mini Futures:  Friday I thought that support at 823 would hold but selling in Europe this morning has sent the e-minis down to 806 thus far. It now looks like the market will drop further, probably down into the 775-90 zone where I expect it to establish a low. I still believe that a move substantially above the January 6 top at 942 will be the next development.

QQQ: Support below the market is at 26.50. Strength above 30.00 will mean that the Q’s are headed for 34.00.  

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward. Any significant weakness below 125 will mean that a bear market is underway.    

March 10 Year Notes: The notes have yet to reach our 120 target. We think a substantial rally is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro has traded sideways for several days after dropping as low as 127.50.  I think a rally to 137 or so is underway.  

Dollar-Yen: I think the 87.50 level will hold and that a rally to 100.00 is underway.  

March Crude: The 50.00 level is resistance and I think March crude will drop down into the 30-35 zone.

GLD - February Gold: The market nearly reached the 935 resistance level Friday. At this juncture a drop below 870 will mean that a move down into the 550-600 range is underway.

SLV - March Silver: Silver has rallied to resistance at 1250. I think the next big move will carry this market downward to 650.

Google: Resistance stands at 375. I think that its drop from 747 is over.