Monday, December 11, 2006

S&P Update

Here is an hourly chart of the March S&P e-mini futures. I commented on this market earlier today.

I had thought that the wide range up bar which opened today's pit session would develop into a breakout above 1432. But so far there has been no follow through. Note that there was no follow through to the last wide range up bar Friday morning and that right now the market is even trading below the high of that bar.

All in all we have seen aggressive buying on two distinct occasions the past two trading days but the market has not been able to rally further. This suggests that the sellers were not day traders but rather longer time frame traders and this means that the market can't rally until it finds more long time frame buyers. To find these buyers the market will have to break first.

The entire rally from Friday's lows now looks like a completed three phase rally. The past hour was an expanded range down hour. If this indicates upcoming aggressive selling as I think it does then the market should not now trade higher than 1428 since the high of the bar was 1427.75.

All these considerations lead me now to expect a drop into the 1410-12 range. Such a drop would be about 20 points from the 1432 high and make this reaction equal in length to the November 30-December 1 drop.

After the market reaches support in the 1410-12 zone I expect it to move up to 1437-39.

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