Covered at 747.50

Update at 1:45 pm

Here is the e-mini wave chart for the past two days. I am short one unit from 747.50. The market has bounced off of resistance near 750 and should head lower from here. If it doesn't I am working a 747.50 stop that will close my trade. The lowest I can see on the downside for the foreseeable future is725 (green dotted line).

The market has been pretty quiet today. I think this is significant in view of the fact that a new bear market low was established this morning. It makes me think that the bulls are about to take control of this market.

Short one unit at 747.50

Situation at 10 30 am

Here is a 30 minute bar chart of the e-mini day sessions over the past two weeks. This morning the first revision of the fourth quarter GDP estimate was released and turned out to be worse than expected. The e-minis dropped to 729.50 in electronic trading immediately (not shown on this chart) and have rallied since then.

News releases like this give us a test of the market's technical condition. How much selling would come in on bad news, at new bear market lows? So far, the answer is "not much". Volume has been moderate so far today and the market dropped for about two minutes after the news, but has rallied since then. I think this action is telling us that the sellers are running out of ammunition and that the buyers are about to get their turn to run prices upward.

Even so, I think it likely that yesterday's 750 low (purple dotted line) will be a temporary ceiling on the market this morning which explains my 748 rally estimate in this morning's guesstimate. I think it likely that the e-minis will drop as low as 725 later today, but I also think that level will mark the low of the two month drop from 942 (25% !). If I am right about this March should prove to be a very bullish month.

Guesstimates on February 27, 2009

March S&P E-mini Futures: The market dropped to 730 on the GDP news this morning. Support today is in the 725-30 range. I think that a rally to at least the 748 level will develop during the day. I still think this market is about to begin the biggest rally seen in the last 9 months.

QQQ: The 27.30 level is support and from there I think the Q’s will start a move to 35.00.

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward to 135. 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 to 128 is imminent, but weakness below 120 would mean that a bear market is underway.

Euro-US Dollar: The euro is headed down to 122.50.

Dollar-Yen: I think a rally to 100.00 is underway.

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold is now headed for 1100. Support is at 940.

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.

Out of the Box

As you can see the e-minis have broken down out of the last day's trading range (blue rectangle). Volume on the breakdown (red line) was the highest of the day, but still not very great in the context of volume during the past 10 days or so. Nonetheless, I think the market is telling us that it will move lower before it can move higher. My best guess is that the 730 level is the next stop.

In the meantime the purple dotted line at 764 is midpoint resistance. Any strength above that level on good volume would put me back on the bull side of the ledger.

Still Boxed In

Here is a 5 minute bar chart of the e-mini day sessions for the past two days. As you can see the market has stayed in the box (blue rectangle) defined by yesterday's late reaction. As it has done so volume has stayed low relative to yesterday and even lower relative to typical activity over the past 10 days. I interpret this action as a resting period prior to an attempt to break out above 780. The most bullish thing that can happen for the rest of today is .... nothing - followed by a close in the 760-65 range and then a higher open tomorrow.

Any move below the 760 level on increasing and substantial volume would tell me that the bulls are not yet strong enough to carry the market and that the e-minis will first drop below 740.

Pressure Builds

Here is a five minute bar chart of the cash S&P 500 for the past 10 days or so. The market has been trading sideways and forming what I think will prove to be a base for a substantial upmove. What interests me about this chart is the steady succession of higher lows shown by the short green lines I have drawn. This suggests that buyers have to keep raising their bids to get the stock they want. In my opinion this portends an upside breakout from this trading range.

Boxed In

Here is a five minute bar chart for the e-minis last two day sessions. At the moment the market seems trapped in a box defined by the limits of yesterday's late reaction( blue rectangle). I see today's action as only mildly bullish thus far, largely because the e-minis have held above midpoint support defined by yesterday's late reaction (dotted purple line). But volume is very low (red line). This coupled with the fact that the market is at the top of its recent trading range makes me reluctant to back up my bullish views by taking a position. I think good upside volume above 780 would resolve this uncertainty.

Guesstimates on February 26, 2009

March S&P  E-mini Futures: I again expect the market to hold support at 762 today and then head higher. I think this market is about to begin the biggest rally seen in the last 9 months.

QQQ: The Q’s will start a move to 35.00. 

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward to 135. 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 to 128 is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro is headed down to 122.50.

Dollar-Yen: I think a rally to 100.00 is underway. 

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold is now headed for 1100. Support is at 940.

 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. 

Wave Chart at 3:30 pm

Here is the e-mini wave chart. The market held support line B on the last down wave and then put in a longer up wave. Volume showed a modest tendency to increase along the way. Support now comes up to line C which is a little below the midpoint of today's current range at 765. If this market is about to breakout to the upside I think support at line C and 765 is going to hold on any reaction.

Breakout Imminent ?

Here is a five minute bar chart of the cash S&P 500 index. You can see that the market has built a base are over the past five trading days. A move above 780 on this chart on reasonably high volume would for that reason be very bullish and this is what I expect to happen later today or tomorrow. First stop after that would be resistance at 790 and the next subsequent resistance will be found near 820.

Wave Chart at 2pm

Here is the wave chart of the e-minis. As I suspected this morning the drop after the housing number news was weak selling. Since then the market has begun to show modest bullish indications.

First of all it held initial support at the lower dotted line. Then it put in a weak up wave which showed modest signs of increasing volume and which carried above my 862 resistance point. The subsequent down wave occurred on low volume and was smaller than the down wave which preceded it. Finally the next up wave was bigger than the preceding up wave and volume also increased during that rally.

The acid test of the bullish interpretation comes on this down wave. It should make a higher low at the higher dotted line, midpoint suppport based on the last down wave.

The market is becoming balanced after a seven week drop. Increasing volume on a move above 780 would be very bullish.

Update at 11:50 am

Here is a five minute bar chart of the e-mini day sessions. The market held the lower support level that I mentioned in my last post and has moved above resistance at 762 while showing a modest volume increase. I think the rally from the day's low is bigger than we would have seen had the sellers been in control of this market. So I am guessing that any reaction from here will send the market down 8-10 points (blue rectangle) and be followed by more upside action later today.

Wave Chart at 10:30 am

Here is the e-mini wave chart at 10:30 am. I bought one unit at the first red arrow thinking that the down wave would be about as long as the previous one and thus would find support at the higher purple dotted line. My plan B was that the market would hold the midpoint of Tuesday's range and the high that preceded Tuesday's big up wave (red dashed line). In the event the market broke below that level and did so on increasing volume. I sold my position at the second red arrow.

The picture so far today is of a weak market. Volume on this morning's break was a little higher than at similar times over the past 10 days. The down wave not only was substantially longer than the preceding one but broke below yesterday's midpoint which generally is a sign of weakness also. The only positive thing I see in this chart is that the market so far has held support at the second, lower, purple dotted line which is the midpoint of yesterday's last down wave.

There is one thing that has raised my suspicions about the significance of this morning's break. It started when the existing home sales number came in below expectations. The market has been selling off on bad news very consistently lately, so much so that this "trade" seems to have attracted a big following. If this market can hold the lower of the two dotted lines I think the second half of the day will turn out to be quite bullish.

Out at 754.50

Long one unit at 764.50

Guesstimates on February 25, 2009

March S&P  E-mini Futures: I expect the market to hold support at 762 today and then head higher. I think this market is about to begin the biggest rally seen in the last 9 months.

QQQ: The Q’s will start a move to 35.00.  

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward to 135. 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 to 128 is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro is headed down to 122.50.

Dollar-Yen: I think a rally to 100.00 is underway.  

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold is now headed for 1100. Support is at 950.

 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.

 

Late Update

Here is the updated wave chart for the e-minis. The latest upwave has broken above the 770 level but volume so far has been unimpressive (horizontal red line). At the 774 level the rally from yesterday's low equals the length of the rally from Friday's low to Monday's early morning high.

Normally the lack of volume in this situation would be a worry. On the other hand today as retraced virtually all of yesterday's one-way drop via a one-way rally. I am inclined to believe that even though the move upward has been a quiet one this is nonetheless the start of a more extended up move. If I am right about this the 762 level should be support from this point forward.

At Resistance

Here is the e-mini wave chart covering the past two day sessions. The market has rallied to midpoint resistance at 765. Volume on this rally has been unexceptional. This is an indication that the strength visible in the wave chart is not likely to continue and that the market is near the high for the day. If instead this rally continues and shows good volume on a move above 770 I shall turn short term bullish.

The Bigger Picture

Yesterday the Dow and the S&P 500 averages both closed at their lowest levels seen in the past 11 years. I thought a few charts from my public chart list at StockCharts.com would help to put this fact in a little better perspective.

The first chart shows the daily count of new 12 month lows for issues traded on the New York Stock Exchange. You can see that this number reached a high point on October 10, 2008, a lower high on November 21, 2008 and a still lower high yesterday. These three lower highs are associated with lower lows in both major averages. I think this is a sign that the bear market has reached a stage where the sellers are ceding control to the buyers, but the latter have yet to take command. In any case this is a very bullish divergence and indicates higher prices to come.

The second chart shows the 20 day moving average of the number of NYSE issues which advance in price each day. Here too we see a series of higher lows associated with successively lower lows in the averages. This is also a long term, bullish divergence.

The third chart gives some information about the very short term condition of the market. It shows the daily count of advancing issues on the NYSE. You can see that this number made a higher low yesterday as the averages made new closing lows. I think this is a clue that the short term trend is about to turn upward. If it does the other two indicators imply that the next upswing will probably be the first leg of a new bull market.

Framing the Day

Here is the e-mini wave chart showing yesterday's and today's day session activity. The market is becoming more balanced. You can see this in the development of one and possibly two successively shorter downwaves, and in the fact that the up wave which ended during the first half hour was longer than the preceding one. Today's early high was at the midpoint of yesterday's early afternoon rally abut this is only minor resistance. Any strength at this juncture would probably carry the market up to the higher of the two dotted lines. This represents resistance at the midpoint of Friday's late rally.

I still think today's range will be comparable in size to yesterday's (blue rectangle). If so the high of the day should develop in the 760-65 range and the market should also break below yesterday's low.

Guesstimates on February 24, 2009

March S&P  E-mini Futures: I think today’s low is likely to be in the 725-30 range and the high near 765. A move to 770 on good volume would be very bullish. I think this market is about to turn upward and begin the biggest rally seen in the last 9 months.

QQQ: The Q’s dropped below 28.50 support yesterday but I think they soon will start a move to 35.00. 

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward to 135. 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 to 128 is imminent, but weakness below 120 would mean that a bear market is underway.   

Euro-US Dollar: The euro is headed down to 122.50.

Dollar-Yen: I think a rally to 100.00 is underway. 

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold 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. 

4 pm Update

Here is my best guess about tomorrow's price action. I am expecting a low in the 725-30 range, between the two green lines. If tomorrow's range is as big as today's daytime range the high will be near the midpoint of Friday's rally (purple dotted line), around the 766 level.

Out of time and out at 744.00

Long one unit at 745.75

One Way Market

It is very unusual for the e-minis to show only a single wave during the first four hours of any trading day, but that is what we have today. This kind of action indicates weary but persistent bearish sentiment in the market. Volume isn't very high but this may change if we take out the November 21 low at 739.

I am guessing that the 739 low will hold. I estimate that today's low will be as far below Friday's low (red dashed line) as this morning's early electronic trading high at 786.50 was above Friday's high of 779.50. This would put today's low (dashed green line) at 745.50.

Sold two units at 759.50.

Am I Crazy - or What?

In my last post I said that my plan B was the hypothesis that support in the 763-65 range would hold. Then the market dropped as low as 760.50 and I ----- bought another unit!!!!! What explains such madness ?

Well, I knew that the night/day range last Friday was about 26 points. The overnight high today was 786.50 and so a similar range today would put the day low at 760. So I added another unit when I saw a potential mini volume climax on my 5 minute bar chart after the market had dropped to 861.

I am not going to tolerate much adverse price action at this juncture since it would indicate that the market is much weaker than I think it is.

Long second unit at 761.50

Plan B

Here is a five minute bar chart of the last two day sessions in the e-minis. I went long this morning at 772.00 figuring that the market would not drop below Friday's close which coincided with the midpoint of Friday's late reaction (top purple dotted line). In the even the market broke below that support level and now I have to fall back on plan B.

The low of Friday's late reaction was 763 (red line) and the 765 level is the midpoint of Friday's trading range (lower purple dotted line). I think these two levels will now be support, especially because volume is showing a tendency to contract as the market has traded sideways below Friday's high. Should high volume selling develop below this support I would conclude that Friday's low at 752.50 will be broken.

Long one unit at 772.00

Guesstimates on February 23, 2009

March S&P  E-mini Futures:  The midpoint of Fridays range is 765 and we expect that level to serve as support today. A move above 786 with good volume would be very bullish. I think this market is about to turn upward and begin the biggest rally seen in the last 9 months.

QQQ: The Q’s should hold 28.50 support and begin a rally to the 35.00 level.  

March Bonds: The bonds have dropped into the 126-27 target zone. The next big move in this market should be upward to 135. 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 to 128 is imminent, but weakness below 120 would mean that a bear market is underway.    

Euro-US Dollar: The euro 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.  

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold 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.

 

The Last Word

Here is today's e-mini action as of 3:30 pm. At the moment the afternoon rally to 778.75 does not look like a demand shock. It was concentrated into a short, 15 minute time span - a real demand shock would show much more persistent buying than that. A drop below the red line at 762 would be another reason to think we have not seen a demand shock.

On Monday I would take strength above the dotted purple line, the midpoint of today's range, as good evidence that the short term trend has turned upward.

2:30 pm Update

Here is a five minute e-mini bar chart for the past two day sessions. Earlier today I estimated that the low for the day would be near 753 (blue rectangle) and anticipating that low I put on a single unit long position at 755. I had also noted that the biggest rally on the way down from last Friday's high at 840.50 had been about 19 points (red rectangle). So when the market moved above 770 a little while ago I sold my longs a little above the top of the red rectangle.

The high volume on this rally suggests that a demand shock may be in progress, but it is too early to tell. If it really is a demand shock then I would expect the market to hold above 762 and finish the day strong. In any case a move above today's high - whatever it turns out to be - on Monday would be very bullish.

Out at 772.50

Long one unit of e-minis at 755.00

Estimating Today's Low

Here is a five minute e-mini bar chart covering yesterday's and today's day session. Today's initial rally was only a bit more than 10 points - not sufficient to break the rhythm of the decline from yesterday's high point. So at this juncture I shall operate on the hypothesis that we have seen the day's high and that today's range will match the size of yesterday's range (blue rectangles). If so we should see today's low near 753.

Some Measuring Sticks

Here is a five minute bar chart of the day session e-mini trading. The question I am considering is whether or not this market is showing enough strength to indicate that its short term trend has turned upward.

Yesterday's price action gives us three measuring sticks we can use to make a judgment about this. The last rally on the way down to this morning's low measured about 10 points, and the e-minis have already put in a 10 point rally (blue rectangles). So far there is no price indication that the trend has changed. From Wednesday's low to yesterday's early high the e-minis had rallied about 19 points. A similar rally from here (red rectangle) would put the market at 781 or so, just a tad higher than yesterday's close. Should we see such a rally I think the odds will be shifting in the bullish direction but it still would not be definitive evidence of a turn.

The final level to watch today is the midpoint of yesterday's trading range, roughly the 786 level. Any strength above there would be very bullish. Similarly, on Monday any strength above the midpoint of today's range will be a bullish indication.

Guesstimates on February 20, 2009

March S&P  E-mini Futures:  The market dropped as low as 763.25 this morning. I think 765 is support and that the next significant move from here will be upward.

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 to 135. 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 to 128 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.  

April Crude: The 30-35 zone is long term support. I think the market will start stabilizing. The next big move should be a rally to 50.

GLD – April Gold: Gold 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 2:30 pm

Here is a five minute bar chart of the past two e-mini day sessions. This morning I thought the market was about to break out above the 800 level so I bought my two units at the first two red arrows you see. I figured that the 786 level would hold, but it didn't so I got out on the subsequent rally at the third red arrow, near the day's midpoint (purple dotted line).

I looks like today is just a another sideways trading day, the third one this week after the big gap down early Tuesday. This is still looking like a shakeout rather than like a downside breakout. I expect to be a buyer near 765 or alternatively on strength above today's midpoint at the purple dotted line. I also think that next week will prove to be a very bullish trading week. The market has dropped relentlessly for nearly seven consecutive weeks from is early January top. It's time for a change.

Sold two units at 786.00

Plan B

Here is a 5 minute chart of the past two day sessions in the e-minis. I am still long two units because I was very confident that support at the purple dotted line would hold. In the event this support level failed and now I have to play defense. My plan B is that today's range will be as large as yesterday's (blue rectangles). If so the market is getting near today's ultimate low point. I plan to sell part or all of my position on a rally back near the purple dotted line.

Long second unit at 788.00

Out of Ammunition ??

Here is a 30 minute bar chart of the past few e-mini day sessions. I went long near the open this morning because I wanted to bet that the sellers had run out of ammunition. Note how today's open was at about the same level of the last two opens. The market dropped significantly the last two times but today it held its ground. If my guess is a correct one I think the market will hold above the purple dotted line near 786.

Long one e-mini unit at 794.00

The Tipping Point

About nine years ago Malcom Gladwell wrote a book called The Tipping Point. It's all about how little problems can grow into big disasters, much like epidemics of disease. At some point a problem which at first appears to be a manageable reaches the tipping point - a point at which the entire situation gets completely out of anyone's control and a very bad outcome is virtually assured.

I think all the rescue plans and stimulus packages governments around the globe have announced can be understood in terms of the economy's tipping point. If you study the major depressions of history you find that at some point along the economic decline people loose hope in their futures. This is always noted in the popular press of the time. Once hope is lost the depression is assured because businessmen don't want to invest or hire and consumers don't want to buy. So you want to avoid reaching this sort of economic tipping point at all costs.

The primary function of all these rescue packages is to keep our economy away from that tipping point. Yes, they will have real economic effects, although people disagree a lot about the magnitude of any economic stimulus they will generate. But the real role of these rescue plans is to prevent the economy-wide pessimism about the future. For if people fall into such a pessimistic funk it will take a long time for economic recovery to set in.

So I think all the debate about whether rescues will work or not misses a much more important question. Instead we should ask whether they give people hope that we can avert disaster and climb back upon the road of economic growth. I personally think they will.

Guesstimates on February 19, 2009

March S&P  E-mini Futures:  I think the market is about to move above the 800 level on high volume.  If this happens it will signal the start of a big move up. The worst I see on the downside from here is 765.

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 to 135. 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 to 128 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. 

April Crude: The 30-35 zone is long term support. 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. 

Waiting

Here is the five minute bar chart of the past two e-mini day sessions. The only thing that stands out to me is the fact that after yesterday's 20 point down gap at the open the market has been relatively quiet while drifting a bit lower.

I think that any drop from current levels will stop near 765. I also think that there is a better than even chance that today's low will hold. In either event a high volume move above the green dashed line will be a very bullish indication.

Abandon All Hope, Ye Who Enter Here !

Well, the White House has released its homeowner rescue plan. The announcement has been on the schedule for a few days and details were pretty much known before hand. The interesting thing is that the market put in only a weak rally late last Thursday when the plan was leaked to the media. Since then we have seen a drop of about 60 points (7%) in the e-minis.

My sense is that people are getting tired of rescue plans. They don't expect them to work. We have entered the "no hope" zone - a psychological state in which bad news doesn't surprise or frighten people very much. I think the groundwork is in place for a very big rally which will accompany the realization that the world isn't ending and that the economy is not headed for a second Great Depression.

Shakeout Low?

Here is a 5 minute bar chart of the past two day session's e-mini trading. I am becoming more confident that this morning's low ended the shakeout and that a new up trend has started. Why?

First, the market has taken out its earlier high today and moved a tad above that resistance level. Normally, that by itself would not be very significant. But in the process the e-minis have rallied more than they have at any time during the drop from last Friday's high at 838. In particular they have rallied more than they did yesterday (blue rectangles).

The only problem I see for a bullish prognosis right now is the volume of trading - it has dropped steadily on the rally from this morning's low. This is what prevents me from becoming a short term bull right now.

Even so, I think things will start looking even more bullish by the close. In particular I think the market has a shot at establishing a high volume breakout above the key 800 level later today or tomorrow.

Wave Chart at 10:40 am

Here is the e-mini wave chart for the past two day session. The picture is still bearish because the latest down wave was bigger than the preceding one. While resistance remains at today's high near 793 I note that yesterday's rally was about 12 points (first blue rectangle). A similar rally from the current low today at 778 would carry the market to 790 (second rectangle).

At 10:05 am

Here is a 5 minute bar chart of the e-minis for yesterday's and today's day sessions. Yesterday's late break now looks like a supply shock. This gives me a somewhat lower "line in the sand" (green dashed line) to use as an indicator of an upside trend reversal.

For the rest of the day I think today's high will act as resistance (purple dotted line). My downside target remains the 760-70 range.

Guesstimates on February 18, 2009

March S&P  E-mini Futures:  I think the break below the 805 level is a shakeout preceding a strong, high volume up move. This morning’s housing starts number was worse than expected but the market didn’t even blink. If I see strength above the 805 level I shall conclude that the trend has turned upward. Meantime I’ll stick with my downside target of 760-70.

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 to 135. 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 to 128 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 3:50 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.