Wednesday, October 13, 2010


Here is a 30 minute bar chart showing 24 hour trading in the e-minis. I last commented on this chart here.

The market is nearing the top of the green trend channel and should enter the green oval today or tomorrow (1181 or so). After that a drop that matches the last reaction - about 18 points (blue rectangles) should develop and find support at the confluence of the lower trend channel line and support provided by two tops near 1164 (green dash line).

I think there is reason to anticipate a bigger reaction than 18 points, though. First of all, a rally from the August 25 low at 1037 that matched the size of the initial rally off of the July 5 low at 1003 would have carried the ES to 1062, a level that so far has been exceeded by 13 points. Of even more importance is the fact that the May 13 top in the June '10 e-minis was 1074.75. Thus we have two resistance levels nearby, either one of which could easily produce a 30-40 point break.

But the technical condition is more dangerous than that. On my chart page you can see that the 5 and 10 day moving averages of advancing issues are both showing bearish divergences for the move up from the August 25 low. This by itself wouldn't mean that the market is about to break, but the fact that is occurs near strong resistance makes these bearish divergences significant.

My best guess is that the first break from 1181 will be followed by a slightly higher high, perhaps 1190 or so. But I also think we are entering a sideways period that will include at least one drop of 30-40 points lasting 5-6 trading days.

Such a correction would end at moderate oversold levels on the 5 and 10 day advancing issues oscillators. It would be a prelude to a decisive move above the April top at 1216.


Denali92 said...

I like your thinking.

The break makes sense for other reasons, as we are in the midst of OPEX and we seem to break during or post opex quite frequently, particularly around earnings season IF the market has had a good run - best examples are Oct 2010, Jan 2010 and Apr 2010 (though that occurred a week later)

Your calls have been spot on.

Well done!

janet said...

Thanks Carl..I appreciate the update. For now I have decided not to do the live trading blog. I'm usually around only about 3 hours a day and only in the afternoon. I will continue to support this site though with my annual donation. However, I would like to sometime in the future try it. Thanks, Janet

Ron R said...

Carl, are you saying a possible 18 opint drop or possible 3- 40 drop frm 1181 range then up to 1190 first? or 18 pointd won from 1181 then back up 1190 witha possible drop from 1190 area of 3-40 points?
Thank you or anyone else's interpretation of today post. Ron

janet said...

The way I read it is a possible reach to 1190'ish tops and then a rxn of 30 to 40 pts down.