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.