Folks, I am on vacation starting today. I will be in India. I am there to attend a few events – this along with the time difference will keep me away from the trading screen and the computer for most part. So, there will be very few to no updates here till Aug 5th. I will start posting regularly and frequently starting Aug 6th. Till then, Good luck to you all.
Market Outlook: Here is the hourly chart for ES as of close on Friday Jul 10, 2009. IMO, the close was very bearish. Here is why:
What the area in the red rectangle above shows is that price levels above ES 875 were time and again rejected. And that the market is readily accepting price levels below ES 875.
What I see next happening with very high probability is:
Caveat 1: You must have noticed how the news flow has turned very negative all of a sudden. The P/C ratio spiked last week. Too many people have leaned bearish very quickly. There is a slight chance that there might be a counter-trend bounce here. But the probability is very low.
Caveat 2: Just as the market is about to break through key technical levels, our Timmy boy Geithner has started to make appearances again. Over the weekend he has started to make his *positive* statements. Usually this is an indicator that the government is about to intervene and prop up the markets in a much stronger way than they have done in most recent past (= last month or so). So, I will be wary of going short in too big a way here.
My posture going into weekend: Long oil, solar; Short financials, real estate.
Folks, I apologize for very infrequent to non-existent updates. I am headed out of the country for a 2-week vacation. And the way things work at any JOB, if one is headed to a 2-week vacation, they are expected to get the work for those 2-weeks done before they leave. So, I have been dumped on with 5-week worth of work to be finished in 2.5 weeks. That has kept me away from trading and updating this blog as well.
I will try to post some updates from time to time.
Here is a zoomed in version of the hourly chart on ES. It shows what has happened over last week or so. ES paid a visit to 865 on Wednesday and promptly bounced back. ES 875 has acted as support region. After the move up to 884 region in Wednesday night globex session, the down move was contained by 875 region. In tonight’s globex session, ES is precariously close to breaching 875 again. If 875 gets breached conclusively here, then it will turn very ugly for bulls on Friday – a big gap down at open.
On the upside, ES 884-885 is a big resistance. If that gets overcome, then ES 890 is the next stop and after that ES 896 (corresponding to SPX 900). I think that the move down to ES 850 and below will not happen before this Opex. ES will most likely be range bound between ES 875 and ES 900 or there about.
I won’t be exaggerating if I say that a big majority of “mostly successful traders” missed most of the downside that happened last Fall. As a human, when we miss an opportunity, it is our tendency to keep thinking what would have happened, if I did capitalize on that opportunity. And soon that leads to the belief that such an opportunity would come again.
The volatility we saw last fall was an exception. And it is not coming back. Those who are waiting for it might be in for a big surprise. I see so many people loading up on OTM Sep, Oct, Nov, Dec puts. The market always surprises most number of people. Because of what happened last fall, everyone believes that the gloom and doom scenario will again materialize this fall. Nope.. I don’t think that its happening.
Don’t get me wrong. I too strongly believe that we have to at least re-visit the March lows and possibly even break them by a decent amount, say SPX 550 or so. But it is some time before we get there – possibly next year – who knows. But certainly the speed at which things are materializing, I don’t see that gloom and doom scenario unfolding this fall.
Also, I think that the visit down to SPX 550 will not be fast and furious like last fall. I think we will have a more orderly decline. Again you are setting yourself up for disappointment if you are looking for that kind of volatility to return.
ES 884 (globex high) and ES 875 (morning low) are key ES levels going forward. IMO, ES 875 will not be breached for few days. There will be an upward bias unless some really bad news comes out.
Breach of ES 884 should create a rapid move towards ES 895 region. The first attempt to breach ES 884 failed during pre-market. Next attempt should succeed IMO, which should take us to ES 888, followed by a retest of ES 884 and then into the close, I think we power up ahead towards ES 895.
Expect a head fake down to ES 884 sometime overnight or tomorrow. If we do go to ES 890+, I will hedge my calls (all of them) and un-hedge them when we visit ES 884 region again.
If however we breach ES 875, I will close all my calls and go short.
