A quick peek at the SPX daily chart for past 9 months shows that all retracements to the downside have ended at the prior swing highs. Since nothing much has changed, the expectation is for the prior swing high of 1040 to provide nice support area.
There is a small caveat though: As SPX has progressed upwards, the topping around each swing high is becoming smaller and smaller in duration, which means that the support provided by each prior swing high is becoming weaker and weaker.
And one of these days, the prior swing high WILL NOT provide the expected support, which should lead to much significant downside. The most recent swing high around 1070 lasted only 2-3 days. Whenever this region gets tested on the move down, IMO, it will crack.
are 982.5, 988 and 992.
A move above 992 will do a serious damage to the IT bear case IMO. The bounce should take ES to at least 988 and if not for the opex week, it would have been achieved in the first 30 minutes of the day. However the opex week gyrations make this complicated.
In my market forecast from Aug 10th, I was looking for ES 970 as the first stop on the move down. We should see that today (Monday) IMO. That is where I will scale out of my Aug puts.
First test of ES 1000 on Monday morning was rejected – the level held. As I type this, ES is again looking to test the morning lows. I believe that we should see an ES sub-1000 this time and then bounce around between ES 998 (= SPX 1000) and ES 1000 for remainder of the day, with a move lower coming into close.
Most people are looking to go long on the next 10 – 15 point move down. This is when one should be short. IMO, the next move down will be more than a mere 10 – 15 points. First stop should be around 970 and then 935, most likely before August Opex.
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:
- ES is still nicely within the down-trending channel and is at the upper boundary of the channel. So the next move should be down if the channel is to be respected.
- The down moves in this channel have been vertically down. A near vertically down move would take ES would mean a dive of 25 to 30 points, bringing ES down to 845-850 level.
- The bounce from ES 865 level has been very weak. ES barely managed to peek above ES 884. This means that price levels above 880 have been thoroughly rejected.
- The action in last few hours of Friday Jul 10, 2009 was even more telling. ES had a had time staying about 875 level. (See the area within red rectangle in the chart below).
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:
- New monthly lows on ES – possibly as low as ES 850 (psychological mark – will not be breached the first time)
- ES will breach Wednesday lows of 865.25 in the Sunday evening/night Globex session
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.
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.
After a 60 point move down in 4 days, SPX found support at 870 on Wednesday.
Pre-market is showing strength…
On wendesday, ES built up lot of volume in the 880-882 region. If the gap up is above that, then this region might act as support and we might get a trend-up day.
Dollar is weak again, pushing oil back up. Here are key resistance levels for some of the stocks and indexes that I follow. These are good points IMO to initiate a short position.
Be wary of today being a trend up day though. As for the move to the downside, I think a visit to 790-810 is in the order.
ES – 886, 900 (key resistance levels)
CME – 290 (previous swing lows)
ICE – bounce to 90 (major resistance). Next level is up at 105 – doubt if ICE gets that far
AAPL – gap fill at 140 (The gap at 142.50 may not get filled)
RIMM – 67.50-68
GS – 142.5 and then 145
Oil – 63 (trend line), 66 (50% retrace of move down)
There is a small caveat though: As SPX has progressed upwards, the topping around each swing high is becoming smaller and smaller in duration, which means that the support provided by each prior swing high is becoming weaker and weaker. 
