Market commentary
Markets are waiting for news of next 2 days from europe. Within hours, ECB is expected to announce a rate cut of 0.25% and anything more than this would be a boost. What the market is really looking for is further measures that ECB could provide as a short term solution to the crisis. ECB providing short term solutions to the crisis, and EU summit providing a long term framework to address the EU crisis, is the two prong approach that is unfolding. Due to positive comments from various top officials during this week, market is exhibiting bullish behaviour so far. The short side of the weekend plan has been only partially useful to identify the resistance levels, but ES did not breach the neutral level around 1244. I am viewing the bond move this week as a possible hedge, before the crucial announcements. If one can correctly identify the market reaction to news, bonds might provide better volatility trades than stocks.
Technical analysis of spx futures
On December 1st, the analysis pointed to 1245 area being the neutral point considering the year end targets. The strong first level of support at 1242-44 is confirming our analysis. I am keeping the support levels for swing trading around the same levels with a 0.5pt change as indicated below. Above the neutral area, i am identifying resistance levels with small changes from Dec 1st. Day traders might find intermediate levels between what is mentioned. In addition, day traders must find more precise numbers (in nearby area) for futures trading. But, these levels serve for an initial guidance. These levels are chosen incorporating risk management strategy (for swings) in mind.
Supports: 1217, 1224, 1230, 1236, 1242-44.
Resistance: 1250, 1258.5, 1270.5, 1279.5 (for this week).
ES is range bound, between 1244 and 1264. A clear break in either direction will give clues to trade the coming days. Year end analysis indicates that the breakout has high probability to be on the upside, within days. But a break below 1230 would signal the need for reevaluation of market condition/sentiment/news.
Status of Trades
Gold forecast from 1750+ to 1700 was good upto 1705, and the trade exited due to trailing stop. We may get another oppurturnity next week, to enter gold trade, in either direction. This trade captured over 45 points in gold.
I got stopped out on monday and tuesday from short trades, initiated last week at 1255(average). These were perfectly good trades (had i let them run without stops into closeing hour). Due to this volatility, i have switched my swing trades into intermediate time frame, with january options as instruments. This gives me some flexibility and time to adjust my trades in either direction. Day trading between the support/resistance levels has provided some cushion against the losses in swings.
10 comments:
News of partial agreement in EU summit is out now, with satisfactory results achieved in this meeting. I will expound on the news during the weekend, but in summary, this is all pretty much as i expected. My logic says "if i was able to expect this, then institutional strategists would have already expected this result long time ago, and so, it is already built into market valuation". This means that last weekend's analysis is correct and holds good. So, naturally, this calls for a year end close of atleast 1245 neutral area that we calculated in prior article (or better). So, as a swing trader, i plan to buy the best bottom that i can get on friday (1220 which happens to be in between my 2 supports) and then wait out the weekend, holding it no matter where the close is for this week. If i feel aggressive, i will make another buy during closing hour, near another support point (1208 or below). Market sentiment and TV reports are clearly bearish, but sticking to weekend analysis has had a high success ratio in the past. So, i am running with it, for swings into year end using january options (to reduce my risk further). Currently ES march contract is at 1228, and i see a fall to 1208 as a 60% probability, while a fall to 1217 support area is a 90% probability.
Market reached the 1220 that i called in prior comment, last friday. My analysis has not changed since last week, but market sentiment is clearly bearish this week, given that euro has breached the green support line (see my euro analysis dated November 29th). Clearly there is tremors underneath going on, and the risk is ever increasing, given the macro picture. I expect fed to come up with some strong statements in the meeting tomorrow, to ease market jitters. Risk is pretty high of a sudden downturn, but i stuck to my buy side bias at monday lows, as the plan called for.
Fed failed to meet the expectations i had expressed in previous comment, but friday's buy recommendation for 1220 was still a successful move , considering that ES reached the neutrality level i had mentioned several times (1245 area). This neutrality target was the place where market decided to go neutral tuesday morning, prior to fed's announcement. So, most decided to go to cash, considering the high risk i mentioned yesterday, due to Euro chart. Also note that the article called for a re-evaluation of bias, at break of 1230. With ECB/Fed/EU summit, all failing to meet market expectations, the bullish extreme of the year-end target (1290) is in jeopardy. There is only sign of risk aversion across the board, from currencies, bonds to commodities and emerging markets. Having rejected 1230, it is more than even chance that ES futures will test 1200 or below this week.
Yesterday's comment on 1200 has been reached, as of this moment, even though failure to reach it during NY session shows that market could stabilize over next day or two. The second reason why i think markets could stabilize is because i do not expect a full blown crash going into christmas/year end, as this would defy seasonality trends. So, i am expecting one more push down on ES futures on thursday, which potentially will be near the lows of december. With this theory in mind, I suspect spx futures will stay above 1180 this week. So, i am giving about 70% probability that a bottom for the week will be hit between 1180-1200.
A break below the serious support number of 1208 (dec. 4th blog) is quite likely today, even though morning session has traded with a bullish bias so far, above that number. From a swing perspective i am looking at 1194 as possibility within days.
ES is showing signs of strength. All markets have reached a critical point, and headlines show a need for risk aversion going into friday. Currently ES is at 1220, premarket europe session, and 1224 is a number i have mentioned. So, it maybe a good short try between 1221-24 area. Next week, european banks get ECB funding. I am guessing that its about time to close shorts and start nibbling on the long side on friday.
BTW, one sign of strength is indicated from my comment posted on thursday morning. ES hit the support number 1208 i mentioned, but did not break below that, and closed above that number. Another interesting factor that i noticed on thursday was that VIX is near the levels of august 4th, and this indicates that options traders are bullish for year end. So, i will be looking for swing long oppurtunities friday's closing hour, if NY session holds the support levels we have seen this week.
CPI is neutral to slightly negative, imho. Next week's ECB action is bullish for banks, while the headlines remain negative. I am expecting this bullish run from yesterday to have a maximum strength to reach around 1230 and at lower end i am watching thursday low area of 1208-1210 for a possible break to downside. This is the range that i will be trading on friday, and will take swings near closing hour.
Entered a long term position in long end of treasuries today, with feb/march timeframe in mind. Will discuss the underlying views this weekend. spx futures reached the 1224 number mentioned in this blog and pausing currently. A close above the next number i have (1217) would imply bullish bias into january earnings. I think probability and fundamentals point me to a close below 1217. Currently ES is 1221.
I completed my analysis, and preparation for week ahead, but it will take some time to put together my thoughts. Will update with a new blog entry, before europe opening for the week.
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