Tuesday, August 25, 2009

More upside?

Ok as futures were moving higher fueled by other markets we opened with an exhaustion gap. It was quite an odd open and you could immediately see the hesitation to bring the market higher. We broke the overnight high and made a marginal new high. Here is where it got interesting and we slowly grinded lower. It seems no bulls were left and during the mid day we reversed lower quite strong. As you remember in the past the tape was primarily driven around the VWAP between 10:30 and 2:30 and yesterday we actually had some selling that was not bought back into the close.

HOWEVER, yesterday was not a victory for the bears as many sites claim. After a strong up move with new highs and severe overbought conditions all we got was a sideways day with a flat close but the majority of the day spent in the green area.

Looking back at EURUSD we can see that this divergence paid off to prevent us from moving higher. As I am looking at it now we already broke key support at EURUSD while futures are rather flat. If this is any indication of things to come we can at least expect a move lower today towards the 1014 SPX range.

The question remains whether we burn off the overbought conditions through time by trading sideways or in a narrow range with a slight down trend or through a sell off. Based on the action yesterday I would expect further profit taking from existing longs.

For the bulls: Just like yesterday the bulls have strong support on their side now around the 1012 range that has been the consolidation zone for our move higher. A test on this range will surely bring in dip buyers to add to positions or initiate new positions in our new 4 digit trade zone.

For the bears: The bears yet again have a difficult range to deal with as we broke out of our consolidation zone into new highs. The marginal high at 1035 is only 20 points away from the three week consolition and important 38.2% FIB levels. If this new zone will be confirmed by closing at least 3 days above this range bears need to deal with higher prices to come. On the positive side yesterday showed a bit of a change in the tape as sellers came in mid day to take the market lower. Something we had not seen in a while.

I am still in my spy sep 100/oct 95/dec 85 puts and my ES position at 1012. Current exposure is still limited to around 30%. I actually had an up day for my account yesterday thanks to my forex position that offset the burn off the options and the marginal losses on ES. I am still not ready to commit more capital even as many other bears are screaming top.

Final Word
I will post more updates as the night and other markets progress. It seems the overnight moves for US markets are quite large so I will post another small note in the morning.


  1. Morning Chris; I like this early bird edition of your post. Saw a news blurb about the Nasdaq hitting 50% retracement from it's low and thought it was interestig the way the market rolled over mid day. Somethng we haven't seen in quite a while. Good luck today.


  2. Hey Steve, yeah the early bird version works quite nice for you guys in the states =)

    I have to admit though, looking at the markets and patterns that are currently playing out. It shows more upside. I am currently torn very much to position myself for the inevitable move lower - however I reached a point where my account cannot sustain much more of a drawdown as any future gains would be limited.

    This next incoming drop will be quite strong and swift, with MANY gains to be had. Does it happen from here? or will it run to 1050+ first? I have a strong feel that if 1050 will be broken we will not see new lows for quite a while and will head higher.

    Quite a difficult choice to make and quite a risk to take as well. Because quite frankly this here does not look like a top. Probably the first time now that I am saying this is not a TOP and we move lower. As you know I have been calling tops many times in the past (always wrong).

  3. quick update on the dollar. Unfortunately for the bears the dollar is not playing nice overnight here and just had a big drop (or jump if you are following EURUSD). Unfortunately that will mean potential for more upside on equities from here.

    Maybe yesterday was just the small sideways day needed to launch higher today. ES is backtesting yesterdays open range here and just needs a small nudge above those levels. If we open above yesterdays open I may cover quite a few of my positions.