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As mentioned previously, short term trends have a tendency to reverse during op ex week. Today’s early action was classic bear trap as the ES rallied early, taking out the double top at the 1202.00 level by 5.00 points and failing. The euro showed early relative weakness to the ES and a bearish divergence, as it made new highs and was the first to roll over, while a bearish oil inventories number sealed the deal.
It is possible large players took advantage of the weak handed shorts (small specs), and squeezed them out of the market in order to cover their longs and get short. This would imply that a top is in, and we will break tomorrow on CPI, payrolls, et al. On the bullish side of the coin, today could have been a play (mean reversion back to the 50EMA) by the longs, to knock down the price so that they could accumulate a bigger long position on the backs of the weak longs, going into tomorrow's numbers. From the 2nd chart below, we can see that realized liquidity got thicker, along with implied liquidity (bid/ask), suggesting it was large players at work.
While I was originally leaning toward the first scenario, the fact that "dumb" money is so short, implies that the most pain would be felt, if the market were to rally and make new highs. This of of course does not preclude the market breaking first, trapping more shorts, and then rallying. Note the ES bouncing off the 50EMA on the attached 135 min chart.
On a longer term time frame chart, there is a major divergence in the MFI on the ES weekly chart. The MFI is an oscillator that uses both price and volume to measure buying and selling pressure, and is used to determine the conviction in a current trend. If you look at previous swing bottoms, they were all accompanied by rises in the MFI. However, MFI continues to fall in the current rally, implying the rally is being sold into. This lends support in the theory that if the market does rally, it should be sold (1232.00/50% ).
Also included is a daily chart of CL which shows the market approaching major resistance @89.77 which represents the monthly S2, 20EMA, and the neckline of the H&S top formation. A rejection from this level would have a minimum measuring implication of 26.00 dollars, which provide us with a price target of $64.00.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
ES finally gave in to resistance and puked. Should this measured move follow through, we should take out the low of 1077 and have a target area of the 1022 area. Doubt that'll happen in one day of course but that's what I'm looking for should we get past the last swing low of 1077.
On a side note, BAC has established another island.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
I'd also like to offer the other side of things here as I don't want to sound too bearish biased with regards to the direction of the ES. If you look at the attached chart, we have now retraced 50% from the low of 1077 where there could be a bounce. A break below the 61.8% level could signal a victory for the bears however.
In any event, I remain unbiased and continue to trade the intra-day opportunities.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
One last thing I wanted to point out that occurred today. The yield on the 10 year has dropped below 2.00% to 1.978%. This is below the swing low in 2008's chaos... Pretty amazing.
It's nice to see some real moves again... Not unexpected that the news was grim today, but the market seems to overreact to most news these days. That is good news (if you pardon the pun) for traders, though...
It will be interesting to see how things develop in the months ahead, but I find it hard to believe that this is the start of a new bull market. A slow-growing economy is a likely scenario, as all governments will do whatever it takes to avoid a recession. But as I have stated earlier, I have been positioned heavily on the bearish side for quite some time... And I haven't given up "hope" yet...
It's not so much that the market over-reacts, it's a little more contrived than that. When the large traders have a big short position on, especially when the market gaps to the downside, they will"pull" the liquidity, to see if there will be material follow through. This allows the market to "free-fall", exacerbated by the bots, of course.
You can see from the attached chart, that liquidity (was pulled) dropped precipitously on the break, and then returned to normal levels...mission accomplished. ( Higher bars on the histogram, mean less liquidity, and lower bars mean higher liquidity.
