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The markets once again finished near their session highs after gains in European markets (especially Greece) the night before, set the table for today’s advance. Although the rally creeped steadily higher throughout the day, the relative lack of attendant volume, suggests the rally may not have sufficient strength to sustain a meaningful advance. On a technical note, the powers-that-be were able to settle the ES just above the August 17 high, which in the days of “turtles” would have signaled the trend followers to jump on board, especially going into the end of the month. However, bullish sentiment was a frothy 176 at 9:50 AM and closed the day at a still very bullish reading around 120, which has me on the alert for a bull trap.
More doom and gloom every day. I think all it takes is a major "event", something in the US, bank collapse etc, and we'll see the beginning of the end. ES 666, here we come - again!
Seriously though -- and I'm one to trade what is on the charts, and not in my head -- this bullish move has to end. It's just pure bs and hyperbole. House of cards...
A friend of mine sent me this note early this morning before the session:
Monday confirmed Friday’s reversal and was a trend day up. However, the narrow range and overlapping 30 minute bars indicated an absence of "other time frame" initiating buyers. While overall volume was light (1.8 million contracts), the day was characterized by periods of selling which were met and overcome by buying volume. Even when selling volume was predominant, any selling effort was met by buyers and prices rose steadily higher throughout today’s session. The key is that the selling was met by buying, but not overwhelmed. Such a pattern is indicative of other time frame short covering and consolidation activity and has a bullish connotation.
TIYF - thanks for this. I'm confused by this statement. My understanding of short covering activity (which I also viewed as being the case for Monday's controlled and low volume up trend) is that is has a bearish connotation because it takes future buyers out of the market. Market's climb a "wall of worry" due to existing shorts covering - when a bulk of existing shorts cover, they are no longer available to push the market up with their buying. Maybe you can instruct me here.
I was going to ask another question in this thread - my question is whether the current price action in the stock indices seems like a balance day is likely. I started the day with a balance day as one possible option for today's activity. After the strong move down and reversal followed by a failure to make a new high, I am favoring today's price action as leading to a balance day (or range day). When do other's on this thread make such a conjecture? Or would you even make such a conjecture intra-day in order to guide trading decisions.
I am hoping for balance here around these levels. I am looking for balance here followed by a strong breakout to the downside to retest the lows made at the beginning of august with possible extension to the downside. Obviously it is WAY too early to start this kind of reasoning but I want to be prepared if this scenario does develop. Comments?
thanks
surly
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
Liquidity was pulled prior to the 10AM report, so the market experienced a downdraft, however the bulls bought the break, which shows they are willing to step up to the plate. Fairly bearish sentiment readings currently, so I would expect the market to rally in the PM, but would be a seller around 1230.00. VWAP's slope needs to flatten out for this to degrade into a range day.
The debt-ceiling drama and the S&P downgrade of US debt pulled down consumer confidence, which fell a very steep 14.7 points in August to 44.5 for the lowest reading since April 2009. In anticipation of the negative report liquidity was pulled, and the result was a 13 handle downdraft that the bulls welcomed with open arms, driving the ES right back up in a 20 handle linear move, only to pullback 10 points, before consistent NYSE buy programs slowly ramped the market up another 18 points to the high of the day at 1218.75. The rally was not sustainable however, as it appeared that liquidity was pulled once again, and the market sold off 14 handles to close lower on the day and below the August 17 high, raising the specter of the previously mentioned bull trap.
We're heading into the news- heavy part of the week, with ADP Employment and Chicago PMI tomorrow, Jobless Claims and ISM Mfg Thursday, and Employment Situation Friday. Today was the third rally in as many days, beginning with the post Bernanke Jackson Hole speech, out-of- the hole rally, followed by the post Hurricane Irene “sleeper creeper” rally, followed by the post Consumer Confidence, out-of-the hole (once again) rally. And like today’s CC report, neither of these rallies seemed very convincing, nor inspired much confidence in the market’s upside. As they did today, the bulls will need to buy the dips on any disappointing news and rally on good news. Failure to do so , will allow the bears to gain confidence, reassert their control, and spring their trap on the bulls.
The concept of the trap is a bit elusive has every minute someone is trapped in the wrong direction. The killing question is if you had to place a trade now and keep it opened for 10 days, what would you favor, a long or a short position ?
I'm obviously making a reference to trapped long-term players. As I stated we are entering the meat of the week, as far as economic reports are concerned. The way the market reacts in the next few days, may or may not set the tone, for the near future. The question is not, if I had to place a trade now and keep it opened for 10 days, what would it be? Because, I don't have to place a trade -right now. I'm more concerned with, what am I going to do, if the market does this? The burning question is, and always is, "what will I do if the market rallies/breaks to a certain level, or reacts to an economic report or news in a certain way. It is also important to be aware of what the market is doing in the present. What is apparent to me, is that large market participants are running the market up, (evidenced by the large amount of buy programs recently-cumulative tick@ 2yr high), then getting short, (evidenced by the large short positions held by large specs / COT report), and then pulling liquidity to allow the market to free-fall, ( as evidenced by the on again-off again bouts of liquidity and volatility). This kind of market action does not imply that there is any substance to the rallies, i.e.,long term institutional players accumulating a position. Eventually, the pump and dump will run it's course and the end game will be new lows. Depending on how the market got there, I would be a seller if the ES were to rally to the 1232.00-1234.00 level and if the market were to break before reaching that level, it would depend on the circumstances that led to a sell-off, and what levels either held or were taken out, that would dictate what I would do.
