Markets Trading Lower

Euro continues to slide on debt concerns in Europe. The dollar has been climbing in response. This morning the ES is testing the lower part of the 1171-1200 range. This lower part of the zone happens to coincide with the 50 day moving average (1171.50 ES) and should act as strong enough support to hold price above 1170 today. However, this is the fourth time down in 10 trading days. Odds are high that it will break lower this time around, most likely overnight or tomorrow. I continue to expect a move down to at least the low 1160s on the ES.

Levels to watch today on the ES:

Support below at: 1171-1172, 1165-1166
Resistance above at: 1181-1182, 1187-1188

Rally on Low Volume

European markets saw some gains overnight and some good news this morning regarding a drop in initial and continuing jobless claims, a better than expected increase of durable goods orders and an increase in personal income helped the US markets rally today on low volume.

I'm favoring a market sell-off over the thanksgiving holiday and suspect there is a good chance of a gap down to begin the next week of trading. The key confirmation will be a move back below today's lows. When that happens, ES should trade down into the low 1160s.

That being said, the current action appears bullish, there is potential further upside in the coming days to 1206, 1213 and as high as 1217 on the ES. I will look to get short at any/each of those levels.

How to trade those scenarios? One way would be to get short somewhere around today's highs. Don't defend any move above 1199-1200 (ES). If we break above those levels, wait for 1206, 1213 or 1217 before getting short. If those levels aren't tested on an up-move, look to short the market after it confirms back below 1198. I will comment when I think there is a good buying opportunity. As of now, I am looking at potentially the low 1160s. We will have to wait to see how the market trades down before knowing the best level to buy into.

See you next week, I'll be back after the Thanksgiving holiday...

World Markets Fall Overnight on Korea Conflict

Markets around the world are down in reaction to North Korea and South Korea exchanging artillery shell fire. Asian markets closed lower with The Hang Seng leading the way down at -2.7%. The ES fell 1.2% overnight and the US markets are set to open with a significant gap down as we are currently trading near yesterday's lows.

US dollar was bought up overnight as concern remains over European sovereign debt. Markets caught an unnatural bid yesterday on news of an Irish bailout and the Korean conflict was a good excuse to sell it back down.

I expect lower lows on the horizon.

Levels to watch today (ES):

Resistance above at: 1187-1188, 1191-1192, 1197-1198, 1202-1203
Support Below 1182-1183, 1178-1179, 1172-1173

Markets Gapping Up

Strong performance in Asia and Europe along with Euro gains/Dollar Index weakness, help Futures to rally over night.

Levels to watch this morning:

Resistance above at: 1193-1194, 1197-1198, 1201-1202, 1207-1208
Support below at: 1187-1188, 1185-1186, 1181-1182, 1177-1178, 1173-1174

I will look to cover my swing long SPY (that I entered back on November 16th) above $120 for break even or a small profit. I believe the markets should reverse back down to allow me to get an entry lower.

Markets Digest the Last Several Days of Selling

The S&P 500 is down more than 3% since November 5th (as low as 3.8% yesterday) on uncertainty of Chinese policy and European debt. Today will likely be a day of choppy consolidation as the markets consider future outlook.

PPI numbers came out less than forecast and Housing Starts came in significantly worse than expectations, falling to their lowest level since May 2009.

Levels to watch on the ES today are:

Resistance above at: 1180-1181, 1185-1186, 1188-1189, 1193-1194
Support below at: 1173-1174, 1171, 1164-1165, 1160-1161

Markets Turn Down Lower, Now What?

Well, the S&P 500 closed below its 20 period moving average today, breaking the short term up-trend. This is negative, but not overwhelmingly negative. My overall long bias has not changed. The current correction is just larger than I originally anticipated.

I'm still holding my swing-long SPY first 3d position. I will add the 2nd 3d position around 116.20 to 116.60 if the market ticks down that far.

There is certainly further downside potential. The 50 MA should provide support and currently sits at 1161.50 on the ES, so there is potential it is tested this week. Doesn't look like we have seen the bottom of this correction yet. I will continue to scalp the ES and manage my swing-long SPY position until it looks like the bottom is in. I will keep posting my thoughts as we see where price takes us.

What Does Today's Selling Mean for Future Market Direction

Today's action is very negative obviously. We have already traded down 20 points from yesterday's close. Let's see if the market has found an intra-day bottom... At best, I could see a recovery back to the low 1190's on the ES. That would be a good sign and it would create some indecision as far as future direction. If we don't close back up above 1190, I will have to lean toward changing my bias to negative. The way it is looking, we aren't going to trade back up and so I am leaning toward admitting I was wrong in my assessments. We'll have to wait and see.

European sovereign debt issues are weighing on the market and driving up the dollar. Negative market action in China isn't helping matters either. Whether or not the market can rebound today is crucial for the overall health of the US markets. So far, no signs of any positive momentum or reversal. We are making new lows as I type this...

At Day's end, I will give an update to my market bias and what I am thinking...

Worldwide Markets Sell Overnight

The Chinese market sold off heavily on continued fears that the Chinese Central Banks will tighten monetary policy by raising interest rates. Worldwide markets followed suit as the Hang Seng and Nikkei both closed lower. European markets are currently trading lower as the FTSE, DAX and CAC are all seeing morning declines.

US Futures followed suit, trading down in the overnight session. The ES found support at 1186.50 around 7:00am EST. This happens to be the price the ES was trading at right before the Fed announced the $600 Billion QE2 last Wednesday. I believe the 1186-1187 level will hold as support. If not, there is very solid support below at 1180. 1180 acted as solid resistance throughout much of the month of October. In any case, I continue to be bullish in the short term. I expect a close at least above 1194 on the ES today, perhaps right around 1200. A close lower than 1194 will be negative for US markets.

Levels to watch this morning (ES):

resistance above at 1193, 1196-1197, 1202-1203, 1205
support below at 1186-1187, 1179-1180

The Market This Morning

Market sold off down to key support on Friday afternoon. Stocks are currently trading up ahead of Monday's open. Some positive news this morning showed that retail sales came in higher than expected for the month of October. However, surprisingly weak manufacturing data out of New York outweighed any positive sentiment and some selling came in right at the 1202-1203 resistance level (ES).

I have a bullish bias heading into this week. 1192-1193 remains key support on the ES. I continue to be a buyer in the low 1190s. As the week progresses I will be looking to buy the down-ticks.

Levels to watch today (ES):

support below at 1197-1198, 1192-1193, 1187-1188
resistance above at 1202-1203, 1207-1208, 1212-1213

One possible scenario that could materialize this morning is that we see some selling after the opening bell. A solid strategy to consider would be to wait for gap fill below 1195 and then look for buy entries. Like I said, I like buying the low 1190s...

Key Level Being Tested

1191-1192 is a key support Level on the ES. It is fine to test this level intra-day, the key is that the Emini S&P Futures (ES) does not close the day below this level. If ES closes below 1191, that will influence my bias to the bearish side.

Worldwide Markets Sell Overnight

On lower than expected GDP growth in Germany and France coupled with fears in the Chinese market that the Chinese Central Bank would raise interest rates again, markets sold off. European markets, however, have recovered from early loses.

S&P 500 futures have traded an average daily range in just the overnight session selling off significantly in concert with world markets. The ES traded down through 1200 and as low as 1193, but has also recovered and is currently down only 0.6%.

Market continues to look weak. I still like shorting the up-ticks and expect price on the ES to trade below 1200 again in today's session.

Levels to watch today (ES) are:

Resistance above at: 1206.50-1207.50, 1212.50-1213.50, 1216-1217
Support below at: 1201-1202, 1198-1199, 1196-1196, 1192-1193

I like long positions in the low to mid 1190s

Probable Intra-Day High at 1217

Looking for short entries now on opportune up-ticks

Market Weak. Will it Continue Down?

With some relative strength in the US dollar yesterday, the markets sold off a bit. We saw new highs in silver and gold early yesterday morning and as the markets followed suit (ES made a 1 tick higher high) it looked like a buying opportunity to many traders. Seeing that, combined with understanding the high likelihood that overhead resistance would hold in the 1224-1226 range, it was a great opportunity to sell with confidence. View my comments here to see how I traded it.

The negativity was confirmed with a close below 1212.50 on the ES yesterday. That remains a critical level this morning. The market needs to see some momentum back above 1212-1213 before any confidence can come back. On a positive note, new jobless claims came in lower than expectations, so we'll see if the market can build any continued buying momentum into the open on the heels of that.

But inevitably, we are heading down below 1200, but before we do, the ES will have to trade through yesterday's lows, which also happen to coincide with the April highs (at 1207.50). So, we'll see if today turns out to be a consolidation day and which way we break out, either above 1213 or below 1206.

Another note-worthy event is the 30 year bond auction today at 1:00pm EST. We'll see if buyers demand higher yields of this longer term debt as a result of the Treasury's $600 Billion dollar fun at the printing presses. I will watch to see how the dollar responds. If the dollar continues its momentum we will likely break down further.

Levels to Watch this morning (ES):

Resistance above at 1213, 1215-1216, 1218-1219.
I like shorting the up-ticks off any of these levels today.

Support below at 1206-1207, 1199-1200, 1197-1198, 1193-1194
I am a buyer in the mid 1190s

Market Trades Up Toward Previous Highs In Overnight Session

The S&P 500 Futures (ES) traded up to 1224, two ticks off the Friday highs. The ES has already traded in a larger range overnight than we saw in the entire previous 24 hour session. NASDAQ continues its strength as the futures traded to new highs overnight. European markets are trading higher as well as the German DAX is at a new 2 year high.

Given the apparent strength this morning, it is likely that we make another run at the market highs. I will continue to look for short opportunities on the ES between 1224 and 1226. There should be a minimum of a couple of points of profits from those levels. Even if the ES makes another run higher, I will continue to look for short entries as soon as buying meets more resistance. Just keep in mind that a daily close above 1226 on the ES would be very bullish and I would exit any shorts in that case. I don't expect that to happen this week.

Levels to watch on the ES today:

Resistance at 1224-1226.
Support at 1219-1220, 1214-1215. If 1214-1215 does not hold, there is more support underneath at 1210-1212.

I will continue to try and time a swing short entry to catch a move back down below 1200 on the ES. I will post my thoughts as I get a better idea of the timing of this move. I am a buyer in the mid 1190s

After QE2, How Much Higher Can the Market Climb?

Since the Federal Reserve announced a $600 Billion dollar plan to purchase US Treasuries, the markets have been bought up with little hesitation. The question is, will the buying continue and how high can the markets climb? First, you have to respect the bullish market sentiment. There are not yet any signals that suggest entering a swing short position. Friday was essentially a consolidation day following the extreme buying that came in at the end of the day Wednesday and all day on Thursday. The key is to identify resistance levels and take short positions in those spots. It is best if you hold multiple contracts in these situations so that you can take quick profits while letting the remainder of your position run in case the selling continues. If selling doesn't continue, you have the opportunity to cover for break-even if the trade comes back to your entry. If the trade goes against you, you can likely get out when price retraces back to your entry.

I don't expect any significant selling to come into the market before the end of the year. We will likely continue to make minor new highs and see a lot of choppy consolidation. There will be plenty of opportunity to be both long and short. I do expect a retracement back to 1198-1200 (ES) this week so I will be watching for a good opportunity to get short to attempt to catch that move. One level I like on the ES is 1127-1129. If we see excess supply at that level, I will look to get short. The key is to make some small profits and buy yourself a stop; that way you give yourself a free opportunity to catch a runner back down to last Wednesday's closing price point. If the ES trades through 1127-1128 without resistance (which is extremely unlikely), it is still a safe place to get short given that price will likely come back and allow you to get out for at least break-even. The key is that you get short on the first test. The more times price tests that 1127-1128 price, the less likely the resistance holds.

The Fibonacci Argument:
The S&P 500 Cash Index came within $1.66 of the key 61.8% Fibonacci retracement to the October 2007 highs from the March 2009 lows. The Dow already has two consecutive daily closes above the 61.8% Fib level. This is a technically bullish indicator. However, the S&P holds more weight in terms of market sentiment, so we'll wait to see if the S&P Cash Index (SPX) can get a daily close above 1128.74 before assuming the market can continue its buying momentum. That is about 1125.75 on the ES.

So, on that note, I like any shorts in the 1124-1128 range on the ES. Just watch the tape and look for the best entries in that price zone and it is a pretty safe short bet. In this bullish environment, just be careful defending any short entries. I also can't argue with buying the down-ticks. If the ES trades back below 1200, I will be a confident buyer in the 1196-1200 price range.

Employment Situation Provides More Positive News

Markets got another boost in pre-market trading this morning when non-farm payrolls came in at 151,000, well above consensus estimates. Private payrolls also increased by 159,000, their biggest gain since April. Markets extended their gains above yesterday's highs. Dollar also spiked this morning on the employment news. It is pertinent to note that the dollar index retested previous support yesterday piercing its previous low from 11/25/09. If this support holds, we could see a potential short-term top in equities today. I will be feeling more confident in taking some short trades today especially if the ES trades up to 1128. There is some nice profit potential with any shorts off that level.

Levels to watch on the ES:
Resistance at 1222-1224, 1227-1228
Support at 1217-1218, 1211.50-1212.50, 1204-1206, 1197-1198

Fed leaves fed funds target at 0.00-0.25%, Expands asset purchases by $600 bln

Expect market to climb... Not entering a trade yet though

Republicans Win; What About the Market?

As expected, Republicans now have majority in the house. Democrats maintain majority in the senate, but give up a couple of seats to the Republicans. If it was difficult for the Obama administration to pass legislation in the past, it sure isn't going to get any easier now. God bless the American two party in-fighting system.

In any case, what does this mean for stocks? Well, so far it is a positive sign as the S&P 500 Futures traded up to new highs in the GLOBEX session and is currently trading above yesterday's high in pre-market activity.

We'll have to wait until 2:15pm EST to hear the FOMC announcement where the market focus will be on what is said about a second round of quantitative easing. Anything short of a $500 billion dollar injection, most likely in the form of buying US treasuries, will probably send the market into sell mode. There is plenty of dissension among policy makers in terms of what the real benefit of printing more money will have on the economy. For this reason, there is a good chance the market will eventually sell the Fed news. Maybe the initial move is up, but without a substantial 2nd round of QE, expect the markets to sell-off into the close.

I expect choppy trading today ahead of the FOMC announcement. Expect the overnight highs to be tested at 1196-1197, but ultimately, the real action will unfold after 2:15pm EST, at which point I will be looking to get short anywhere in the upper 1190s on the ES. Of course that depends on the Fed, but we'll see...

Levels to watch on the ES:
Resistance above at 1196-1197, 1199-1200, 1205-1207
Support below at 1190-1191, 1186-1187, 1180-1182, 1175-1177, 1169-1172

Battle of the Machines

Trading action today is phenomenally computer driven. The algorithms are having a fierce battle against one another and are keeping price action confined to a very tight range with incredible precision. If you open a Momentum bar chart set to have a new bar form with each one point move and load up the @ES (S&P 500 Futures), you can see how non-human-like the action is. See video below:

FOMC Meeting and Mid-Term Elections Upon Us

What does it all mean? Well, I am expecting some market volatility this week. The FOMC is likely going to commit to releasing another $500 billion to stimulate the economy. I think for the most part, this is already priced in as markets have been climbing over the past 2 months while the dollar has been weakening. That being said, if we get news confirming big republican wins in the house and senate coupled with news of exorbitant quantitative easing by the Fed, then the markets could break upwards to threaten and potentially break the highs we saw last April.

So we'll see how all the news plays out this week. But keep in mind, since August 31st, the S&P 500 is up 14%, the Dow is up 12%, the Nasdaq is up an astounding 20% and the Russell is up 17%. Such a big rally likely means that some of the news regarding another round of QE and Republicans winning in the elections is already priced into the market. So don't be surprised to see the market sell on the upcoming news.

Now if the Fed surprises us by committing less than $500 Billion more in QE and/or the Democrats win more seats than is expected, then the odds for the market to fall become even greater. I will be looking for short entries as the week unfolds. The only way I won't be looking for short entries, is if the Fed really tries to inflate the market by offering even more QE than expected. In any case, I'll let the market react to the news before entering into any swing positions prematurely.

Levels This Morning in the S&P Futures (ES):
Support: 1181-1183, 1173-1175 | 1167-1169
Resistance: 1186-1188, 1191-1193 | 1197-1199