Riots, Debt and a Declining Market

The short-term market top was established at 1299.50 on the E-mini S&P 500 futures. The official decline began Friday morning, one day later than my original prediction.

Overall bias is negative today following the largest sell-off since early August of last year. We didn't see any buyers step up on Friday, the shorts didn't cover their positions into the close and in fact, the market sold to a new low as the futures session closed. This selling comes amidst global unrest as riots hit the streets of Cairo which ignite fears that political instability and uprisings could spread throughout the Middle East putting additional pressure on global financial markets. The selling here in the U.S. also comes on the heels of a warning (on Thursday) that Moody's may need to downgrade its AAA-rating of U.S. debt sooner than expected. The International Monetary Fund also stated that America must tackle its mounting debt if it wants to maintain its credibility in global markets.

The above statements suggest further downside is likely. At the same time, a bit of a retracement rally is not at all out of the question today. We'll have to wait and see. Futures traded down to begin GLOBEX trading on Sunday but found support down in the low 1260s. Since then and into this morning, markets are showing a little strength as Futures currently trading above Friday's close.

My strategy for today and going forward is to sell the rallies. 1289-1290 would be a great level to get short if the ES trades up there. Otherwise, I will just be playing the key levels today.

Key levels to watch on the ES:
Resistance above at: 1278-1280, 1284-1285, 1289-1290
Support below at: 1271-1272, 1261-1262, 1255-1256, 1251-1252

If we happen to trade as far down as 1251-1252, I will be a confident buyer there. NOTE: Will not defend long positions.

US GDP

GDP numbers to be released momentarily are expected to be expansionary with Real GDP estimates at 2.9% to 5.4% annualized as it is believed that the US economy is picking up. Lets see what numbers are released and how the market reacts.

Continue to look for shorting opportunities.

Levels to watch today on ES:
Resistance above at: 1298-1299, 1305-1306, 1312-1313
Support below at: 1289-1290, 1283-1284, 1278-1279, 1273-1274

Continue to Anticipate Top

Outlook remains the same. Anticipate inflection point in the market (it is possible the high is in at 1296.75 though there is no confirmation). In any case, expectation holds that we will see the short-term high this week. I'll be watching for opportune price points to get short.

A more compelling case for a top would be to see a capitulation move to the upside that triggers stops and is quickly negated by selling. This move would likely take the ES over 1300 and create opportunities to get short.

Market catalysts: Earlier this morning, we saw the market sell in reaction to worse than expected jobless claims. The government then released news saying it was an error in reporting due to a snowstorm in the south that caused a backlog in claims. Sounds like a convenient excuse :) Additional market catalysts are Pending Home Sales at 10:00am EST and GDP on Friday at 8:30am EST. So, will continue to monitor for trade entries.

Levels to watch today on the ES:
Resistance above at: 1296-1297, 1300-1301, 1305-1308
Support below at: 1288-1289, 1283-1284, 1278-1279, 1273-1274

Short ES at 1293

I will show when I exit this trade in the comments...

Top is Almost Here. When Should I Get Short?

Markets looking strong after yesterday's rally to close the day. Not expecting too much excitement this morning ahead of the Fed minutes (released at 2:15pm EST). 1295-1296 (ES) should hold ahead of the announcement. Some volatility will likely follow leading to new highs. That is the time I will look for a potential swing short entry. Assuming we do see new highs in the late afternoon, I will be looking to get short as soon as there appears to be an excess in supply (i.e. more sellers than buyers). If the ES makes new highs into the close, I will look for the potential high to be established overnight in the GLOBEX session.

A pierce of the 1300 level (ES) is a likely scenario and as I have said in the past, I will confidently short the market at that level. This subsequent move down should be good for a minimum of 50 points, perhaps 10% at the most. Looking ahead, I like long entries in the 1220s (ES) and will expect the bull market to continue on from there.

What would make me change my mind about this short bias? Two things. 1) If the Fed did something outrageous, like announce it will now bail out California, Illinois and New York with QE3. But that is not going to happen, not today anyway. 2) If we get two consecutive daily closes over 1300 on the ES. I will likely abandon my shorts in that case as well, otherwise, I am a confident seller.

Levels to watch today on the ES:
Resistance above at 1295-1296, 1300, 1305-1306
Support below at 1287-1288, 1283-1284, 1277-1278, 1273-1274

1290 Target Eclipsed in the Overnight Session for E-mini S&P 500 Futures

The ES closed the day yesterday 1 tick from the 1290 price target and traded just over 1291 in the overnight session before selling off throughout the remainder of the evening. Futures set to open lower this morning with dollar strength on the heels of a lower than expected GDP number out of England as well as concerns over Spanish bank failures.

FOMC Meeting begins today. I expect choppy markets until the FOMC minutes are released tomorrow afternoon at 2:00pm EST.

While we likely will trade back over 1290 again and retest the highs on the ES, the easy money to the long-side has already been made on the first retest of the 1290 level last night.

Day bias today is neutral.

Levels to watch today on the ES:
Resistance above at: 1285, 1289-1290, 1295-1296
Support below at: 1276-1277, 1273-1274, 1265-1268

I like long entries today at 1273-1274

Expect Market to Find Short-Term Top This Week

This morning markets in Europe and Asia are mixed while US futures getting a small bid. Continue to support view that markets will climb back up (above 1290 on ES) to retest the highs.

I'm favoring Wednesday or Thursday as a likely inflection point and beginning of a reversal to the downside. Will be looking for short entries as ES tests the 1295 high. A pierce of 1300 on the ES is possible and would mark a low risk opportunity to get short this market. Strong chance for at least a 50 point gain to the downside. The 1220s (ES) will be a price target to consider long entries. Expect bull-market to continue from there.

Today's bias: Long

Levels to watch today on ES:
Resistance above at 1285, 1288-1291, 1295
Support Below at: 1277-1278, 1273-1274, 1266-1268

Back Up to Test the Highs?

We are seeing some strength in European markets and futures are trading up this morning as the ES is testing minor resistance at 1283-1284. Once that gives way, it should set the stage for the climb back up to the 1290s.

I have a long bias today and will be looking to buy the dips. My strategy over the coming days is to anticipate range-based trading (1265-1295 ES) as a market top forms. I will short any new highs (i.e. 1300 ES) with confidence.

Levels to watch today (ES):
Resistance above at: 1283.50-1284, 1290-1291, 1295
Support below at: 1278-1279, 1273-1274, 1265-1268

Day Bias: Long

A Lower Low On Two Consecutive Days of Selling Pressure

Feels pretty negative (at least it presents the illusion of negativity). Last year we saw two significant market tops or reversals to the downside (one in January and one in April). In both cases, the initial day of selling was met by responsive buying as a topping pattern formed over a period of days. In the present case, the first significant down day (yesterday) was not met by responsive buying. Instead, we have made a lower low on two consecutive days of selling. Many would argue that this signals a further leg down. I will consider the alternative. First of all, today's close only represents a minor new low. Price is more important than time in this case. As long as the mid 1260s support holds on the ES, my expectation is to see a rally into the close tomorrow (perhaps to 1285). Obviously my opinion will change if the 1265 support does not hold. In that case, the ES will likely be headed for 1250-1255.

Consolidation, Continuation Down or Reversal Back Up?

I am very confident that we will see a move back up to retest the highs, the question is when that will happen?

Option 1: we have a choppy consolidation day today that may see a high up to the 50% retracement of yesterday's sell-off (1285 on the ES) before selling back down to yesterday's low (1275 ES).

Option 2: we continue down to fill the gap from 1/11 (1270 ES) and potentially move as far down as 1265 before finding support. I like this scenario and am a buyer at 1265-1266 in anticipation of a move back above 1290.

Option 3: selling pressure continues and we see an eventual break of the 1265-1270 support and trade down to 1250.

Option 4: the bulls step up and we see a quick reversal back up to recover all of yesterday's losses. I think this is very unlikely to happen today, but just listed it as a possibility.

Levels to watch today on the ES (E-mini S&P futures):
Resistance above at: 1285, 1290, 1295
Support below at: 1273-1274, 1269-1270, 1265, 1260, 1256

Markets See Largest Down Day Since Last November

The ES dropped 21.25 points one day after IBM and Apple reported big positive earnings surprises. Positive sentiment pushed the E-mini S&P 500 Futures (ES) right to the top of its upper channel resistance into the close of trading yesterday. That was enough to initiate selling as the markets opened lower and kept selling with almost no opportunities to buy the dips all day. We saw the most selling since the mini-correction back in November.

I'm not too excited about the downside yet. Market tops are generally more deceptive and take a little bit of time to develop as the market shakes out all the weak shorts and suckers in the longs jumping into the party late. I expect a retest back up to the mid 1290s on the ES possibly by end of week. We may see a little more selling first as gap fill from 1/11 tempts sellers to close it at 1270 (ES) and we could see price move as low as 1265-1266 before it turns back upwards.

I like long entries between 1275 and 1278. If we break down below 1275, I would look to get long instead around 1265-1266. Any confirmed move below 1265 and we could head all the way down to 1250.

Russell 2000 Futures sold off significantly losing 3% today (Wednesday). I am noting this because often times small caps can lead the way up or down when a market changes direction. I think the large sell-off on the Russell supports the view that a market top is upon us.

As I said in the previous post, I presume that the markets are now in the process of forming a market top. Expect choppy action in a 20-30 point range as this top forms. It is possible we may even see a higher high. If that happens, it will be a gift in my opinion, and I will short the market with confidence. Until then, lets see where the market opens tomorrow...

NOTE: This is my view of the market. Markets are always evolving and are unpredictable at the end of the day. My scenario has high odds of playing out, but that doesn't mean the market can't just sell-off without regard to historical trends...

Market Slightly Weaker After New Highs Into Yesterday's Close

Continue to anticipate the formation of a market top. Note that there has been some great earnings news, by AAPL and IBM in particular yesterday, yet the strength seems to be waining in the markets. This is typical (ahead of a potential market reversal) given the fact that the market is already over-extended.

Levels to watch on the ES:
Resistance above at 1295.50-1296.50, 1300-1301
Support below at 1290-1291, 1286, 1276, 1269

Picking a top is never easy. Watch the market frustrate the bears by making yet another new high before the official top is in. Expect some choppy action in a 20-30 point range that will form the topping pattern. Expect a 50-80 point correction from the top which will be followed by a move even higher in the markets, perhaps to 1400 ES.

Preparing for a Short-Term Market Top

Once again I am looking at a potential market top forming. The S&P has entered price levels that could provide stronger resistance than what we have seen previously during this run-up to new highs. I like taking any opportunities to short this market right now (this is speculative given the fact there are no negative signs other than the market being overbought), the key is to do it cautiously.

Watching the S&P cash index ($SPX.X); Though I am preparing for the possibility of a market top now ($SPX.X closed last week at $1293), there is potential for it to move over 1300 and as high as 1312. If the S&P cash sees a daily close above 1310-1312, all shorts bets are off. This would be extremely bullish and would be a sign to abandon any shorts...

Levels to watch today on the ES:
Resistance above at 1290-1291, 1295
Support Below at 1283-1284, 1279, 1274-1275

Earnings watch: Apple and IBM after the close.
Apple is down 4.5% in pre-market on the news that Steve Jobs has taken a medical leave of absence. See if AAPL earnings can send the stock back towards $350. I think earnings will have to beat expectations to have any chance of this. Best to Steve Jobs...

1290 on the E-Mini S&P Futures

Friday saw continued bullish momentum to the upside as the E-mini S&P 500 Futures closed the week right on my 1290 key price point. This is a level that would have been ripe for a short play on Thursday or Friday of last week, but based on timing and price action, it is certainly no slam dunk play heading into this week. The S&P is right at the upper resistance of the current up-trend channel that dates back to the start of December of last year. Assuming that resistance holds, a move to the bottom of that channel would bring us down to 1270 or so on the ES which also happens to be gap fill from back on 1/11. The bullish price action we have seen since September of last year is historically unprecedented. It has been a constant grind upwards with almost no significant corrections along the way. So you could argue that we are overbought and ready for a move to the downside, or you could believe the momentum to the upside will carry on. What I am looking at heading into Tuesday's trading (Monday is a holiday), is to get short between 1290 and 1295 ES. As usual, it is not worth defending any shorts in this market, but I think there is a good odds opportunity to see a move back down to 1270 early this week. I will most likely be a buyer in the 1265-1270 area. That's it for now... as usual, I'll post any trades if I do go short...

Market Weaker After Tightening by the Bank of China

No major surprises in US News this morning, and so far no major market reaction:
December Retail Sales ex-auto +0.5% vs +0.6%
December Core CPI M/M +0.1% vs +0.1%
December Retail Sales +0.6% vs +0.7%
December CPI MoM +0.5% vs. +0.4%

Peoples Bank of China raised reserve requirements by another 50 basis points sending Asian and European markets lower. US markets also are down in overnight trading.

I was hoping for a gap up this morning which would have made for an attractive shorting opportunity. There is a good chance we get gap fill (from 1/11) today. That would bring the ES down below 1270. First we'll need to trade through minor support at 1274.

Key levels to watch today on the ES:
Resistance above at 1279-1280, 1284, 1290
Support below at 1274, 1269-1270, 1265

I am a buyer (intra-day) between 1265-1269 ES
I am a seller at 1279-1280

Market Weaker After Worse Than Expected Jobless Claims

Market sells off initially in response to 30,000 more jobless claims than consensus estimates.

Initial Claims 445K vs 415K
December PPI +1.1% vs +0.8%
December Core PPI +0.2% vs +0.2%
Continuing Claims falls to 3.879 mln from 4.127 mln
November Trade Balance -$38.3 bln vs -$41.0 bln

1290 is now a key level on the ES assuming we trade that high today or tomorrow. CPI, Retail Sales and Industrial Production due out tomorrow morning... I continue to like shorting new highs as we are approaching a short-term market top. Just remember, no defense on shorts in this bullish environment. Shorts now are speculative as there has been no break in this bull market's up-trend.

Ahead of the Data

Markets trading near yesterday's highs ahead of this morning's data with PPI and Jobless claims due out in 15 minutes (8:30am EST).

Watch the 1286-1288 price point (ES). I like shorts here assuming the data this morning's is not overwhelmingly positive.

Resistance above at 1285-1286, 1287-1288, 1290. So really, anywhere up to 1290 from the current high of 1284.50. If I have to pick a number it would be 1287

Support below at 1277, 1270, 1265

Market Gaps Up to New High

Markets strong this morning following strength overseas. Asian markets were up and European markets are currently trading higher. This new high does not come as a surprise, but should provide for a good odds shorting opportunity.

Levels to watch today on the ES:

Resistance above at 1280 and 1285
Support below at: 1277, 1273, 1269, 1265

Preparing for the 2nd Week of Trading in 2011

We entered the new year riding a relentless bull trend dating back to August 31st of last year. Since then, the S&P 500 is up 21%, the Dow up 16% and the NASDAQ up a magnificent 28%! In the run up since August 31st, there has only been one significant pullback, that coming shortly after Fed announced QE2 would inject $600 billion to purchase US treasuries. On November 9th, following new two year highs, the S&P pulled-back more than 50 points. The market chopped around for the remainder of November and has since seen a run-up of more than 100 points on the S&P 500.

So here we are trading at the highest levels since August, 2008 (before the financial meltdown). Although I am bullish overall as we begin the new year, I continue to support the view that the markets are presently forming a short-term top. The one thing that makes me skeptical that the top is already in, is that the consensus of traders seems to be waiting for this correction to begin. For this reason alone, I wouldn't be surprised to see one last run-up potentially to 1280 with a move to 1300 not out of the question. At the same time, the top may already be in at 1277.

Friday's decline, following the lower than expected gains in employment, saw a breach of the current up-trend channel dating back to the first week of December. Buyers did step in quickly to allow the markets to recover at least temporarily. It is however the first sign that the current up-trend could be in trouble. While the correction has not yet officially begun from a technical stand-point, I feel confident that it is coming. I will of course post it when I see it and I expect to see it officially begin this month.

Assuming that the temporary top is already in, my first target to the downside (ES) is 1236, 2nd target 1224, 3d target 1214 and the final and less-likely target is 1194.

That's my analysis heading into the next couple weeks of trading. As for my outlook for 2011, the bigger picture, I expect the bull market to continue. I expect price to hit the mid 1300s on the ES by mid 2011 and after that, there could be trouble. I'll comment as to why I see trouble looming in future posts. For now I won't look past the first half of 2011. In the short term I am cautious and ready for a small correction. Over the next 6 months, I am bullish...

Employment Situation Worse Than Expected

Official jobs report comes in under estimates with only 216,000 new jobs (both non-farm and private), 124,000 less than expected. The unemployment rate came in lower than expectations though at 9.4% versus 9.7%. We saw some quick selling come into the market following the report. ES traded down to the 1265 support and has now recovered and is holding steady back up at 1268.

This sets a negative tone for the day. I will be looking to sell the up-ticks. I think the employment situation is still bad, any gains are more likely a result of seasonal fluctuation and/or the result of expiring unemployment benefits.

Levels to watch today on the ES:
Resistance above at 1269-1270, 1275
Support below at: 1265, 1260-1261, 1256 and 1250-1251

Market Looking for Direction this Morning

The ES made new highs in overnight trading moving as high as 1277. This morning's jobless claims number was slightly worse than expectations and the market reacted by slowly selling off back down to yesterday's late afternoon consolidation range. I expect today to be more or less choppy ahead of tomorrow's employment situation. After yesterday's ADP jobs report, expectations will be high.

Key levels on the ES today:
Support below at: 1269-1270, 1264-1265 and 1259-1260
Resistance above at: 1275 and 1280-1281

If the ES were to trade down to 1265, I would be a confident buyer at that price...

Jobs on the Rise??

The ADP Employment Report beat expectations by a shocking 204,000 addition to private non-farm payrolls as the private sector added 297,000 jobs. This was the highest number in the survey's history. Expectations will now be high for the official non-farm payrolls report which will be published on Friday. It will also be interesting to see if jobless claims (reported tomorrow morning at 8:30am EST) decrease in concert with the ADP gains.

Price action has confirmed positive reaction to the ADP numbers as we saw a sharp rally following the report and a continuation to break through minor resistance levels to new intra-day highs this morning. We are now threatening to test yesterday's high and possibly Monday's high as well. I am more prone to buy the dips today than sell the rallies.

I continue to believe we are forming a short-term top in the market which will be followed a by a healthy correction down below at least the 50 day moving average on the ES Daily chart. But as usual, we need to wait for price action to confirm this and that has not yet happened. We are still in a bullish up-trending market that has not yet lost its legs. I will continue to watch...

Welcome 2011

And welcome back to my blog. If you were wondering why I didn't post in the last two weeks of December it is because the market was simply too boring to participate in. As you saw, the market traded in a very small average daily range on very low volume. There was one piece of eventful news last week when China announced that it raised interest rates a quarter of one percent. This had little effect on the markets as most traders were on holiday, although we did see a small and brief sell-off to open trading on Dec. 27th in reaction to the news.

But here we are beginning 2011 at new highs in both the Dow and S&P 500 Futures. I continue to await a correction in the markets though there are not yet any signs the short-term top is in. We will continue to scalp the market until we get a solid signal the correction has begun. It can begin at any time as we are trading into note-worthy resistance levels dating back to the lows of 2008. I won't be surprised to see continued momentum to the upside to begin January. It is similar to last year when the market was making new highs in December and higher highs into January. I'll continue to post it as I see it.

Items that I will be looking to focus on in 2011 are a further look at how Quantitative Easing (as well as the bond market and the budget deficit) will continue to affect the markets, Inflation, Gold (and the rest of the commodity markets), China and the devaluation of Fiat (paper) currencies around the world...

Best in the New Year, look forward to blogging, trading and above all else, living...