We have seen a nice gap up this morning after testing key support in the lower 1240s yesterday on the ES. On the second wave of the sell-off yesterday afternoon, the S&P 500 Cash Index bounced off S2 support exactly and saw a 20 point rally from there.
After making a brief new low in the GLOBEX session last night, the markets have caught a nice bid and are now testing upper resistance. I remain bearish overall as I believe there is still further downside in this market. However, as we have seen thus far, action is choppy. This bottoming process may take a little time to play out as multiple rallies and sell-offs are likely. In any case, I have not see any confirming evidence of a bottom yet and until I do, I will maintain my bearish stance.
Natural disaster in Japan and instability in North Africa/Middle East have been catalysts or excuses to begin exiting positions in an over-bought market. That, as well as anticipation of an end to QE2.
Today I like resistance at 1278-1283 and will look to get short there. A close above the 1280 level could indicate further upside potential. As long as we don't close above 1290, I will remain confident in shorting rallies into resistance.
Levels to watch today on the ES:
Resistance above at 1277-1279, 1283-1284, 1288-1289
Support below at: 1266-1268, 1259-1261, 1254-1255, 1248-1250, 1239-1241
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