Short ES at 1245.25

We are now up almost 100 points off the low from last Friday. Happened a lot quicker than I thought it could or would. Regardless of the bullish price action, I have to step in here and put a short on the table.

We have hit the prior support of the triangle pattern that broke down on 11/17. Not a bad play in terms of risk here. I expect a move back below 1230 ES. This is an aggressive trade because there is no confirming signal yet of a reversal... To enter this trade you have to be willing to take heat. I am willing.

We may consolidate up here for a bit before turning back down, but I do expect some profits to be taken off the table sooner rather than later...

Market Surging This Morning on Coordinated Central Bank Action

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

Result: Market up, Dollar down.

This is what I was referring to in the last paragraph of my previous post.

First Target Reached, Anticipating the Next Move...

First target of 1198-1200 ES reached. You can see how that area has acted as pretty good resistance. The ES has traded down almost 10 points off that price area 4 times now.

I expect that my second price target of 1218-1220 will be reached next. The key is choosing the best price point to look for long entries to try and catch this move. Ideally, an opportunity will present itself to enter long down around 1178-1179 assuming the ES trades that low. I will of course be careful defending long entries. Keep in mind, a daily close below 1171 will likely send the ES down to revisit the lower 1150s.

I will consider short entries at or above 1218-1220. The key is to wait for a good short entry signal. Maximum upside potential (in the next 5 trading days) according to my analysis is at 1245. I don't think we will trade that high, but it is possible. As long as we don't see a daily close on the ES above 1231-1232, I will like shorts at those price levels.

IN THE NEWS
Even though the market is up, there continues to be a lot of negative news.

• As final details of the EFSF come out, it is clear that it is not the solution to avert a crisis in the European debt situation.
  
• There are talks of a contingency plan to dissolve the Euro.
  
• Global GDP is declining while debt burdens become untenable.
  
• Standard & Poor's cuts ratings of Bank of America, Goldman Sachs, Citigroup and many other banks.
  
• Today, for the 4th time, the ECB failed to sterilize its ECB bond purchases. The ECB said that 85 banks bid a total of EUR 194.2 bln for seven-day term deposits. It had aimed to drain EUR 203.5 bln.
  

The reason I expect further upside amidst the negativity is because the market is expecting a plan to recapitalize the banks and to make sure bond interest rates don't spiral out of control in Europe. Whether money comes from the IMF, the ECB, the Fed, China or somewhere else is not important. Whether or not it actually happens is not important. What matters in the short-term is what the market expects. For this reason as well as for technical reasons, I expect we will see further upside in the market. As always, only time will tell...

Rumors IMF will Provide 600 Billion Euros to Prevent Italian Default. Markets Move Higher

Reports state that the International Monetary Fund is preparing a 600 billion euro ($799 billion) loan for Italy in case its debt burden worsens as a result of Bond yields continuing higher. This has put a bid under world markets. S&P 500 futures have been up over 2% so far in overnight trading.

I stated in my previous two posts that 1150 would hold as support on the ES and so far it looks like that is going to be the case. If you didn't get long on Friday, I don't know if it is the best idea to chase the market now. Waiting to buy a dip is the smart play. There is a chance that we see this morning's gap get filled down at 1153. However, there are no guarantees we will get another buying opportunity like that in the near-term and if it does happen, it will likely be on some sort of negative news.

My bias is to the upside and I believe the bottom is likely in for 2011. However, if reports refute the IMF loan to Italy, we could see more selling enter the market. Otherwise I will be looking to buy dips for the remainder of 2011.

We must keep in mind that the IMF Loan to Italy is not a sure thing. Lets not forget that a short while ago, political leaders in Europe said the EFSF would be leveraged to One Trillion Euros to safeguard against countries that might be at risk of defaulting on debt obligations. It later became obvious that there was nobody actually willing to provide this leverage to the EFSF. So while we may see some buying come in here on rumors again, that doesn't mean the trend is going to remain up.

First target is 1198-1200 ES.
Second target is 1218-1220 ES.

1152 remains a key level. My bias remains bullish as long as the ES does not see a daily close below 1152.

Market Breaks Down Further

I have not had a chance to post other than my comments on Monday. The 1180s support has obviously broken down since then. There were some nice opportunities to trade the consolidation range on Monday and Tuesday. Sellers ultimately maintained control with the looming debt problems in Europe and budget discussions here in the United States. Its not that the news is anything new, its just the fact that there have not been any positive counter-punches by policy-makers of late. So though the news supports the selling, it is highly technical as the market now heads toward the 61.8% retracement from October lows.

I like longs in the 1150-1156 zone on the ES. First test of this price range should provide a high odds chance for a bounce. A close below 1152 would be very weak and force me to rethink my long bias. By long bias, I believe the market will soon make a bottom in terms of trading for the remainder of the year. I am waiting to see signals that will confirm when this happens. Market remains weak in the immediate-term.

I will post more soon...

Volume Finally Comes in to Drive Price Down

Its been a tough few days as the market has chopped up and down in as misleading a way as possible. With low volume, there was just not enough participation to drive price lower. Bears needed to have conviction to profit in the past few days, and there were plenty of reasons to be confident on the short side. Specifically, bond yields in Italy and the rest of the PIGS are presenting warning signs that a default will be inevitable without intervention by the European Central Bank.

My first target on the ES of 1226-1227 should be hit this evening (up-trending support is actually at 1229 now). We may get a bounce from there, but I maintain my short bias and expect a move below 1200 is on the horizon. Next target is 1184-1186 ES. From there I expect support to hold. Maximum downside potential is around 1150 and if price does get that low, I will get long with confidence. At that point (when support confirms), I will be looking to buy the dips for the remainder of 2011.

Market Rallies This Morning After Comments by Chicago Fed's Evans

ES Rallied 9 points following comments by Chicago Fed's Evans who said he expects policy rate to stay "low for longer than mid-2013." For the short side to remain in play today, 1252-1254 needs to hold as resistance on the ES.

Italian bond yields are back above 7%. Yields this high are not sustainable in terms of Italy being able to meet their debt obligations. I remain biased to the short side.

Market Tries to Move Higher But Will Likely Move Lower First

The market behaved a little differently than I expected last week when the ES rallied off the lower 1220 support. I had mentioned in an earlier post that if the up-trending support (1218-1223) on the ES was tested for what would be and what was a sixth time, that it would likely not hold. I expected further selling to push the ES down into the 1180s. This did not happen (yet) and we saw buying move the markets higher to end the week.

The current rally has not changed my overall sentiment and I continue to be bearish in the near-term.

Resistance above on the ES at 1263-1264 and 1268-1270

1st target to the downside: 1226-1227
2nd target to the downside: 1184-1186

I am biased to the short-side and will look to sell rallies unless the ES can close above 1270. If that happens, the ES will likely test the 1290 resistance next.

Italian Bond Yields Continue to Soar. Markets Sell-Off

10 year Italian bonds now trading at 7.34%. The 3-10 year yield curve on Italian bonds is now inverted. Inverted yield curves almost always precede recessions. Contagion now has Spanish yields trading almost as high as 6%. Money has moved into the US dollar and US treasuries as their safe-haven status continues to be applied. Futures are gapping down significantly this morning.

Amidst this negativity though, it looks like a nice buying opportunity is presenting itself. I like long entries in the 1238-1240 price area on the ES. Be careful defending any longs if price goes below 1236 ES.

News that Berlusconi Will Resign Moves Market Higher

Berlusconi apparently will resign following approval of new budget law/austerity measures. As if the resignation of Berlusconi is the answer to Italy's financial troubles. Either way the market likes it in the short-term as the ES has now rallied a quick six points following the news.

ES has broken above the 1258-1262 resistance and looks like it will now hold above that level. There remains resistance at 1267-1272 above. As I have said, I expect choppy markets until ES tests the 1290 level or the 1180s. Seems likely the 1290s will be tested first...

Market Outlook Looking Forward

European situation ugly:

Finding the proposed $1 trillion Euros to fund the EFSF is in doubt. China would have the ability to make it happen, but there is no sign yet that they will commit to buying the EFSF bonds. Other Sovereign States and the Private sector could also contribute, but it remains to be seen how or who will finance the bailout fund. This does not even take into account that everybody knows the proposed $1 trillion is not even sufficient.

Italian bond yields continue to rise. The ECB hints at ending the purchase of Italian bonds if the Italian government does not do its part in promised budgetary reforms. Italian Prime Minister Silvio Berlusconi in jeopardy of being forced to resign. Portuguese, Spanish, French and Belgian bond yields also rising.

Unemployment continues to be a concern in the United states:

Unemployment fell in the US by .1%, but still remains over 9%.

U-6 (Total unemployed), plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force is at 16.2%

US employment is actually lower than it was 10 years ago

US Wages are rising slower than Core Inflation

Although the US labor force rose by 181,000 last month, the overall situation does not look great as the world economy is in a funk. I don't know where the employment opportunities can come from to put any significant dent on the current unemployment rate.

Amidst the negativity however, stocks are holding up well. Market has not yet seen a significant move to the downside following record gains in the month of October. It appears the October lows will hold up as support into the end of the year. Without significant new negative developments out of Europe, any dips will be buying opportunities throughout the remainder of 2011.

Right now:
Until price on the ES can confirm above the current 1258-1262 resistance, I favor the short side. We have up-trending support at 1220 ES which has been tested 5 times in the past month. I expect that a sixth test of this support (currently 1218-1223) will not hold. Therefore the next best long opportunity will present itself in the 1180-1190 range on the ES.

In terms of resistance above, I am watching the 1258-1262 price-area to begin this week. If buyers can move price through that, I like longs from there as price should move up to test the 1267-1272 resistance and then up to the previous highs. The best short opportunity will come if ES trades up to 1290. I will be looking to get short at the first test of this 1290 resistance. This should provide a minimum of a 40 point short play. Depending on news out of Europe, we could see a further move to the down-side. We'll have to wait and see.

To sum it up: I am slightly biased to the short side in the immediate-term. I expect a choppy market until the ES either trades up to 1290 or down to 1180. I will be a confident buyer down in the 1180s and will be a confident seller at the first test into the 1290s.

ES Hits Important Short-Term Resistance This Morning

Consider taking profits on any longs now after ES moves into 1245-1255 range. Although reaction has been strong to news out of Europe, I can't ignore the short term technical levels that should provide some selling opportunities. I prefer shorts today as long as we don't get a confirmed move above 1255 ES.

Watch FOMC Press Conference Live

Stream videos at Ustream

Not expecting significant reaction to the FOMC meeting today. Statements released so far are more or less in-line with previous statements. No new measures have been announced, though Chicago Fed President Charles Evans dissented by requesting more accommodation.

Some selling has followed the announcement.

In any case, Bernanke will speak live at 2:15pm EST. You can watch it live above.

European Headlines Drive Markets Again

The enthusiasm over the European debt deal was clearly over blown and following 4 straight weeks of gains, an overbought market has finally exhaled a bit.

Resistance held in the upper 1200s on the ES (as expected) and market sees nice decline to begin the week. ES down over 5% from Thursday's highs and is now hitting solid support in the 1208-1215 range. This is definitely a price-point to consider taking profits from any short positions. I like longs down here in the 1208-1212 range. But I'm not overly enthusiastic yet as concerns in Europe are forcing a risk-off mentality. Be careful defending any long positions as sentiment remains negative

A close below 1209 would be very weak and suggest further downside.

News influencing the current decline:

Greek Prime Minister Papandreou calls for Voter Referendum on EU Debt Deal forcing uncertainty over the legitimacy of the EU Bailout.

Italian bond yields soar to 6.1% bringing them back to levels seen in August when the ECB intervened. Looks like they have to intervene again?

China Purchasing Managers' Index (PMI) lowest since early 2009. You can blame this on weak European and US economies. A perfect illustration of the contagion effect on what is really a global economy.

I like the potential for a short-term rally down here off 1210 on the ES. However, we must be careful amidst the market negativity. The headlines out of Europe can make this 1210 support meaningless.